If you buy in outsourced information technology services for financial crime risk and compliance, this should get your attention.

Let's grab the headlines from iSignthis' website:

"
Technology is in our DNA

We develop proprietary technology to offer solutions that optimize the entire payments cycle, leading to faster and simpler onboarding and processing for both the benefit of merchants and end-users."

"
A compliance-first approach

All our products have been designed and developed to cater for the strictest regulatory requirements so that compliance works for you, not against you."

"We are publicly listed in the Australian and Frankfurt Stock Exchange (ASX: ISX | FRA: TA8) since 2015. As an independent card acquirer and e-money institution, it is our mission to offer services that make the onboarding and payment journey a better experience for both our merchants and their customers, with transparency and integrity."

Yesterday, ASIC that it " has commenced civil penalty proceedings in the Federal Court against iSignthis Ltd (iSignthis) (ASX: ISX) and its managing director and chief executive officer Nickolas John Karantzis."

The press release, shown unedited and in full on the next page, alleges serious questions about the ethics, competence and/or honestly of those running the company and, obliquely, its auditors.

The crux of the allegations are that iSignthis, in Australia, entered into agreements with three companies that resulted in income of AUD3 million (it calls it "revenue" but let's be clear what it really is). In respect of that, it issued 336,666,667 performance to its directors. However, it didn't put that income into its accounts and nor did it enter expenses that ASIC says were outsourcing costs related to those integration services.

Integration services are where software companies make a significant slice of their money: they sell a recurring service like a membership subscription; but they sell, in addition, the service of making their software "talk to" whatever hardware and software the customer uses. This is often a sizeable payment. It is commonplace for such services to be performed by so-called "integration partners" who, in some cases, are also resellers of the product which can cause a conflict of interest where the reseller's business depends on selling services that require more complex, and therefore more income generating, integration than those that might cost more but be simpler - and cheaper - to integrate.

In the case of iSignthis, ASIC says, the company made the sales, then paid a third party to integrate the service into the customer's systems. The unreported costs, it is alleged, were AUD2.85 million. That means that iSignthis retained only AUD150,000 for its software. MarketIndex.com.au says that the current price for iSignthis shares is AUD1.07 - and that the shares are suspended. The five year chart (here: https://www.marketindex.com.au...) shows that between December 2015 and December 2018, its price bumped along at around 20 cents. In Feb 2019, it had dipped to 15 cents. Then it started to climb, hitting AUD1.37 in September 2019 before disappearing from the charts in October at AUD1.07.

The allegations referred to above relate to activity in late 2018.

But it doesn't end there. Even though its shares have been suspended on the ASX for more than a year, the company's website continues to refer to it as listed. While technically that is true because a suspension is not a removal, it is misleading.

ASIC also alleges that iSignthis has been less than forthcoming about its relationship with card company VISA.

In March this year, that is five months after the suspension of its shares, VISA wrote to iSignthis saying that it was suspending iSignThis' access to the VISA network. On 17th April, VISA, in writing, terminated that relationship.

This is an extract from the letter in April: " IsignThis is not operating appropriate programs to manage Anti-Money Laundering and Risk. Therefore, in accordance with the Visa Rules, andto safeguard Visa’s global payment system from the excessive level of risk presented by the IsignThis relationship, Visa has decided to terminate its relationship with IsignThis in Europe and Australia. It must also cease acting as a registered third party for any other Visa members or clients."

In October 2020, the ASX issued a "Market Announcement" relating to iSignthis, using its market code of ISX, It is an extensive document with several attachments. For this reason we have not replicated it here. You can find it at https://newswire.iguana2.com/a... .

It reveals denials by iSignthis of the findings by VISA, of the information revealed by ASIC to ASX and a challenge to the legality of the release of that information. It also reveals a general failure to cooperate with the regulator. We must, of course, take the regulator's statement with a pinch of salt - it is naturally partisan and designed to paint the company and its officers in a bad light in anticipation of future action. Every regulator does the same. However, while the information maybe "side-lit" it cannot be false. We cannot, therefore, ignore the apparent stonewalling by the company, in which it appears to be saying "go on then, prove it but we'll deny everything."

Why does any of this matter? It matters because the core reason for VISA's decision was that this company, is a regulated financial services business in the UK. On 14th September, the company filed, with ASX, the following announcement "

14thSeptember 2020, London: iSignthis Ltd (“ISX”) is pleased to announce that its wholly owned UK subsidiary (“ISXUK”) was approved as an Authorised Electronic Money Institution (AEMI) by the UK’s Financial Conduct Authority (FCA) under the Electronic Money Regulations 2011.

Importantly, the AEMI provides ISX with full access and continuity to the key British market post BREXIT, and significantly extends the group’s regulatory authorisations.

The FCA’s UK authorisation allows ISXUK to issue, distribute and redeem electronic money,as well as to offer the complete range of payment services available under the Payment Services Regulations 2017.

ASX: https://newswire.iguana2.com/a...

So, where does this leave those looking to do business with iSignthis and its group of companies?

VISA says it won't do business with it because its financial crime risk and compliance controls are inadequate. The ASX says that is material information that should have been fully disclosed to the market. ASIC is taking proceedings based upon failure to properly report the company's financials and the VISA issue. The Group's shares have been suspended in Australia for a year

On the other side, in September 2020, iSignthis issued civil proceedings against ASX over the decision to suspend and "to continue to keep suspended" the company's shares, claiming damages of AUD464.7 million. In a statement to ASX, (here : ) this appears "The ASX has to substantiate its reasons for the suspension of iSignthis Ltd, based upon the facts as they were known to it on the 2nd October 2019. To date, we still have seen no evidence of any investigation into “price volatility” by the ASX, nor how price volatility could have been the reason for suspension." It is not, one suspects, tongue-in-cheek when "Mr Karantzis, CEO of ISX" (that's all the name that's used in the statement) says " It would seem inconceivable under the ASX’s own Listing Rules that the board of the ASX would consider this action as ‘not material’, especially given both the quantum and the impact any contravention of s1041H of the Corporations Act would have on theASX’s Australian market operators license (sic)."

Despite the suspension, iSighthis has pursued an aggressive expansion policy: In February 2020, it made a series of quick-fire announcements relating to NSX Limited including this - https://newswire.iguana2.com/a.... It's an announcement by the National Stock Exchange of Australia saying that iSignthis is to take a "strategic Investment" in NSX. It's 12.5% "via a AUD4.2 million placement at AUD0.145 per share. Karantzis again seems to be baiting the ASX when he said in that statement "With this investmentand iSignthis’ technology platforms, we have the capability to develop an Australian version of Nasdaq, and become a competitive alternative to the ASX."

Days later, it released this: https://newswire.iguana2.com/a... When looking at the logos at the top, remember that the document was issued before the termination of the VISA relationship. Also, remember that adding the UK's Information Commissioners' Office logo adds nothing: every company in the UK is expected to be be registered, even if it's only to declare that it does not hold or manage data.

And then there's this:

"iSignthis operates a sophisticated & patented real time anti-money laundering and anti-fraud system that also provides transactional security to business and retail customers. It includes PEP, sanction and law enforcement screening in real time against transactions."

Weeks later, VISA dumped them over weak systems and controls of that nature.