Payroll startup Deel accused of money laundering, sanctions failures in Ponzi scheme lawsuit

Deel, a human resources and payroll startup founded by MIT alumni Alex Bouaziz and Shuo Wang, has been accused of a money laundering lawsuit alleging its involvement in a Florida-based Ponzi scheme.

The suit claims Deel facilitated fund transfers tied to the fraudulent operation, prompting questions about the company’s anti-money laundering (AML) and sanctions compliance protocols.

The Information reported that a federal lawsuit filed in Florida last week accuses Deel of facilitating financial transfers for a Ponzi scheme allegedly defrauding elderly church members, as outlined by the Securities and Exchange Commission.

“Payroll startup Deel is hit with lawsuit alleging gaps in money-laundering and sanctions controls. In a lawsuit filed in federal court in Florida last week, Deel was accused of transferring money for a Ponzi operation the Securities and Exchange Commission says ripped off elderly church members,” The Information reported.

The Deel Backstory

Founded in 2018 by MIT alumni Alex Bouaziz and Shuo Wang, Deel provides a platform designed for remote teams and businesses working with global remote contractors.  Deel’s services include localized compliance, automated payments, contract management, tax form templates, invoicing, receipts, and customer support. Deel’s promise has always been to simplify global hiring, making it easier for businesses to expand their reach.

Deel’s platform solves the largest logistical challenges that come with moving to a distributed, global workforce: payroll and compliance. Onboarding and paying workers across borders is complex, with specific currency and labor law requirements that vary by country. It can be both costly and time-consuming.

“We’ve squashed the conventional notion that there’s a particular radius in which you can attract talent,” said Deel co-founder and CEO, Alex Bouaziz said back in 2020. “By bridging localized compliance and payments and then automating it, we are making a complex and manual process seamless and redefining U.S. companies’ hiring pool to literally include qualified candidates from anywhere.”

Financial Dealings Under Scrutiny

This isn’t the first time Deel’s financial practices have come under the microscope. A previous investigation by the Commodity Futures Trading Commission (CFTC) revealed Deel processed over $72 million in payments for MyForexFunds, a trading platform accused of running a Ponzi scheme. Between late 2021 and late 2022, Deel reportedly handled over 40,000 transactions for MyForexFunds, serving more than 15,000 of its customers.

Deel clarified that this represented less than 1% of its total revenue and said it ceased working with MyForexFunds as soon as regulatory concerns surfaced.

Fintech Challenges in Compliance

The case underscores a broader challenge for fintech companies: maintaining rigorous compliance standards to prevent misuse of their platforms. Lapses in AML and sanctions oversight can lead to significant legal and reputational risks, and Deel’s involvement raises questions about its safeguards.

A Look Back at Deel’s Rise

Deel first made headlines in 2020 after raising $30 million in Series B funding, led by Spark and Andreessen Horowitz. The platform aimed to empower businesses to hire globally without legal hurdles. Its impressive list of backers includes YC Growth Fund and prominent angel investors like Nat Friedman, Ryan Petersen, John Zimmer, William Hockey, and Alexis Ohanian.

As Deel navigates these legal challenges, its future could hinge on how it addresses compliance issues while maintaining its position as a leader in global payroll solutions.