On June 13th 2013, Acre’s Public Prosecutors were granted an injunction against TelexFree. Amongst other things, this injunction saw TelexFree face fines of R$100,000 a day ($42,500 USD) if they signed up any more Brazilian affiliate investors or paid out any existing ones.

Since then it’s been an open secret that top Brazilian affiliates have instructed their downlines to resign with TelexFree fraudulently using bogus details. Typically the credentials used suggest that Brazilians signing up as TelexFree investors are doing so from the US.

As of yet Acre’s Public Prosecutor’s haven’t made a move on this issue, although the Judge handling the case recently demanded TelexFree hand over their affiliate database.

Suggesting that an investigation is underway and fines might be forthcoming, TelexFree lawyer Andé Andrade summed up the current situation to iG:

I have no way of knowing if your registration is made by you from Brazil or by someone who lives in the United States.

Telexfree does not accept registration of affiliates in Brazil. We are very clear about it.

Now, if you are on the site (…), and put in U.S. data, with a (credit) card that is registered in the United States, I have no way to say whether you are who you say you are. I can not investigate whether you are who you say you are.

iG note that TelexFree ‘deny responsibility for any payments made ​​by the company to affiliates in Brazil‘. They also observe that it’s entirely possible to select Brazil as a country of residence when depositing investment funds with TelexFree’s payment processor, i-Payout.

The payment system used by the company, called an eWallet, also allows the indication of Brazil as a place of residence.

Debit cards used for withdrawals, according to affiliates, can normally be sent to Brazil and used for withdrawals at least seven Brazilian banks.

According to Andrade, Telexfree International does not have to control these transfers.

“The payments are made ​​using international credit cards. (As TelexFree) I do not have to know what the fate of that payment is,” said the lawyer.

“As Telexfree, I have no control over the issuance of debit cards [ through the eWallet]. They have control over shipping it somewhere as they are the company operating the card.”

Sorry what?

I’d wholly agree that it’s not up to TelexFree’s affiliates to investigate whether or not the new investors they are recruiting are Brazilians signing up with fraudulent information, but it’s certainly the responsibility of the company.

June was eight months ago, and you’re telling me TelexFree is still officially claiming it has no idea where it’s affiliates are signing up from?

One of the first things they should have implemented was a photo ID check, or at the very least some “Know Your Customer” controls.

Know your customer (KYC) refers to due diligence activities that financial institutions and other regulated companies must perform to ascertain relevant information from their clients for the purpose of doing business with them.

Know your customer policies are becoming increasingly important globally to prevent identity theft, financial fraud, money laundering and terrorist financing.

KYC controls typically include the following:

-Collection and analysis of basic identity information (referred to in US regulations and practice a “Customer Identification Program” or CIP)

-Name matching against lists of known parties (such as “politically exposed person” or PEP)

-Determination of the customer’s risk in terms of propensity to commit money laundering, terrorist finance, or identity theft

-Creation of an expectation of a customer’s transactional behavior

-Monitoring of a customer’s transactions against their expected behaviour and recorded profile as well as that of the customer’s peers

You and I know that bit in bold is precisely why TelexFree haven’t implemented even the most basic Know Your Customer policies. For a lawyer of theirs to claim they have no responsibility to do so or even the capability to implement any such identity checks is absolute horseshit.

Quite clearly a daily fine of $42,500 would qualify the signing up of a Brazilian affiliate investor as “risk” that should be evaluated.

And with Acre’s Public Prosecutor’s Office confirming two days ago that the IRS are investigating TelexFree in the US, TelexFree’s lack of Know Your Customer policies becomes even more significant.

And if they’re going to hide behind their ewallet, then it begs the question as to what i-Payout are doing. If Brazilian affiliates are signing up on fraudulent details then i-Payout clearly don’t give a crap who is sending and transferring money through them either.

The impression I get is that, as long as new investor money continues to flow in from all corners of the world, nobody at TelexFree appears concerned where the money winds up or how it’s distributed through the scheme.

Andrade did not admit that Telexfree still continues to make payments or registrations to Brazilian affiliates. He stated he also does not know if new Brazilian investors may end up having their invested funds frozen, as did those who invested before the June injunction, but argues that TelexFree will continue to “pay everyone who works for us daily”.

Sounds to me like enforcing the terms of the Acre injunction are long overdue.

If TelexFree can’t be bothered implementing adequate KYC policies to effectively prohibit Brazilian investors from jumping on board, I’m sure coughing up $40,500 USD a day in fines will get them motivated quick smart.