FinTelegram, as well as, Law Enforcement Agencies and victims’ lawyers have always argued that payment service providers should be held responsible for their participation in scams. In the United States, authorities and lawyers have long applied this as a working practice. This legal view should now be confirmed by the courts in EU jurisdictions. The first actions in this regard are currently being decided by the competent courts. A landmark ruling has now been issued in Germany.
Payment Services Provider and their liability
To this day, payment service providers such as Payotech Ltd (Payobin), Moneta International UAB (now Brüc Bond UAB), Payvision or Moorwand defend themselves against the respective legal view that they should be held responsible for the damage caused to retail investors in the fraudulent binary options and broker scams. Of course, they are liable to the defrauded investors if they neglected their legal and regulatory duties. In any case, if as scam or its perpetrators were identified they should have stopped services and should have reported them to the authorities. This for sure is the case if public warnings by financial market regulators against scams and the people involved were already issued.
Payment service providers are obliged to exercise greater care than a “normal” company. They must proceed with appropriate care in the Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. This is now also the view of the courts in the EU.
German Court confirms PSP liability
Most recently, a German court in Ulm upheld a claim against PayPal filed by a victim of an illegal casino who used PayPal to deposit funds with the casino operator. The court explicitly confirmed PayPal’s responsibility and ordered the company to reimburse the loss to the customer of the illegal casino.
In the judgment, the court even affirms the payment service provider’s obligation to check individual payment transactions and the respective receivers in order to identify fraud or illegal activities.
The judgment is not yet final. PayPal has announced that it will carefully analyze the verdict and may file an appeal.
However, we are convinced that the verdict will stand. It will still take a few years but at the end of the court cases around the binary options and broker scams, the payment providers involved will be held liable accordingly and they will have to make repayments to the victims.