UT/2023/000092 - [2024] UKUT 00035 (TCC)

The first point to address is the significance of Mr Scanlon’s arrest and the criminal complaint brought against him. Nvayo’s submissions seek to distance the alleged conduct from Nvayo’s activities in the UK: the conduct related to former PMA Group and the period of complaint did not go beyond 2019 but largely concerned periods prior to Nvayo’s business starting back up in 2018. Nvayo thus argues the complaint “with exception of any continuing involving of Mr Scanlon himself in Nvayo’s business, [has] no relevance to Nvayo or the UK”.

There is, rightly, no dispute that conduct referred to in the USDoJ complaint are at this point unproven allegations. However, looking at the complaint in its own terms, I consider it is wrong to downplay its relevance to Nvayo’s business and Mr Scanlon’s continuing status as UBO of Nvayo. As Mr Temple’s submissions highlighted, the criminal complaint did refer to particular instances involving Nvayo. The complaint mentions a series of transactions undertaken for an Aurae Lifestyle customer in or around June 2019. Earlier, the complaint alleges that the AU Entities used various bank accounts to provide money transmitting services to their customers without properly registering with the relevant US regulatory body, FinCen. The example is given of a customer, referred to as “Customer-2”, wiring approximately $3.5 million to an account controlled by the AU Entities for the purpose of purchasing bitcoin. The complaint mentions the customer had a previous 2001 conviction for wire fraud and had more recently settled a Ponzi-related civil enforcement action with the SEC in 2023 in relation to violations occurring between 2015 and 2017. Mr Scanlon is said to have instructed several AU Entity employees “including the Financial Controller of Nvayo Ltd. (the “Nvayo Controller”)”, to wire money to through various Bank accounts to complete the transaction. It is said that “The Nvayo Controller later emailed Scanlon to confirm that a payment request of $2.6 million from Nvayo to Bank-2 had been requested”. Read on its own terms it is not possible to say the conduct alleged to have taken place does not involve Nvayo.

Mr Auld argues that to the extent any of this presented a risk to Nvayo’s new potential customers then that risk was dealt with by Mr Scanlon’s removal from any management involvement in the business back in May 2023. I agree with the Authority however that these steps did not address Mr Scanlon’s continuing status as UBO. Mr Temple was right to emphasise that the statutory scheme under the EMRs (analogous to the “controllers” regime under Part XII FSMA) envisages that owners, by virtue of their role as such, are expected to be fit and proper. Mr Scanlon, as owner, continues to have all the rights that status brings. The fact an owner is not involved in the management of the business does not divest them of their status as owner. In fact, it can be seen that the EMRs (see [7] above) specifically distinguish, on the one hand “the directors and persons responsible for the management of its electronic money and payment services business” from those with qualifying holdings on the other. Consumers, including potential consumers, of e-money institutions ought rightly to expect, given the regulatory framework which surrounds such institutions, that a firm they transact with is trading in a “broadly compliant manner”. That would include the reassurance that the business’s owner has been assessed to be fit and proper.

Nvayo’s arguments that a sale of Mr Scanlon’s interest is imminent, do not in my view provide sufficient comfort. Nvayo’s skeleton (filed on 9 January 2023) expressed the understanding that a sale would be completed by the date of the hearing (17 January 2023) but that proved not to be the case. In his oral submissions Mr Auld said that Nvayo’s solicitors, Trowers & Hamlin LLP, were instructed by AU Card LLC on the sale (which would effect the disposal of Mr Scanlon’s interest in Nvayo) and that the change of control notice had been drafted. (He also clarified the sale would not involve a right to repurchase – something which had been a source of concern to the Authority). Nevertheless, and putting aside the lack of evidence put forward on these matters, the fact remains that as things stand, the sale is yet to be finalised. Mr Scanlon remains the UBO. Moreover, as the Authority reminds the Tribunal, any sale would be subject to any new owner being cleared by the Authority as fit and proper.

Mr Auld also indicated in submissions that Nvayo’s legal team understood that the USDoJ and Mr Scanlon’s lawyers were presently discussing whether there was (or was ever) any proper basis for the US charges and that there were discussions on dropping the charges altogether. Again, putting aside the lack of evidence in relation to this, as things stand at present, the US charges remain.

Mr Auld emphasises the matters in the criminal complaint are accusations not facts. The Authority rightly acknowledge the presumption of innocence and do not suggest the facts alleged in the complaint are proven. The Authority does however point out that Nvayo, in its solicitors’ letter of 17 October 2023 to the Authority recognised that:

“if Nvayo was submitting a new application for authorisation as an EMI (or a change in control notification in respect of [Mr Scanlon] becoming a UBO), both would likely be rejected by the FCA.

