Tuesday
August, 16

Nigeria FinTech Deals With Fallout From Kenyan Court’s Ruling

Nigerian financial technology firms are dealing with the fallout from a Kenyan court ruling freezing accounts and a Texas court’s decision to sentence the founders of Ping Express to prison for money laundering.

The four fintech companies are facing the greatest money laundering accusations the Nigerian fintech ecosystem has seen in a month, and this might affect how startups in the nation present themselves to foreign investors.

Many companies will now be forced, according to experts, to concentrate on tightening up sloppy Know-Your-Customer (KYC) and anti-money laundering (AML) processes.

According to Fraud.net, KYC refers to the due diligence that banks and other financial institutions must do on their clients before conducting business with them to stop corruption, identity theft, financial fraud, money laundering, and the financing of terrorism.

“AML and KYC standards are essentially the same throughout the world. However, in light of the numerous financial and technological advancements, in my opinion, they should be evaluated and their purview expanded to encompass all recently introduced and continually developing innovations, according to fintech lawyer Evalyn Gachoki.

Flutterwave, Korapay, and Kandor are battling for access to their accounts that have been frozen by the Asset Recovery Agency (ARA) of Kenya, while the Nigerian founders of Ping Express, a Texas-based fintech company, Anslem Oshionebo, and Opeyemi Odeyale, pleaded guilty on Saturday to failing to adequately guard against money laundering in a court in the Northern District of Texas.

The most severely impacted company is Flutterwave, which has 56 blocked accounts with Guaranty Trust Bank (29 accounts), Equity Bank (17 accounts), and Ecobank (6 accounts). $56 million was spread between the 56 accounts.

One of the accounts belonging to Korapay Technologies, with a balance of $249,565, as well as two accounts belonging to Kandor Technologies, with a combined value of $126,841, had their funds frozen.

Despite the internet companies’ insistence that they adhered to all legal requirements and KYC procedures, experts claim that cases of money laundering typically occur because KYC procedures may have been disregarded.

According to Victoria Crandal, the CEO and founder of No Filter PR and a tech PR specialist, “I’d argue bad KYC exposes them to fraud and non-compliance on AML.” “Growth and user experience are Fintechs’ top priorities, and KYC is seen as an afterthought. This helps to explain the fraud at MTN’s PSB and perhaps Flutterwave’s purported AML issues in Kenya.

The chairman of Edo Innovates, Victor Asemota, has a slightly different viewpoint. He claims that because the government owns identification, KYC is not a fintech issue. Fintechs must prioritize KYC since they have little control over-identification.

For many years, we have assisted MTN in conducting AML on their mobile payment services. The same is true with Flutterwave; they take it very seriously. Settlement is misunderstood by regulators. Tech hiccups are a common occurrence, Asemota noted.

Other experts assert that when tech businesses attempt to trick the regulator, problems with anti-money laundering occur. For instance, merchant category codes(MCC) facilitate merchant transactions.

Credit card firms utilize an MCC, a four-digit number, to categorize enterprises. A company that offers both products and services will often reflect the industry that generates the majority of its revenue. Businesses might ask for more MCC for a certain area of their operations. For instance, a pharmacy that also has a food shop nearby is likely to house many MCCs inside the same structure.

Each transaction has a code, and each merchant has a distinct ID. Certain codes generate an alert when merchants initiate transactions, such as gambling and pornography. The Nigerian Interbank Settlement System (NIBSS) is typically expected to be aware of when a merchant is doing a certain transaction.

However, abuse does occur occasionally. Simply changing the code whence the transaction is originating and using another code that diverts attention is all that merchants would need to do to assist consumers in moving money. Some businesses frequently get away with it, but others do not.

Many nations, including Nigeria, where the Nigerian Financial Intelligence Unit is in charge of combating money laundering and terrorism financing, have robust anti-money laundering policies; yet, there are some places where enforcement is more stringent.

