iSignthis says it's compliant, ducks questions
Jonathan Shapiro and Vesna Poljak
Sep 25, 2019 — 12.00am
Payments unicorn iSignthis assured the market it "adheres [to] or exceeds" its regulatory requirements, but a series of transactions that triggered alerts at Danish bank KAB last year remain unexplained.
Shares in iSignthis fell 10 per cent to 94¢ on Tuesday after a joint investigation by The Australian Financial Review and Danish business publication Børsenrevealed that KAB received 26 alerts relating to foreign transfers in and out of the account of iSignthis eMoney.
The alerts related to unusually large foreign transfers and were triggered between June 14 and July 23, 2018; 10 of 14 alerts in June related to payments into the iSignthis subsidiary account and 10 of 11 alerts in July related to payments out of the account.
The alerts coincided with the end of the 2018 financial year in which escalating revenue milestones had to be met in order for all of 336 million shares to be issued to vendor iSignthis BVI, whose operations became the basis of the listed iSignthis as part of a "backdoor listing" in 2014.
KAB, or Københavns Andelskasse, was a small co-operative with no branches and €41 million ($66 million) in deposits that has been reported as the largest money laundering scandal on Danish soil. On Friday, Denmark's State Attorney for Special Economic and International Crime launched a formal investigation into the lender for breaching anti-money laundering laws.
It was deemed by the Danish Financial Supervisory Authority to lack effective measures to prevent money laundering.
Analyst support
In response to questions on Monday seeking an explanation of the flagged transactions and why iSignthis elected to bank with KAB, iSignthis boss John Karantzis said he was prevented from commenting on the alerts. He added, however, that the media inquiries acknowledged that the company "had high turnover and volumes."
This observation was also noted by Patersons Securities research analyst Martyn Jacobs, who told clients in a note that reports were "supporting evidence of high transaction volumes and values, suggesting support for the revenues claimed by ISX during that period."
Mr Jacobs maintained his $2.07 share price target.
iSignthis, which provides identification and payment services to gambling and online trading platforms, told the exchange that it operates an extensive anti-money laundering platform and that it is "working with regulators to make sure it adheres [to] or exceeds regulatory requirements during this growth phase".
It volunteered that it reports key statistics on a monthly basis and raises suspicious activity reports with regulators when they occur.
In Tuesday's market update, iSignthis also said it had restated the accounting treatment of funds held on behalf of two clients whose own funds had been frozen by the Australian Securities and Investments Commission.
The clients in question are OT Capital and Trader Q, according to a report in The Sydney Morning Herald, which said ASIC was heading to court to appoint liquidators to the two firms.
Working with ASIC
ASIC obtained interim injunctions against the brokers in February 2018 and said in a statement at the time that their conduct was "misleading or deceptive and/or unconscionable."
iSignthis clarified that the merchants were no "longer active customers".
Late on Tuesday, a statement issued by ASIC said its inquiries had led iSignthis to decrease funds held on "behalf of merchants classified as current assets and current liabilities by $6.3 million to $2.3 million as at 30 June 2018."
The regulator stated that "off balance sheet accounting remains a focus area for financial reporting at 30 June 2019."
iSignthis had disclosed in its accounts that it moved $4.7 million off its balance sheet, after the freezing of funds meant they no longer qualified as assets.
iSignthis also clarified that the ASIC court action and freezing of funds had no impact on the company's profits and its net assets. It held $34 million of client funds on balance sheet at June 30, 2019.
Shares in iSignthis have surged by more than 10 times this year as its market capitalisation exceeded $1 billion. The stock was added to the S&P/ASX 300 Index on Monday.
