The Impact of Fake News on the Financial Market: The Case of Maltese Papaya Ltd

In February 2024, inspections took place in Germany, Malta, and Latvia, targeting potential money laundering activities. Initially, these inspections went largely unnoticed, especially since neither the German prosecution nor Eurojust mentioned any suspects in their reports. However, media reports soon surfaced, naming Papaya Ltd, a fintech company based in Malta, as the focal point of these inspections.

These reports quickly gained attention, yet a fact-checking investigation conducted by journalists from the Western Morning News revealed a different story. Their findings indicated that the inspections were actually connected to activities involving a company linked to JuicyFields, not Papaya Ltd. This revelation underscored the initial reports as fake news, highlighting the pervasive challenge of misinformation in today’s hyper-connected world. For financial institutions, such as Papaya Ltd, these false reports can severely damage their reputation and financial stability.

The Papaya Ltd Case

In February 2024, Papaya Ltd. was subject to routine inspections carried out by governmental authorities in Malta. The reason behind these inspections stemmed from the detection of suspicious transactions involving one of Papaya Ltd.’s clients several years ago. This client, previously considered ordinary, suddenly engaged in activities deemed suspicious by Papaya Ltd.

In adherence to internal Anti-Money Laundering (AML) procedures, Papaya Ltd. promptly took action by suspending the client’s accounts and notifying the relevant regulatory bodies. For entities operating within the European fintech system and committed to maintaining rigorous AML procedures, such incidents are regarded as standard protocol.

Later, UK journalists uncovered that the company whose transactions and accounts were suspended by Papaya Ltd. was linked to the financial pyramid scheme, JuicyFields. It was revealed that the inspections conducted in Gzira, Malta, were part of the investigation into this particular company, not Papaya Ltd.

As a consequence, none of the governmental authorities involved have made any allegations against Papaya Ltd.

The Legal Landscape

Competition law in most countries primarily targets monopolistic practices rather than the spread of fake news, despite the latter’s potential to manipulate prices and harm reputations. This gap in legal protection leaves companies like Papaya Ltd vulnerable. PhD Oliver Pahnecke, a researcher focusing on sovereign debt and human rights, underscores this issue, emphasising the sense of impunity surrounding the generation and spread of disinformation. He argues, “If there were immediate legal repercussions for generating and spreading disinformation and fake news, I believe this problem would not be as severe.”

Papaya Ltd became a focal point when it was mentioned by the “Times of Malta” and the “Trinity Bugle” in connection with an EU-wide anti-money laundering investigation. Despite the lack of any official mention by German prosecution or Eurojust, these publications insinuated Papaya’s involvement, potentially damaging its reputation.

The credibility of these sources varies significantly. The “Times of Malta” is a well-established news outlet with comprehensive editorial standards. In contrast, the “Trinity Bugle” lacks transparency, with no verifiable entries in Cyprus or Ireland’s company registers, raising questions about its legitimacy. The “Times of Malta” published statements from Papaya, yet they persisted with allegations of money laundering. Such claims, if unfounded, could severely tarnish Papaya’s reputation and expose the publication to legal liability.

Legal Remedies and Challenges

Victims of fake news, like Papaya Ltd., have several legal avenues for redress. These include seeking injunctions, demanding rectifications, claiming damages, or appealing for property rights infringements. However, these remedies hinge on the ability to identify and pursue the source of the disinformation. As Pahnecke notes, “The legal options available to a victim of a fake news campaign are based on government bodies, courts, and procedures that take a lot of time. It is possible that the victim has already suffered significant damage by the time the official procedures start.”

Broader Implications in the Financial Sector

The challenges faced by Papaya Ltd are not unique. The financial sector, including traditional banks and neobanks, has frequently been the target of misinformation. For instance, Revolut, a UK-based financial service provider, has repeatedly faced unsubstantiated allegations. In one notable case, Marius Laurinavičius from the Vilnius Institute of Policy Analysis claimed Revolut’s links to the Kremlin without providing any legal grounds.

Moreover, major traditional banks have also encountered significant issues. HSBC and Credit Suisse, for instance, have been involved in numerous regulatory and financial scandals, often exacerbated by social media rumours. The collapse of Credit Suisse and the subsequent takeover by UBS in March 2023 underscore the profound impact of financial news on market stability.

Conclusion: A Call for Collective Action

The financial sector must recognise the profound impact of fake news and misinformation. Traditional banks have the advantage of established systems and regulatory frameworks, whereas neobanks and fintech companies are still carving out their niches. For companies like Papaya Ltd, it is crucial to address these challenges collectively. Enhanced cooperation among financial institutions can help mitigate the impact of fake news and build a more resilient financial system.

As the case of Papaya Ltd. illustrates, the fight against fake news is far from over. The financial sector must remain vigilant and proactive in safeguarding its reputation and stability in the face of misinformation.