According to various persons with an understanding of the subject, Kenya is one of them. At a conference sponsored by Visa in April, Kenya’s Central Bank Governor Patrick Ngugi Njoroge stated that the nation was stepping up compliance as part of efforts to fortify the nation’s financial system.

The Proceeds of Crime and Anti-Money Laundering Bill, which aims to update the present Proceeds of Crime and Anti-Money Laundering Act, 2009, was published in the country’s Gazette in September 2021.

The Act’s definition of “reporting people” is broadened under the proposed legislation. Advocates, notaries, and other independent legal professionals who work as sole practitioners, partners, or employees of professional firms will now be subject to Part IV of the Act’s requirements to monitor complex, unusual, large, or other transactions and to report any that may be related to money laundering.

The measure also aims to provide the center the power to halt a transaction if there is evidence of suspicious conduct for a maximum of five working days. The center will have enough time to look into the transaction as a result.

In addition, the bill aims to include clauses that will restrict the right to privacy guaranteed by the Kenyan Constitution of 2010 in matters about the investigation, prevention, and detection of money laundering and terrorism financing.

A legal compliance expert who spoke to BusinessDay under the condition of anonymity said that the current Kenyan anti-money laundering statute permits ARA to retain the funds in the frozen accounts until its investigations are complete. At the lower court, this might entail 45 days, and at the upper court, 90 days.

To be honest, this whole issue is unclear. The startups are not completely blameless. However, it’s not as straightforward as Nigerian founders defrauding. They’re not that dim. In actuality, there are several security gaps in hallways that are beyond their control. The government typically sets KYC.

ID cards, BVNs, and NINs are all issued by the government. According to Henry Ojuor, founder in residence at Startupbootcamp, a worldwide startup, and innovation accelerator for startups, corporations, and governments, if the government doesn’t tighten up its process, people would take advantage and the consequence will reflect on the fintech processing value.

READ MORE: UK Banks Hikes Interest Rates To Contain Inflation

An unnamed tech expert told BusinessDay that enforcement frequently depends on the jurisdiction’s regulatory priorities for cross-border payments.

“Despite the advancements made by Nigerian fintech companies, it is difficult to obtain public information about their operations from the CBN or NIBSS.

Nigerian fintech may not be accepted in stringent regimes due to incentives and possible loose domestic laws. The accusation against the impacted companies is not specific to Nigerian fintech and, dare I say it, is not motivated by jealousy, the expert claimed.

While the businesses maintain their innocence, they nonetheless have a difficult time getting access to the money in those accounts.

Companies like Flutterwave must deal with increasing merchant resentment the longer monies are in ARA’s possession.

This money is not the property of these businesses. They are supplied to them by merchants, and a patient can only put up with you for so long, the compliance officer added.

In a statement, Kandon Technologies identified itself as a startup in the financial services industry that provides liquidity management, treasury solutions, alternative trading, and associated financial services. According to the business, it has enabled transactions for a number of its partners that are engaged in the legal business, and it has records of these transactions that are readily available and verifiable.

The business claimed that it had always complied with all relevant regulatory obligations in its dealings and worked with regulatory organizations to maintain compliance. We promise to keep collaborating with oversight organizations and all important parties to establish our innocence and clear the record.

On its part, Korapay claimed that it put the money in its recently opened bank account to meet the Central Bank of Kenya’s (CBK) capital requirement for getting a license to operate as a payment service provider and remittance operator. This sum was held steady until the license was issued by CBK standards. According to the firm, the $250,000 deposit is the only action taken on that account thus far.

One of the possibilities being considered by the companies is to file a lawsuit and seek the court to order ARA to deposit the money in assets or accounts that pay interest so that the companies can access the interest and meet their obligations to their merchants.

According to Evalyn Gachoki, government organizations like ARA must involve stakeholders, regulators, and fintech professionals to uncover any gaps.

“Anti-money laundering regulations were established long before the advent of fintech. The regulations need to be updated to take into account the numerous financial solutions technology has brought about, according to Gachoki.

