PacNet is aware of the indictment issued in the United States District of Nevada against its former employees Rosanne Day, Paul Davis, Renee Frappier and Miles Kelly. The indictment is factually flawed; PacNet and its former employees intend to fight the charges and prove their innocence. As the indictment notes, the allegations are focused on a small number of PacNet’s clients who actively worked to deceive PacNet about their activities. PacNet is in the same position as any bank or financial institution in this regard.
The indictment ignores the fact that in other cases, the U.S. Department of Justice has relied upon the effectiveness of PacNet’s compliance regime precisely to prove that certain clients actively engaged in deception to evade PacNet’s compliance program. The indictment further ignores the fact that multiple departments of the Canadian Government, major global financial institutions and auditing firms were provided full access to PacNet’s business records and client roster as part of their ongoing reviews. These entities conducted regular and detailed audits of PacNet’s operations and compliance program. Inexplicably and unbelievably, the indictment also completely ignores the fact that PacNet provided multiple confidential reports to a law enforcement agency of the Canadian Government about certain clients while simultaneously the U.S. Justice Department now alleges that PacNet conspired with those very same clients.
PacNet never knowingly processed payments for any fraudulent direct mail solicitation. PacNet stands by its rigorous compliance program. Moreover, PacNet previously cooperated with the U.S. Government to transfer client funds into the court registry after the U.S. Government identified some clients alleged to have engaged in fraudulent behavior. Having agreed to this transfer of client funds, the U.S. Government is now engaged in an attempt to obtain a court ruling saying that they, the U.S. Government, had no power to enter into the agreement.
On 24 February 2021, Judge Azrack of the District Court for the Eastern District of New York dismissed the interpleader action and indefinitely stayed the unlawful attempt to cause forfeiture of PacNet's bank accounts in a case against a third party. The judgment is seriously wrong as to the applicable law and both aspects are being appealed to the Second Circuit Court of Appeal.
PacNet Services was created in 1994 to serve a growing need among catalogue sales companies and international publishers to accept payment in their customers' home currencies.
In 1994, "globalization" was a buzz word, and many companies within the US and around the world were wondering how best to tap into opportunities to sell their products internationally.
The internet was in its infancy; direct mail was the primary vehicle for international sales and cheques were the preferred method of payment. PacNet, one of the world's first international fintech companies, provided a way for companies to accept cheques in their customers' home currency, yet receive funds in their company-designated bank account quickly and without high fees.
As globalization continued apace and more and more companies recognized the opportunities presented by international markets, PacNet added payment services such as multi-currency card processing, bank transfers and cheque issuing to facilitate international e-commerce and consumer refunds.
PacNet Services was a well-respected, cutting-edge, fully licensed and compliant international payment processing company, among the first to recognize the importance of providing consumers and businesses with convenient local-currency payment options. The company ceased doing business on 22 September, 2016.
On 22 September 2016, the United States Government, Department of Treasury’s Office of Foreign Assets Control designated PacNet Services, approximately 33 group companies and subsidiaries, and 12 individuals as a “Transnational Criminal Organization” and added their names to its list of Specially Designated Nationals. As a result, it was impossible to continue business and the Group commenced an orderly shut-down of all its business activities.
The designations were based on an allegation that PacNet Services conspired in fraudulent activities of “Direct Mail” marketers active in the United States and elsewhere. PacNet and its officers vigorously deny the allegation and have presented factual evidence to OFAC that the action was unjust and undeserved. No accusations or allegations whatsoever were made against Chexx Inc or Counting House. They were, nevertheless, included in OFAC's actions.
Prior to September 22, 2016, neither PacNet Services nor its affiliates, directors, or officers had ever been accused—much less charged and convicted—of any criminal offense arising from its business activities. To the contrary, PacNet Service's history of compliance and cooperation with law enforcement agencies and anti-money laundering initiatives was publicly recognized and appreciated.
Over the following 12 months, the group debated vigorously with the Office of Foreign Asset Controls to remove the affected directors' and employees' names from the SDN list. Despite each person being removed from the list with unprecedented speed, the reputations and livelihoods of the affected individuals were irreparably damaged by OFAC's actions. The negative consequences, including Civil Forfeiture actions, endure to this day.
