You’ve probably never heard of ePayments Systems Limited, an e-money firm based in London that counts the adult entertainment, affiliate marketing and crypto industries among its most important clients.
It’s actually one of the biggest digital payments companies in the UK. The FCA-regulated company has over a million individual accounts and over 1,000 business accounts, and has issued more than 75,000 prepaid cards as a principal issuer of Mastercard. According to Companies House filings, it booked profits of more than £18m on revenues of almost £28m in the year up to the end of April 2019, with a tasty 66 per cent gross profit margin.
On February 11, though, the company suspended all activity, having been ordered to do so for “an indefinite period” by the FCA after the regulator found “a number of weaknesses” in its anti-money-laundering (AML) controls. That has left ePayments’ customers unable to withdraw, transfer or deposit funds, or to use their prepaid cards for more than two weeks now.
ePayments posted the following statement on its website following the suspension:
On the February 11, 2020 ePayments Systems Limited (‘ePayments’) agreed with the Financial Conduct Authority (‘FCA’) to suspend all activity on its customer accounts. This decision was taken following a review, by the FCA, of ePayments anti-money laundering systems and controls, which identified weakness that required remediation.
We know this will be a very frustrating time for our customers. We apologise for any inconvenience caused and are working tirelessly to ensure improvements are made and accounts can be reactivated as soon as possible. During this improvement process, we want to assure customers that their funds are being safeguarded as normal.
Then last Monday, February 17, Robert Courtneidge, a non-executive director – one of three directors listed on Companies House – resigned from ePayments with no explanation. We contacted Courtneidge to ask why he had quit, but were told that he was not legally able to comment on the company. Courtneidge is an interesting character; more on him in a bit.
It’s unclear how much is stuck in customers’ accounts at ePayments, though as of April 2019, the company was holding £127.5m of clients’ money.
But we spoke to several upset customers, including one man in Turkey working in IT who said he had $54,000 stuck in his account which he said he needed to pay for his son’s crucial medical treatment; and one adult entertainer in Brazil who had just over $400 in her account which she said she needed to pay for tuition fees. (She posted erotic content on a site called “Only Fans”, which used ePayments to handle its payments and so many other users of the site, as well as other online adult entertainers, have been affected by the suspension.)
Several Telegram groups have been set up by customers who are unable to access their accounts as well as a Twitter account.
Most of the people we spoke to seemed unaware that their money would not be protected by any kind of deposit guarantee scheme should the company at any point become insolvent. “I thought it’s an FCA-regulated company – the money must be secured,” one UK-based ePayments user told us, who had saved up over £10,000 in his account for a deposit on a house.
The fiasco draws to light not just the obscurity of much of Britain’s digital payments industry, but also the lack of awareness among consumers of their rights when using these services. In the UK, deposits of up to £85,000 at banks, building societies and credit unions are covered by the Financial Services Compensation Scheme (FSCS), but deposits at e-money firms are not. (This means for example that although Revolut wants to be “the Amazon of banking”, it is not in fact a bank, and therefore deposits are not currently covered by the scheme.)
Because deposits aren’t guaranteed by the FSCS, e-money institutions such as ePayments are required by the FCA to adhere to a safeguarding regime, so that customers’ funds are protected should the company become insolvent.
And it appears to have been concerns over the rigour of ePayments’ safeguarding that actually first drew the FCA’s attention to the company, according to a source who has spoken directly to the regulator about this. This is part of a wider crackdown on e-money firms that last year saw an e-money firm called Ipagoo collapse into administration after an FCA suspension.
ePayments Systems was founded in 2010 by CEO Mikhail “Mike” Rymanov. In 2014, Rymanov went on to found a crypto exchange called Digital Securities Exchange (DSX), which acts as an appointed representative of ePayments and uses it to on-board its clients. We wrote about DSX back in 2018 after it reported a “security incident” and temporarily suspended all its activity. DSX says that crypto payments account for 20 per cent of all transactions at ePayments. (AML concerns at a company involved in crypto? We know. Crazy.)
ePayments’ crypto-connections go further though. Robert Courtneidge, the director who resigned following the suspension who is also the CEO of another London-based e-money firm called Moorwand, was also previously global head of cards and payments at law firm Locke Lord, where he was considered the expert on crypto.
Locke Lord is the law firm that was used by Dr Ruja Ignatova, who ran the massive OneCoin scam (and who is the subject of the excellent BBC podcast The Missing Crypto Queen – do give it a listen if you haven’t already). Mark Scott, a former partner in the firm’s US office, was in November found guilty of laundering $400m for OneCoin (making $50m for himself in the process) and now faces up to 50 years in jail.
The US government, which brought the case against Scott, has not accused either Locke Lorde or Courtneidge of any wrongdoing. But assistant US attorney Christopher DiMase told the court that prosecutors had reviewed certain emails between Dr Ruja and Courtneidge and that – although the prosecution did not allege Courtneidge was involved in the alleged conspiracy – the emails suggested that he “understood that OneCoin, effectively, was a fraud scheme”.
When asked about this, a spokeswoman for Courtneidge told us: “Mr Scott was relying on a generally available paper Mr Courtneidge had written on crypto currency regulation around the world that was available on the Locke Lord Website and not on any conversations had via email with Mr Courtneidge.”
A local court reporter tweeted the following image from the court case, which shows Dr Ruja emailing Scott and Courtneidge about depositing £220,000 in cash, back in 2016 (Dr Ruja went missing in 2017, shortly after law enforcement started getting involved):
We asked Courtneidge about his involvement in OneCoin but he said he was unable to comment. He suggested we contact David Grant, the managing partner of Locke Lord’s London office, who did not reply to our request for comment.
Epayments also did not respond to our request for comment.
Problems at a “regulated” Bitcoin business – FT Alphaville