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Nigerian financial technology firms are dealing with the fallout from a Kenyan court ruling freezing accounts and a Texas court’s decision to sentence the founders of Ping Express to prison for money laundering.

The four fintech companies are facing the greatest money laundering accusations the Nigerian fintech ecosystem has seen in a month, and this might affect how startups in the nation present themselves to foreign investors.

Many companies will now be forced, according to experts, to concentrate on tightening up sloppy Know-Your-Customer (KYC) and anti-money laundering (AML) processes.

According to Fraud.net, KYC refers to the due diligence that banks and other financial institutions must do on their clients before conducting business with them to stop corruption, identity theft, financial fraud, money laundering, and the financing of terrorism.

“AML and KYC standards are essentially the same throughout the world. However, in light of the numerous financial and technological advancements, in my opinion, they should be evaluated and their purview expanded to encompass all recently introduced and continually developing innovations, according to fintech lawyer Evalyn Gachoki.

Flutterwave, Korapay, and Kandor are battling for access to their accounts that have been frozen by the Asset Recovery Agency (ARA) of Kenya, while the Nigerian founders of Ping Express, a Texas-based fintech company, Anslem Oshionebo, and Opeyemi Odeyale, pleaded guilty on Saturday to failing to adequately guard against money laundering in a court in the Northern District of Texas.

The most severely impacted company is Flutterwave, which has 56 blocked accounts with Guaranty Trust Bank (29 accounts), Equity Bank (17 accounts), and Ecobank (6 accounts). $56 million was spread between the 56 accounts.

One of the accounts belonging to Korapay Technologies, with a balance of $249,565, as well as two accounts belonging to Kandor Technologies, with a combined value of $126,841, had their funds frozen.

Despite the internet companies’ insistence that they adhered to all legal requirements and KYC procedures, experts claim that cases of money laundering typically occur because KYC procedures may have been disregarded.

According to Victoria Crandal, the CEO and founder of No Filter PR and a tech PR specialist, “I’d argue bad KYC exposes them to fraud and non-compliance on AML.” “Growth and user experience are Fintechs’ top priorities, and KYC is seen as an afterthought. This helps to explain the fraud at MTN’s PSB and perhaps Flutterwave’s purported AML issues in Kenya.

The chairman of Edo Innovates, Victor Asemota, has a slightly different viewpoint. He claims that because the government owns identification, KYC is not a fintech issue. Fintechs must prioritize KYC since they have little control over-identification.

For many years, we have assisted MTN in conducting AML on their mobile payment services. The same is true with Flutterwave; they take it very seriously. Settlement is misunderstood by regulators. Tech hiccups are a common occurrence, Asemota noted.

Other experts assert that when tech businesses attempt to trick the regulator, problems with anti-money laundering occur. For instance, merchant category codes(MCC) facilitate merchant transactions.

Credit card firms utilize an MCC, a four-digit number, to categorize enterprises. A company that offers both products and services will often reflect the industry that generates the majority of its revenue. Businesses might ask for more MCC for a certain area of their operations. For instance, a pharmacy that also has a food shop nearby is likely to house many MCCs inside the same structure.

Each transaction has a code, and each merchant has a distinct ID. Certain codes generate an alert when merchants initiate transactions, such as gambling and pornography. The Nigerian Interbank Settlement System (NIBSS) is typically expected to be aware of when a merchant is doing a certain transaction.

However, abuse does occur occasionally. Simply changing the code whence the transaction is originating and using another code that diverts attention is all that merchants would need to do to assist consumers in moving money. Some businesses frequently get away with it, but others do not.

Many nations, including Nigeria, where the Nigerian Financial Intelligence Unit is in charge of combating money laundering and terrorism financing, have robust anti-money laundering policies; yet, there are some places where enforcement is more stringent.

