2017 : A Watershed Year in the Fight Against Transaction Laundering

On: December 21, 2017

This past year proved very important for the detection and prevention of Electronic Money Laundering (known as Transaction Laundering) worldwide.  At the end of 2016, we reported that $352 billion had been laundered globally through e-commerce and, of that total, nearly $11 billion involved the sale of illegal goods online.  This advanced,  method of money laundering has now been recognized as a massive problem throughout the payments ecosystem, and regulators are taking notice and taking action.  

Below is a summary of some of the biggest developments in the international fight against Transaction Laundering in 2017 and what they mean to merchants, acquirers, financial ecosystem stakeholders and – perhaps, most importantly – cyber criminals.

February 2017 – U.S. Treasury Targets Transaction Laundering

In February, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) slapped a $7 million fine on a medium-sized bank in California for Bank Secrecy Act violations related to Transaction Laundering. The bank was fined an additional $1 million by the Office of the Comptroller of the Currency (OCC), another arm of the U.S. Department of the Treasury.

These two penalties became a highly-visible and important lesson in the dangers of Transaction Laundering to acquirers. The fines were charged because the bank failed “to establish and implement an adequate anti-money laundering program”, while allowing “billions of dollars to flow through the U.S. financial system without effective monitoring.” [Learn more here]

February 2017 – Major Financial Consulting Firm Takes on Transaction Laundering

This year, First Annapolis, a subsidiary of Accenture with clients that include some of the largest banks and institutions in the world, recommended that sponsor banks should consider “offering transaction laundering tools for their sponsored ISOs.”

Accenture advocated that Transaction Laundering should be considered a material risk to acquirers, most of whom “do not have transaction laundering tools in place but should.”  This declaration by a major financial player is further evidence of the growing awareness of the issue and that companies need to take concrete and immediate preventative steps. [Learn more here]

 July 2017 – FTC Targets Transaction Laundering in Landmark Lawsuit

This summer, a lawsuit filed in Arizona by the U.S. Federal Trade Commission (FTC) sparked a change in regulatory attitudes towards Transaction Laundering. In this groundbreaking case, the FTC essentially held an ISO accountable for a scam perpetrated by one of its merchants. This case put an end to the years-old practice of regulatory agencies looking the other way while funds for massive amounts of illicit goods and services were laundered electronically.

The suit alleges that Electronic Payment Systems (EPS) facilitated money laundering through the use of fictitious merchant accounts in a telemarketing scam referred to as Money Now Funding – either through willful participation in the scheme or through negligent KYC/EDD practices. [Learn more here]

August 2017 – FBI Reveals ISIS Uses Transaction Laundering

The FBI revealed that ISIS was financing their domestic terror agenda in the U.S. using popular sites, eBay and PayPal. According to the FBI statement and reported in the Wall Street Journal, Mohamed Elshinawy, an American-born ISIS operative and U.S. citizen, was arrested in Maryland after he received nearly $10,000 via PayPal for fraudulent sales of computer printers over eBay.

This revelation was important because Transaction Laundering had previously been one of the least-regulated methods of online money laundering. Now that the link to terror funding is evident, Transaction Laundering is likely to show up on law enforcement radar more frequently.

November 2017 –  Money Laundering through Airbnb services in Russia

The Daily Beast and BGR – recently revealed that cyber criminals are using popular online marketplaces, specifically Airbnb, to facilitate money laundering in Russia.  The scam is simple: fraudsters use stolen credits cards to launder the dirty money through complicit Airbnb hosts they meet in underground, online forums.  Once the Airbnb booking transaction is processed, no one actually stays at the advertised accommodation; instead the two parties split the payment and create fake end-of-stay reviews to close the transactional loop.

Exploitation of the popular peer-to-peer platform, where one transaction or booking can amount to thousands of dollars, is becoming an increasing threat to how we legitimately do business online.  Airbnb states in its terms and conditions that “user verification on the Internet is difficult and we do not assume any responsibility for the confirmation of any member’s identity.”

Year-Round 2017 – States Take Action in the U.S.

During 2017, U.S. state governments adopted anti-Transaction Laundering legislation; a trend we think will continue as federal and state level regulators work together to tackle online fraud.  Under U.S. law, states have the right to address Transaction Laundering within their own jurisdictions.  Major merchant-acquiring hubs such as California, Illinois and Ohio are likely to introduce transaction laundering regulations soon.

The Bottom Line

If 2017 was a watershed year for anti-Transaction Laundering efforts, we believe 2018 will be a pivotal year, in which regulators face the issues and make serious updates.

The reason? Transaction Laundering is a widespread – but preventable and detectable –  issue.

The next step is for electronic Anti-Money Laundering efforts to become a shared responsibility among law enforcement, e-commerce companies, international organizations, managed service providers, fintech companies and individual users.


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