Money laundering is one of the oldest crimes in the book. The main driver behind money laundering is an attempt to hide money and valuable assets from the state to avoid taxation, blatant confiscation or both. As far back as 2000 years ago, when the regional governments in China banned many forms of commercial trading, wealthy Chinese merchants laundered their profits by moving money into ready convertible assets.
What is Transaction Laundering?
Fast forward to 2017, and money laundering is still with us. While money laundering remains the “process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source,” the methods used by criminals have changed.
Since the early 2000s, the rise of the internet and the development of online and mobile payment methods have contributed to the meteoric rise of ecommerce. As the volume of online payments exploded, criminals have quickly jumped on the bandwagon and started laundering illegal proceeds through ecommerce payments. Enter Transaction Laundering – a sophisticated merchant-based fraud scheme whereby a merchant processes payment card transactions on behalf of another merchant without the knowledge or consent of other parties in the payment stream.
Why should merchant service providers take notice?
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 amends the 1970 Bank Secrecy act and the 1986 AML act and increases the disclosure and record keeping requirements for all financial transactions.
Merchant Service Providers are required by law and by credit card brand rules to verify that the merchants they service, and the products they are selling are both known and legitimate. Failure to detect Transaction Laundering involves increased risks of legal action, regulatory fines, financial penalties from the card brands, and severe reputation and brand damage.
How widespread is Transaction Laundering?
EverCompliant discovered that on average, the size of unknown merchant portfolios constitute 6% to 10% of the known client base. That means that for every 10,000 merchants registered with an MSP, some 600 to 1000 hidden entities are transacting through MSPs payment networks without their consent or knowledge. In addition, 0.5% – 1% of merchants were validated to be unknown merchants with critical or high risk levels.
Sign up to our webinar
Although extremely widespread, Transaction Laundering is difficult to detect. EverCompliant in cooperation with Merchant Acquirers’ Committee will hold a webinar where we will cover all the aspects of credit card money laundering aka. transaction laundering.
In this webinar, you will learn:
- How money laundering is evolving to encompass the new digital realities
- How widespread Transaction Laundering really is
- Why it’s so challenging to detect
- Why so called “low-risk” merchants introduce critical risks into merchant portfolios
- What can Merchant Service Providers and online marketplaces do to mitigate these risks?