List of the KNF's public warnings and money laundering

Despite the fact that more and more people start acknowledging the presence of cryptocurrencies in the modern world, many still doubt whether the activities carried out on cryptocurrency exchanges are legitimate. It is worth pointing out that, in spite of the decentralization of these institutions, they must meet the applicable legal requirements in a given country. In Poland, for instance, all suspicions regarding the lawfulness of the actions undertaken by financial institutions are reported to the Polish Financial Supervision Authority (KNF), which is obliged to create a list of public warnings.

What exactly is the list of the KNF’s public warnings?

The Polish Financial Supervision Authority is a body that ensures the orderly functioning of  financial institutions including electronic money institutions operating in Poland.

With users’ safety in mind, the Authority has introduced a list of public warnings commonly referred to as the “KNF’s blacklist”. The main idea behind  the creation of this list was to build trust to both the financial sector and the Supervision Authority itself.

Each consumer can find a list of public warnings on the KNF’s website. It comprises financial market entities for which the suspicion of committing a criminal offense was reported. The list mainly includes cases related to performing activities unauthorized by the Polish Financial Supervision Authority.

Until the high-profile scandal related to putting Amber Gold, a non-bank financial intermediary, on the list of public warnings, the list was managed by the officials of the Polish Financial Supervision Authority. They were responsible for detecting dangerous activities and subsequently registering them on said list. However, after the fraud scandal involving Amber Gold, the law was tightened up. Consequently, also the method of selecting suspicious enterprises had to change – from then on the Supervision Authority has been obliged to list all entities suspected of committing a crime.Such entry on the list may be made by means of the notification by the Supervision Authority or by a person who reports a case to the prosecutor’s office.

The standard procedure after putting an entity on the list of warnings is to notify the relevant authorities, i.e. the prosecutor’s office, of a suspected crime. This entails the initiation of criminal proceedings and the associated risk of financial penalties (even multi-million) or even imprisonment of individuals responsible for running the business.

Consequences of entering an activity on the list of public warnings

The entry is purely informative – the Supervisory Authority simply reports a notification on suspicion of committing a criminal offense, therefore the warning itself does not directly imply problems related to the functioning of the company. It is the decision of the prosecutor’s office issued after analyzing the case that states whether a crime has been committed.

The main problem for the listed institutions may be undermining their image. Clients using the services of a company that drew the KNF’s attention may suspend the current use of their services out of fear for the safety of their funds. There is nothing wrong with that, as long as we remember to carefully analyze all available information, preferably from multiple independent sources, before passing our own judgment. Being listed on the public warnings list does not spell the end of the company’s activity, it solely means that it will be determined whether its activity complies with the applicable law. Despite that, the “blacklisted” entrepreneurs are being stigmatized, they are exposed to public condemnation and rejection by society.

Examples of institutions included on the list of KNF’s public warnings:

• Amber Gold is a financial institution established in 2009. The company operated without required permits or supervision while offering to increase cash savings by a high percentage – people were supposed to make fixed-term deposits backed byprecious metals. It is worth noting that the Polish Financial Supervision Authority also did not grant Amber Gold a permit to conduct banking activities. Consequently, it was listed on the KNF’s blacklist already in the same year it was established. Amber Gold was closed only 3 years after it had been  put on the list of warnings. This means that, throughout this whole period, large amounts of dirty money may have flowed through the business.

• BitBay – was the first largest cryptocurrency exchange established in Poland. In 2018, the Supervision Authority registered its activity on the list of public warnings, alleging it was providing payment services without a permit.
  This resulted in BitBay’s headquarters being moved to Malta. In 2021, the company rebranded, which also involved changing the company’s name to “Zonda”. One of Zonda’s goals, apart from the popularization of cryptocurrencies, has become to regulate the market in Poland. The stock exchange obtained an Estonian license allowing it to provide financial services.
  In the interview with the founder of BitBay, Sylwester Suszekon, published on the BUSINESS INSIDER portal, we can read that, before announcing publicly that BitBay was placed on the list of warnings, none of the company’s management board members had been informed about this decision. It came as a shock, without any warning.

• Kanga Exchange is a Polish cryptocurrency exchange established in 2018. In addition to stock exchange activities, Kanga has expanded its services to include cooperation with exchange offices.
  At the beginning of 2022, companies (Good Investments LTD, BSSIP LTD, Good Solution Investments Limited) involved in the operation of the cryptocurrency exchange were put on the list of KNF’s public warnings in an alleged connection with conducting activities in the field of financial instruments trading without the required permit or authorization. The persons managing the companies were not briefed by the Polish Financial Supervision Authority on why they had listed  and had not been previously informed that such an event would take place.

List of the KNF’s public warnings – does it have anything to do with counteracting money laundering?

Money laundering is a process used by criminals who want to “clean” their money by separating it from their illegal sources of income so that it appears to have been obtained from the legitimate financial gains.

Among other things, the AML (Anti Money Laundering) Act is meant to ensure that people do not avoid paying taxes which, in turn, leads to the reduction of money laundering. It has a threshold for converting fiat currencies into digital currencies of 1,000 euros, beyond which user verification is required. Illegal sources generate higher revenue, so laundering money through cryptocurrencies can be even more difficult for potential criminals than through the banks.

It is worth to keep in mind that the AML Act does not interfere with the KNF’s list of warnings. Institutions that have been (or are still involved) in money laundering or are under the suspicion of committing this crime are not entered on the KNF’s list. It is due to the fact that the entry on the list of warnings does not qualify as a notification on suspicion of committing a crime of money laundering – this is dealt with by the General Inspector of Financial Information (GIFI).

When analyzing the cases of activities put on the list of the Supervisory Commission, it can be noticed that the entry itself constitutes merely the information for the general public, not a tool for combatting money laundering itself. There have already been cases of companies  being recorded in the list without any official justification from the Commission whatsoever. The actual level of crime and social harm in these vary from case to case and yet they are all treated in the same way. Without any clear information regarding  the allegations, it is difficult to respond to the situation or take any substantive action. As for the cryptocurrency institutions, the notification from the Polish Financial Supervision Authority  leads to changes in their respective business activities, so that they comply with the applicable legal provisions. In order to avoidany doubts regarding the activities of cryptocurrency exchanges in Poland, the concrete, pertinent regulations must be enacted in the first place.

Zuzanna Kwiecień
for Kanga Exchange