By: Dan Frechtling, SVP of Marketing and Chief Product Officer
The 2016 Merchant Acquirers’ Committee (MAC) Annual Conference provided a wealth of informative sessions, offering attendees the opportunity to listen, learn and discuss the latest developments in the risk management side of card processing.
One of the highlights of this year’s gathering was the presentation Anti-Money Laundering and the Acquiring Industry by President and Founder of AML Audit Services, Laura Goldzung. Goldzung asked the audience, “are you one step removed from money laundering?” Many acquirers and processors don’t know. Further, they don’t know how to research the types of businesses that are likely to harbor money laundering.
A poll asked attendees what they believed was the highest risk type in their portfolios. MSBs were chosen by 41%, cash intensive businesses by 29%, and charitable organizations by 25% (see Figure 1).
Goldzung noted this is partially correct. MSBs, charities (including nonprofits), and cash intensive businesses like real estate, gem traders, limo services, professional services, and foreign exchange dealers indeed represent higher risk. Further, she pointed out several categories that are more likely to have PEPs (Politically Exposed Persons) as beneficial owners. These include NGOs, quasi-NGOs, charities and nonprofits. The takeaway was that FIs need to know the types of businesses they serve in their AML assessments.
A second poll of attendees asked them their greatest OFAC challenge. The most common responses were too many false positives (39%) and understanding requirements (32%). Utilizing vendor tools and enhanced due diligence can aid in the process, making it easier to evaluate risk and monitor relationships consistently. For example, such tools can reduce false positives by up to 80%.
G2 solutions can inform acquirers of merchants’ current and past business type, violations, and reputation problems. This broadens the capability to properly manage KYM, KYC and other AML imperatives. Conduct thorough due diligence on prospective merchants at boarding. Uncover past violations of card network compliance programs, and historical risky merchant behavior to predict future merchant risk. Use ongoing monitoring to detect changes in your portfolio over time. Risk will always be a part of the industry, but initiating risk solutions and best practices can help position acquirers for more safe and responsible commerce.
Tales of Transaction Laundering
I presented a session on Transaction Laundering (TL) with our client Dione Hodges from Sterling Payments Technologies. I shared the recent FTC case which found TL “can make it easy for unscrupulous merchants to avoid detection by consumers and by law enforcement.”
The story has gotten more interesting. I updated the audience on some new developments on the case—namely, that one of the perpetrators of fraud in Tax Club was busted by the FTC again trying to do the same thing. A heavy price was paid…$16 million (see Figure 2)
G2 research shows that fraudsters are very persistent and will continue to attempt to gain access to the payments system, even after being shut down. The FTC case is a textbook example of this. If you’d like to hear more about cases of Transaction Laundering, please join us for our upcoming webinar on Illegal Drugs and Pharma: Kingpins if New Risk.
As always, the MAC Annual Conference was a great way to connect with the community of North American acquirers. We appreciate all of you who stopped by our booth and our expert table and we are already looking forward to next year.