According to various persons with an understanding of the subject, Kenya is one of them. At a conference sponsored by Visa in April, Kenya’s Central Bank Governor Patrick Ngugi Njoroge stated that the nation was stepping up compliance as part of efforts to fortify the nation’s financial system.

The Proceeds of Crime and Anti-Money Laundering Bill, which aims to update the present Proceeds of Crime and Anti-Money Laundering Act, 2009, was published in the country’s Gazette in September 2021.

The Act’s definition of “reporting people” is broadened under the proposed legislation. Advocates, notaries, and other independent legal professionals who work as sole practitioners, partners, or employees of professional firms will now be subject to Part IV of the Act’s requirements to monitor complex, unusual, large, or other transactions and to report any that may be related to money laundering.

The measure also aims to provide the center the power to halt a transaction if there is evidence of suspicious conduct for a maximum of five working days. The center will have enough time to look into the transaction as a result.

In addition, the bill aims to include clauses that will restrict the right to privacy guaranteed by the Kenyan Constitution of 2010 in matters about the investigation, prevention, and detection of money laundering and terrorism financing.

A legal compliance expert who spoke to BusinessDay under the condition of anonymity said that the current Kenyan anti-money laundering statute permits ARA to retain the funds in the frozen accounts until its investigations are complete. At the lower court, this might entail 45 days, and at the upper court, 90 days.

To be honest, this whole issue is unclear. The startups are not completely blameless. However, it’s not as straightforward as Nigerian founders defrauding. They’re not that dim. In actuality, there are several security gaps in hallways that are beyond their control. The government typically sets KYC.

ID cards, BVNs, and NINs are all issued by the government. According to Henry Ojuor, founder in residence at Startupbootcamp, a worldwide startup, and innovation accelerator for startups, corporations, and governments, if the government doesn’t tighten up its process, people would take advantage and the consequence will reflect on the fintech processing value.

READ MORE: UK Banks Hikes Interest Rates To Contain Inflation

An unnamed tech expert told BusinessDay that enforcement frequently depends on the jurisdiction’s regulatory priorities for cross-border payments.

“Despite the advancements made by Nigerian fintech companies, it is difficult to obtain public information about their operations from the CBN or NIBSS.

Nigerian fintech may not be accepted in stringent regimes due to incentives and possible loose domestic laws. The accusation against the impacted companies is not specific to Nigerian fintech and, dare I say it, is not motivated by jealousy, the expert claimed.

While the businesses maintain their innocence, they nonetheless have a difficult time getting access to the money in those accounts.

Companies like Flutterwave must deal with increasing merchant resentment the longer monies are in ARA’s possession.

This money is not the property of these businesses. They are supplied to them by merchants, and a patient can only put up with you for so long, the compliance officer added.

In a statement, Kandon Technologies identified itself as a startup in the financial services industry that provides liquidity management, treasury solutions, alternative trading, and associated financial services. According to the business, it has enabled transactions for a number of its partners that are engaged in the legal business, and it has records of these transactions that are readily available and verifiable.

The business claimed that it had always complied with all relevant regulatory obligations in its dealings and worked with regulatory organizations to maintain compliance. We promise to keep collaborating with oversight organizations and all important parties to establish our innocence and clear the record.

On its part, Korapay claimed that it put the money in its recently opened bank account to meet the Central Bank of Kenya’s (CBK) capital requirement for getting a license to operate as a payment service provider and remittance operator. This sum was held steady until the license was issued by CBK standards. According to the firm, the $250,000 deposit is the only action taken on that account thus far.

One of the possibilities being considered by the companies is to file a lawsuit and seek the court to order ARA to deposit the money in assets or accounts that pay interest so that the companies can access the interest and meet their obligations to their merchants.

According to Evalyn Gachoki, government organizations like ARA must involve stakeholders, regulators, and fintech professionals to uncover any gaps.

“Anti-money laundering regulations were established long before the advent of fintech. The regulations need to be updated to take into account the numerous financial solutions technology has brought about, according to Gachoki.

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