Stenn, a UK-based fintech company specializing in invoice financing, collapsed into administration in December 2024 following allegations of involvement in a Russian money laundering scheme. This development has raised significant concerns about the company’s business practices and the due diligence of its financial partners.

Background of Stenn

Founded in 2015 by Greg Karpovsky, Stenn offered financing solutions to small and medium-sized enterprises (SMEs) by purchasing their invoices at a discount, thereby accelerating cash flow. The company quickly gained prominence, securing partnerships with major financial institutions such as Citigroup, Barclays, and HSBC. At its peak, Stenn was valued at approximately $1billion.

Collapse Triggered by Money Laundering Allegations

The company’s downfall was precipitated by its mention in a U.S. criminal indictment concerning a Russian money laundering operation. This reference prompted HSBC Innovation Bank, one of Stenn’s creditors, to investigate potentially suspicious transactions. The investigation revealed that Stenn Assets UK received $1.7 million in October 2020 from a Singaporean company linked to Feliks Medvedev, a Russian national who pleaded guilty to operating an unlicensed money transmitting business that transferred over $150 million in Russian funds.

Implications and Consequences

Following the discovery of these irregularities, Stenn’s UK subsidiaries were placed into administration on December 4, 2024. The company’s financial liabilities were substantial, with Stenn Assets UK reporting total liabilities of $721 million at the end of December 2023.

The collapse has left creditors facing significant losses, with estimates suggesting a deficiency of approximately £123 million.

Additionally, the incident has cast a shadow over the fintech sector, highlighting the critical importance of robust due diligence and compliance measures in financial operations.

Stenn’s Response

Greg Karpovsky, Stenn’s founder and CEO, has denied any wrongdoing in connection with the company. He stated that he is cooperating with the administrators and expressed concern over the allegations against him.

The collapse of Stenn underscores the vulnerabilities within the fintech industry, particularly concerning the potential for involvement in illicit financial activities. It serves as a cautionary tale about the necessity for stringent compliance protocols and thorough vetting of business partners to prevent such occurrences.

Key factors that contributed to its collapse:

1. Suspected Fraud and Money Laundering: Stenn was accused of facilitating money laundering through its business operations, specifically related to Russian connections. This raised alarms in the industry, especially after the company was linked to a global money laundering investigation.
2. Unsustainable Business Model: The High Court ruled that Stenn’s business model was not viable in the long term. The company’s reliance on certain high-risk partnerships and questionable transactions became a major concern.
3. HSBC and Other Financial Institutions’ Concerns: Banks like HSBC began questioning the legitimacy of Stenn’s operations, which only added to the mounting pressure and contributed to its collapse.
4. Regulatory Scrutiny: Authorities, including in the UK, began investigating Stenn for potential regulatory breaches. As a result, the company faced stricter scrutiny, which further hindered its ability to operate effectively.

Impact on the Financial Sector

Stenn’s collapse has broader implications:

• Trade Finance Industry: The incident raises concerns about the security and trustworthiness of invoice financing and trade credit in fintech. It is likely that banks and other lenders will now impose stricter lending criteria, which could make it harder for businesses to access trade finance in the future.
• Investors’ Confidence: Investors may now be more cautious when supporting fintech startups in this sector, leading to tighter funding conditions for new companies.
• Comparison to Greensill: Stenn’s downfall echoes the Greensill Capital scandal, a financial collapse that similarly involved trade finance and led to the loss of billions of dollars.

Conclusion

The collapse of Stenn highlights the risks associated with the trade finance sector, particularly when a business model relies on dubious partnerships and financial practices. It also shows the importance of proper regulation and oversight in the fintech industry to avoid similar situations in the future.