…Furthermore, Nvayo has always recognised that it would need to assess [Mr Scanlon’s] position once the disposition and outcome of the U.S. charges was known. As the matter stands at present, the Nvayo board would likely conclude that [Mr Scanlon] is no longer suitable to be its UBO.”

The fact that the US charges remain to be determined should not be overlooked. But the nature of the criminal allegations are serious, and their context - money transmission - relates directly to the same type of business as carried out by Nvayo, and on some points specifically refers to Nvayo. Potential Nvayo customers and the public more generally would rightly be concerned if a firm ultimately owned by a person who remained subject to serious criminal allegations, relevant to the business type of the firm, could still take on new clients without any restriction.

It should also be noted that the relevant restriction on carrying out new business is not expressed in absolute terms. Incorporated within the requirement is a provision that Nvayo’s activities may recommence when, amongst other matters, the Authority’s concerns around Mr Scanlon being the UBO have been adequately mitigated. There is thus already recognition of the potential for the situation to evolve.

Another significant factor to consider in assessing whether consumers are not prejudiced by a suspension is the notification of withdrawal of service by Nvayo’s last remaining bank account provider. The account will, pursuant to that notification, close on 28 March 2024. Prejudice would arise to the new customers who put their money into an account that would have to be closed and returned in short order. (The Authority also points out under Regulations 2 and 51 of the PSRs Nvayo must give payment services users two months’ notice of termination of its contracts.) In the absence of any alternative bank offering the required safeguarding facilities the relevant focus shifts to assessing the prospect of the sole present safeguarding account with the Bank being retained. Mr Auld submitted, on behalf of Nvayo, that it was confident the Bank could be persuaded not to close the account.

There appears to me at present, however, no firm foundation for that confidence. The Bank advanced three reasons for closing the account (see [20]). Putting aside the Authority’s requirements, the other two reasons the Bank referred to appear no closer to being resolved. As indicated above, Mr Scanlon remains as UBO and as things stand there is no firm indication as to when he will be able to divest his ownership. While I was told Nvayo had legal opinions addressing the Bank’s concern (that reverse solicitation of customers raised EU regulatory licence issues) it was not clear to me what exactly had been provided to the Bank since 22 December 2023, that would not have been apparent earlier, or that whatever would now be provided would be sufficiently persuasive to assuage Bank’s concerns and get it to reverse its stance.

Nvayo argue the Authority should not be able to rely on the bank account difficulties when it was the Authority’s actions in imposing the supervisory requirements which precipitated those difficulties. However, as Mr Temple pointed out, the supervisory requirements represented only one of the three reasons for the Bank’s notice of closure. Also, at this stage of the Rule 5(5) analysis, the tribunal is not concerned whether the Bank are right to adopt the stance they have, or who was responsible for them adopting that stance. It is the fact that the Bank have adopted such position, and the likely prejudice that will cause to consumers (in terms of the lack of ability to fulfil the required safeguarding of client funds) if the taking on of new business were to be resumed that is relevant.

In view of the combined concerns regarding the UBO and the bank account I am not satisfied the persons intended to be protected by the notice under Rule 5(5)(a) (who include future consumers of the firm) would not be prejudiced if the requirement were to be suspended and new business were to resume. This is not a situation where no significant risk arises because Nvayo would be able to take on business in a broadly compliant way. Its UBO, who has had serious criminal allegations made against him remains as UBO, and in addition the only remaining safeguarding bank account is set to close with no reasonable certainty at this point that that concern will be reversed or addressed by alternative means of safeguarding. (As the effect on such persons intended to be protected (under Rule 5(5)(a) is reason enough to not be satisfied, I do not address the Authority’s further concern that granting a suspension would prejudice the smooth operation and integrity of market (Rule 5(5)(b))).

As regards Nvayo’s arguments that the Authority’s AML concerns do not justify the restriction on taking on new business I am not persuaded those are made good on the basis of the evidence as explained below. Nvayo also argued that the presence of the Skilled Person would address any concerns but that argument, putting aside that the Skilled Person has not been appointed as at the date of the hearing, is premature. The Skilled Person’s review, once completed, and crucially once the recommendations had been implemented, ought to give rise to a situation where any AML systems and controls concerns impacting on the taking on of new business are mitigated. But the mere presence of the Skilled Person in the business while their review is in progress would not address any concerns that remained in the interim pending the finalisation of the Skilled Person’s review and the implementation of their recommendations. It also would not, in any case, address the prejudice in terms of the UBO not changing and the concern regarding the last safeguarding bank account closing.