Laundering money once required a great deal of effort from a criminal standpoint; they had to set up or purchase a brick-and-mortar business, ensure it was seemingly running legitimately, keep clean books, hire and manage staff, and front a lot of operating expenses. As we collectively head into a digital-driven existence, we can anticipate cyber criminals will try and exploit the benefits and anonymity of e-commerce, where money passes through virtual hands with virtually no (or very little) regulation.
E-commerce websites and their associated payment pages have become the main basis for a serious scam known as Electronic Money Laundering, or Transaction Laundering – the digital evolution of money laundering. Transaction Laundering occurs when an unknown business uses an approved merchant’s payment credentials to process payments. Cyber criminals exploit the ease of online payments by hiding behind seemingly legitimate transactions to commit fraud and sell illegal goods.
Detecting and ultimately preventing Transaction Laundering becomes an overwhelming challenge to traditional Anti-Money Laundering (AML) efforts. Acquirers and merchant service providers (MSPs), even if unaware of their association with illegal transactions, are held accountable on all sides from card brands, state and federal regulators, as well as international law enforcement agencies. This accountability results in large fees and fines, legal action and brand damage.
The one and only effective way to beat cyber criminals at their own game is to leverage technology techniques and tools to detect and mitigate Transaction Laundering.
We break down the 5 merchant monitoring must-haves to enhance your AML practices and upgrade to include new anti-Electronic Money Laundering efforts in the digital word:
5 Must-Haves to Properly Monitor Your Merchants
1. Automated Transaction Laundering Detection: Detection and ultimate prevention of Transaction Laundering requires a solid understanding of how this sophisticated scheme works. One registered website can be connected to hundreds of unreported sites, all of which can include embedded payment environments that facilitate Transaction Laundering. Ongoing due-diligence and monitoring of your merchant portfolio and its entire ecosystem cannot be done manually, when dealing with vast networks and digital violations.
MSPs are required by law and through their card brand relationships to ensure that the merchants they service and the payments they process are both known and legitimate. Without proper insight into the ways digital entities operate, MSPs are at a clear disadvantage and susceptible to trickery that results in fines, legal action and reputation damage.
The use of cyber intelligence and machine-learning techniques can instantly improve the ongoing analysis of your registered merchants’ websites, exposing those hidden transaction tunnels and merchant-based fraud.
2. Automatic Evidence Validation: Accurate detection of Transaction Laundering violations is an ongoing challenge to the AML world, as criminals have mastered their use of hidden transaction tunnels. Even when investigations are proactively initiated they rely on traditional forensic tools, which can be costly, time-consuming and inefficient. In these cases, the focus is typically dedicated to the high-risk, high-volume merchants, while Transaction Laundering can happen through many smaller-scale, seemingly low-risk players.
Many current merchant monitoring systems can flag for these risks, but do not have the tools to provide time-stamped, concrete evidence of illegal transactional activity. Capturing snapshots and validating evidence with timestamps gives no option for criminals to deny their behavior, even if they attempt to alter or erase the website. It is time to adopt advanced, machine-learning and AI platforms that can conclusively demonstrate fraudulent transactions have occurred and guarantee no false positives in your portfolio.
3. True Continuous & Automated Content Monitoring: Many AML checks fall short when it comes to detecting risky or illegal activity once an online merchant is vetted and onboarded. This is mainly due to the amount of manual labor involved with the traditional merchant monitoring process. It is incredibly difficult to maintain the same vetting levels at onboarding throughout the client lifecycle. Criminals exploit this to easily pass the underwriters’ checks, only later show their true faces when no one is keeping watch.
Picture working in an office with 1,000 salespeople who are vying for new business and traveling all over the world; each person with different goals in mind. It would be near impossible to keep track of their everyday tasks, whereabouts and business activity.
Your online merchant portfolio is a lot like this – a grouping of individual entities moving in different directions, who setup websites with dynamin content, inventory and money-making strategies. The profile of a single merchant expands beyond its reported data into a broader ecosystem, which can include associated persons, countries, websites and entities that are not always obvious or disclosed. With the realization that each merchant can be linked to a larger – potentially hidden – network, the ability to manually oversee the volume of information and transactions can seem unachievable.
Adopting an automated system that continuously monitors your portfolio, both the known and unknown aspects of a merchant’s ecosystem, is a crucial step in Transaction Laundering prevention and brand protection of your company. In order to proactively manage risk in your portfolio, you need to choose a system that flags bad or suspect content and alerts changes to the registered merchant’s website.
4. Complete and Custom Risk Profile: Every detail about your business is unique – your needs, your goals, your clients, and your exposure to risk. The list of questions and subsequent responses that arise when onboarding a new merchant should provide insight on assess risk levels throughout your business relationship.
– Do you need different risk levels for known and unknown merchants?
– What industry do they business in?
– Are there any suspicions of Transaction Laundering?
– Will they be card brand compliant?
– What is the reputational risk? Do they have complaints or poor reputation?
– What are the additional security risks?
Customizing your risk policies and standards based on your needs will result in a perfectly-tuned, risk-based solution. Software that allows you to configure risk levels and categories lets you effectively focus on where the risk lies.
5. Scalability: Under the current market pressures, speedy approval of new merchants is necessary to keep up with the competition. When you need to choose carefully but quickly, your merchant onboarding process may seem like a combination of vetting and betting.
Frictionless merchant onboarding can be achieved through automated checks that quickly and effectively identify any risks and/or unknown entities associated with the merchant. It is also important to have an automated system that can handle the size and volume fluxes of your merchant portfolio for efficient and continuous monitoring and scans. Automated Programming Interface (API) availability to augment existing processes and systems is an important consideration when evaluating merchant monitoring solutions. Manual merchant monitoring on any scale leaves room for error, oversight and potential costly consequences.
Trending with Technology
If cyber criminals are leveraging advanced technology, shouldn’t you be doing the same to stop them? Imagine after the invention of the car, the local police force still riding on horses to pull people over for traffic violations.
Digital problems require digital solutions. Since solutions that rely on manual monitoring simply can’t keep up, the payments industry is faced with the responsibility to share intelligence and pursue comprehensive solutions that keeps pace with advanced technology.
Machine-based learning technology, like EverCompliant’s MerchantView software, can uncover hidden e-commerce networks, merchants and activity – and stop Transaction Launderers in their tracks. MerchantView is the only merchant monitoring system that incorporates all 5 must-haves into one complete solution for your compliance needs.