The consequences of OFAC's actions have been catastrophic. Reputable companies were destroyed, careers were ruined, financial services have been denied to those named to the list, hundreds of people were affected by the loss of their job or the job of a supporting family member. Legal cases continue to be argued in jurisdictions where OFAC's allegations have been incorrectly interpreted as evidence of wrong-doing.
A surprising number of organizations believe that OFAC is a judicial body and that companies or individuals named to their list of sanctions have been charged and tried or otherwise given due process. However, this belief is incorrect, as many jurisdictions are slowly beginning to understand.
Despite OFAC's designation of the PacNet Services Group of Companies as a Transnational Criminal Organization and the sanctioning of 12 PacNet employees, no PacNet Services company nor any employee, director or shareholder of any PacNet Services company had ever been charged with any crime, in any jurisdiction, at any time in PacNet Service's history.
On 19th September 2017, OFAC and the PacNet Services Group signed an agreement under which OFAC would remove all remaining entities and individuals from the SDN list. There was no fine, no penalty, and no agreement by the companies that any wrongdoing had occurred. However, on the insistence of OFAC, the agreement did include a clause which prevents the PacNet Services Group of Companies from suing OFAC for damages.
The PacNet Services Group is in the process of dissolving the companies in an orderly manner. Any client funds in which the US Government claimed a law enforcement interest were paid under an Interpleader action into the District Court for the Eastern District of New York.
Incredibly, after PacNet Services filed the interpleader in compliance with its agreement with OFAC, the US government attempted to seize client funds. PacNet received court permission to file a complaint and request censure of the US Government's actions and some of the individual lawyers involved. A former Chexx Inc client, i-Payout, joined the court action in support of PacNet's complaint. Click here to read PacNet Service's reply brief to the District Court of New York.
On 26 October 2017, OFAC announced removal of the entire PacNet Services Group of Companies from its sanctions list. However, the announcement lacked the sensationalized media coverage dedicated to the original designations. There has been a disappointing lack of media curiosity and discussion regarding OFAC's unprecedented and outrageous actions in designating PacNet Services, a reputable organization with no criminal history, as a Transnational Criminal Organization and its subsequent speedy removal of all associated individuals and companies from its list.
The US Government’s attempts to further damage PacNet Services using unauthorized procedures did not end with their withdrawal of the ill-considered, incorrect and unlawful OFAC sanctions in 2017. In late 2019, attorneys for the Eastern District of New York attempted to cause forfeiture of the very same PacNet money that had been authorized by OFAC to be paid into the District Court as part of the interpleader agreement. The government seized those funds ex parte then attempted to justify their action by adding them to the forfeiture in a case against an individual named Ryan Young, who had a relationship with some former PacNet clients. This is contrary to the unanimous decision of the US Supreme Court Honeycutt v. United States, 581 U.S. ___, 137 S. Ct. 1626 (2017) that forfeiture “is limited to property the defendant himself actually acquired as the result of the crime,” and it was made more egregious by its failure to serve proper notice of the proceedings on PacNet.
Acting within the statutory time periods, PacNet Services filed a petition to remove the attempt to forfeit its funds from the Ryan Young forfeiture case. The government failed to respond to PacNet’s petition within the 60 days allowed, and on May 19, 2020, PacNet filed a motion to grant the petition with the District Court as it was unopposed. Click here to read PacNet’s Motion to Grant Petition which outlines the government’s wrongdoing in more detail.
Undeterred, the US Government persisted with its unlawful forfeiture attempt. Although Young’s plea stipulated a forfeiture of $1.5 million in total, over $6 million more from PacNet bank accounts was illogically sought to be included. The Government’s pleadings ignored the Supreme Court’s decision in Honeycutt, and attempted to persuade the court to make a decision based on older cases which are no longer valid having been over-ruled. PacNet Services was forced to respond in a further letter to the District Court which can be read here.
From 2010, PacNet Services was engaged in litigation with the Irish government over a particular delivery of cash. In a resounding High Court judgment delivered after nine years on January 25, 2019, Mr. Justice Simons ruled that the preceding four years of proceedings were unnecessary and disposed of the case entirely in favour of PacNet.
