In a significant regulatory action taken earlier this month, the New York State Department of Financial Services (NYDFS) imposed a $1.25 million fine on Payoneer, Inc., a subsidiary of the publicly traded Payoneer Global Inc., for what it termed "apparent sanctions violations." This development highlights the regulatory perils facing financial institutions in a globalized economy.

Payoneer is known for its electronic platform facilitating cross-border payments. In 2016, Payoneer learned that it had processed a payment in 2016 to a bank in Crimea, apparently contravening a sanctions program enforced by the Office of Foreign Assets Control (OFAC). In a proactive move, the company disclosed this breach to OFAC and initiated a comprehensive internal review, suspending bank transfers to Russia and examining transactions from the previous five years.

The outcome of this lookback was sobering. According to NYDFS, Payoneer learned that between 2013 and 2018 it processed 2,220 transactions, amounting to nearly $794,000, in apparent violation of multiple OFAC sanctions. It is important to note, however, that these transactions represented a minuscule fraction of Payoneer's global operations.

The consent order details the alleged inadequacies of Payoneer's sanctions screening program, pointing out flaws like insufficient algorithms and oversight failures. These lapses, according to NYDFS, were symptomatic of "unsafe and unsound business conduct" under New York Banking Law § 44, and a breach of 3 NYCRR § 417.2(c), which mandates effective OFAC compliance programs.

NYDFS acknowledged the company's cooperative stance during the investigation and its concerted efforts to enhance sanctions compliance. Consequently, in calculating the monetary penalty, NYDFS took into account the company's voluntary remedial actions.

This case serves as a cautionary reminder for fintech and payment companies about the importance of maintaining robust compliance programs. To avoid similar penalties, companies should work closely with legal counsel to ensure their compliance programs are effectively designed and implemented. Regular audits, improved screening tools, dedicated resources, and ongoing employee training are critical for identifying and addressing potential vulnerabilities in compliance with sanctions and other regulatory requirements. Proactive engagement with legal counsel can significantly reduce the risk of facing such fines and safeguard against operational and reputational damages.

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