When a small startup bank registered on the little-known Caribbean island of Dominica became a pandemic-era success story, it captured the attention of international financial media with its advanced digital banking software, intuitive mobile applications, friendly compliance, and one-of-a-kind, fiat-to-crypto rails. For the first three years of its operation, Migom Bank rapidly grew its client list, expanded the scope of its services, and assiduously reported its mounting profits to the SEC via its US-based, publicly-traded holding.
Then, in late 2022, this string of successes suddenly stopped. Operations ground to a halt as Migom tried to reinvigorate bank customers, sending them upbeat messages and promises to resume services within weeks. While occasional transactions continued, the bank’s operations had ceased with little explanation. What happened, and why did this promising startup hit an operational wall?
The Cause of Migom Bank’s Decline
The bank’s holding company stopped reporting to the SEC in the last quarter of 2022, at the same time as the operations stoppage. As a result, there was little available information through any trustworthy public domain. Migom had not released any official statements, and their customer service, which had initially co-hosted with the failing Latvian Baltic International Bank, all but stopped communicating with the clients by the spring of 2023.
The predominant explanation was centered around the collapse of the Lithuanian EMI Transactive Systems UAB and radical changes to the compliance policy of Incore Bank, both of which had provided Migom Bank with correspondent banking services.
Despite this confluence of misfortune, they were not unusual, and the bank had almost a year to establish the replacement correspondent ties. Why had they not accomplished even that? Was it because of the overall change in attitude from the global banking community towards Caribbean banks? Was it because of ineptitude in the bank’s management team? If nothing had worked for such a long time, why did the bank not enter insolvency and liquidation while client withdrawal requests mounted?
Where were the funds after all this turmoil, and why had management been so secretive about everything that had happened since November?
Massive Success Leads to Missteps
We tried to locate and interview the bank’s current and former insiders to glean some answers to these open questions. It was not an easy task considering that the bank’s offices and operations have been scattered to the Caribbean, USA, Europe, and UAE. As a result, we were able to reconstruct the series of unfortunate events that led to the current dead end facing the bank.
Rapid growth is typically a “good problem” if properly managed, but this latter point cannot be said about Migom Bank. Investigations confirmed that Incore Bank’s 180-degree change of attitude and the collapse of Transactive Systems torpedoed the operations of Migom Bank. Still, the reasons the bank failed to establish any substitute correspondent structures were hardly a problem of macroeconomics. The bank’s management couldn’t pass the “scratch and sniff” tests of the potential correspondent compliance due to personal history, feats while in charge of Migom Bank, and previous controversial business engagements.
Then came the Latvian bank failure, a purge of Russians from sales and support teams, and rushed consolidation of control. Blinded by its double-digit growth, over $750M market capitalization, and NASDAQ listing ambitions, Migom’s management made at least two decisions in 2022 that punched a big hole in the bank’s own capital and client deposits. Profits were spent on a buyout of the controlling stake in the bank’s holding company, whereas the ill-fated investment in Baltic International Bank made Migom dip deeper into customer deposits.
Client Deposits Serve as Piggy Bank
We still don’t know how much client money was spent on that failed investment and repairing its aftermath. Banks all over the world lend and invest client capital for profit, an act that is supported by sophisticated and heavily regulated schemes. With the relatively lax regulation in Dominica, Migom had almost unchecked power to access and use its deposits for commercial purposes, which seems to be exactly what they did in 2022.
Along with bad investments and an ambitious buyout of control, Migom’s management decided to consolidate client services in Latvia, severing ties with the initial group of Russian sales associates and client support teams, which had contributed to the bank’s early success. By the third quarter of 2022, the bank had emptied its own coffers, dipped into the client funds, lost its correspondent network, and discarded its sales team. No new customers were coming in, which management had hoped would fill the widening deposit deficit.
As if this death spiral was not enough, the management at the time decided large bonuses were in order.
Management’s Increasing Obstinacy
So where is Migom now? We still do not know where the rest of the client capital is. Migom’s management continues to claim bizarre and hard to believe happenings, and the prevailing theme, despite their own clear mistakes, is to “blame Russians.”
We asked former Transactive and Incore Bank’s employees for comments and both unequivocally confirmed that the Swiss-Austrian and UK management had sole control of the client accounts at all times. So what happened then? More bad investment decisions that management is unwilling to disclose? Considering that in some private dialogues, management alluded to a certain “cold wallet” where all the client funds were supposedly held, was this a crypto-related loss? Perhaps this is simply the past catching up with management and their ambitions.
Migom’s COO had been associated with a top Russian oligarch family in the UK. The bank’s President was allegedly part of a long-lasting scandal involving nefarious Russian and Bulgarian entities. We were told by one source that the President had recently been named a suspect in a pan-European criminal investigation related to an alleged Ponzi scheme involving a former customer.
Solutions Arrive, But is it Too Late?
In any case, the current stalemate will unlikely last. Dominica financial regulators have stepped up and imposed administrative controls on the bank’s operations and pushed a restructuring plan involving outside investors, competent management, and conservative business strategies. Regulators are also making every effort to protect the interest of depositors and have negotiated a viable bailout package that is ready for implementation.
Yet despite the clear and constructive directions given by the Dominica regulators and their assistance in bringing in outside help, management continues to resist, making every effort to drag out negotiations to reset and restart operations. One thing is clear: no matter how hard management tries to shift blame, create distractions, and avoid communication with customers, it is their problem to resolve.
The future seems to be with the Dominica regulators and their ability to breathe new life into Migom Bank. It is up to management whether they will cooperate or oppose them.
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