Mr. Justice Simons also ordered the Director of Public Prosecutions to pay the full costs of the applicant parties, which are substantial.
As a knock-on effect of the OFAC sanctions and inaccurate press reports, freezing orders were placed on company assets in three jurisdictions: Ireland, the Isle of Man and the United States. The American orders were lifted with the removal of OFAC sanctions. On 3 September 2018, the IOM Court lifted its freezing order, ruling that there was no demonstrated connection with any illegal activity whatsoever.
In February 2021, after a two-year battle, highly respected District Court Judge Ezzat dismissed an application by the UK’s National Crime Agency for forfeiture of approximately USD 2.5 million of PacNet’s funds and ordered their immediate return. His Honour criticized the Agency for relying on American authorities' allegations instead of looking at the evidence and forming an impartial view. He specifically found that with respect to fraud allegations, the amount of fraud involved in transactions processed was no more than would typically be expected within the volume of transactions processed.
On 30 April 2021, District Judge Ezzat handed down a costs award in favour of PacNet of approximately GBP 104,000. His Honour stated in awarding this substantial sum out of the public purse that, had the NCA done a proper review of the evidence, it should never have brought the case.
On 27 April 2021, after an investigation commenced in 2018, the Law Society of Ontario issued its final determination of a complaint brought against PacNet General Counsel Dr. Paul Davis. After consideration of a complaint bought by the Law Society itself and information provided by solicitor Declan O’Reilly of the Irish Criminal Assets Bureau, the forensic investigation concluded with a ruling that there was no evidence of professional misconduct by Dr. Davis. The file was closed.
In concert with the illegal actions of the US authorities in September 2016, the Irish Criminal Assets Bureau took out freezing orders against PacNet’s European branches. In addition, forfeiture actions against PacNet corporate assets commenced in 2017 and against property owned by Dr. Davis and his family in 2018. In all, some €4.6 million of assets were claimed.
On 19th July 2022, almost six years later, settlement agreements were executed by all parties, becoming Court Orders two days later. Pleadings filed in the case amounted to some 17 large volumes, including an extensive expert report demonstrating the absence of illegitimate funds in PacNet’s hands and PacNet’s granular compliance with KYC and Due Diligence procedures for financial services companies. Throughout all proceedings, PacNet Group and its officers strenuously denied any known involvement in offences allegedly committed by their clients. In the 2017 proceedings, to avoid further litigation costs, PacNet agreed to contribute €600,000 towards the CAB’s expenses. This is undoubtedly considerably less than the costs incurred by the state for the investigation and litigation. Accordingly, the 2018 proceedings were entirely abandoned, considering the settlement of the 2017 case.
Within the agreement, PacNet Group and its officers promised not to take any actions against the Irish state respecting losses or damage suffered due to the actions taken.
The OFAC designation was ill-considered, incorrect, and unlawful. The investigation leading to the OFAC designation was marred by impropriety, incompleteness, and a failure to consider contrary and strongly exculpatory facts readily available to, and in the possession of, the United States Government.
The consequences of OFAC's actions to the PacNet Services Group of Companies, their employees and each of the individuals originally named to OFAC's sanction list have been catastrophic and unjust. OFAC's actions have also unfairly impacted clients, banks and unrelated companies within the fintech sector. OFAC's allegations are commonly interpreted as evidence of wrong-doing. It is wrong to assume that OFAC is a judicial body and that companies or individuals named to their list of sanctions have been charged, tried or otherwise given due process.
PacNet's designation and recent unrelated OFAC actions strongly suggest that, rather than being used as an emergency measure to address threats to national security, as required by federal law, OFAC sanctions are being used inappropriately to further non-security agendas.
Below are links to the official de-listing notifications for each PacNet Services related individual or entity named in OFAC's press release of 22 September 2016. All individuals and entities originally named to the OFAC sanctions list were removed from the list between the dates of 16 February 2017 and 26 October 2017. No PacNet Services Group related entity or individual remains on the list.
26th October, 2017
4th October, 2017
22nd August, 2017
21st June, 2017
6th June, 2017
16th May, 2017
6th April, 2017
16th February, 2017