Russian sanctions and compliance in 2022 with Payoneer
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What
Payoneer is a financial institution specializing in SMB and enterprise payouts. It facilitates marketplace payments for platforms like Amazon, eBay, and Walmart; and it also helps SMBs and freelancers across the world get paid in their local currency. Founded in 2005, Payoneer is publicly traded, and has grown to allow its users to receive payouts in 32 currencies.
Following the Russian invasion of Ukraine, US-imposed sanctions expanded to include newly Russian-occupied territories in Ukraine such as the regions of Donetsk and Luhansk. While many financial institutions opted for a wholesale withdrawal from Ukraine to avoid compliance mistakes, Payoneer has continued making payments to Ukrainian SMBs and freelancers, creating a complex, dynamic compliance response in the process.
Why
Micheal Sheehy, Chief Compliance Officer at Payoneer, framed the company’s decision to remain in Ukraine in both pragmatic and moral terms. The payments giant has a significant presence with employees in the country, and, as a major freelance hub, Ukraine is a key market. “People are actually working and they need to get paid,” Sheehy added. “We're one of the only providers still making payments into the market and local currency, so we feel like we have an important role in keeping the economy going.”
How
In the face of headwinds, Sheehy described compliance frameworks for large companies as cruise ships—seemingly hard to turn and pivot. But by building in-house compliance technologies, rather than by partnering with compliance solutions (which tend to specialize in B2C or P2P use cases), Payoneer has the ability to tweak its processes at faster speeds, making it easier to stay up to date on rapidly shifting compliance needs.
In the case of Ukrainian sanctions, that means needing to regularly update where political borders lie. The US Office of Foreign Assets Control (OFAC), which enforces sanctions, enacted sanctions on Russian-occupied provinces of Ukraine rather than an entire country, which makes sanctions compliance more complicated. Payoneer can’t just block country-specific IP addresses (the way it does for North Korea, for instance), and has to look more specifically at the location of a user. This can cause headaches when Ukrainian internet service providers route data through occupied territories, even if a user is in Ukraine-controlled territory, requiring Payoneer to verify users’ addresses through refugee cards or other documentation.
Payoneer has between 10 and 15 employees solely dedicated to Ukrainian compliance. At the same time, the company is phasing out operations in Russia, both due to political and ethical concerns, as well as due to the growing difficulties of routing payments into the country.
Geopolitical uncertainties have forced Payoneer to tweak its monitoring and compliance tools in other respects as well. Because of foreign-exchange volatility, more users are keeping their balances in dollars to ride out the storm, and they often store their balances within Payoneer (which is a positive development for the company). The team has also seen more businesses make payments in full for large orders because of inflation; making half payments on signing and then when goods are shipped can make orders more expensive in local currencies. Sheehy’s team has adjusted its risk engines to reflect these new realities.
Finally, Payoneer’s compliance team is tracking developments between China and Taiwan, especially the potential for a military conflict. “We're monitoring that situation very closely to see what happens,” Sheehy said. “Obviously, that'd be quite impactful to our business.” It’s also gearing up for an uptick in financial crime due to a recession, and will continue monitoring for unusual activity or unexpected payments to jurisdictions with higher financial crime rates. “The truth is in the transaction,” Sheehy concluded.
