By: Dan Frechtling, SVP of Marketing and Chief Product Officer
Last month further indictments were handed down related to the $4.9 million CommerceWest Bank settlement. The Justice Department charged Gareth Long, owner of Third-Party Payment Processor (TPPP) V Internet, with wire fraud and money laundering.
The 39-count indictment detailed how Long victimized consumers. As a payment processor, Long had financial data from consumers whose accounts were debited by Long’s merchants. Long deposited Remotely Created Checks (RCCs) drawn from these consumers’ accounts. An RCC is a check created not by the account holder but by the third-party payee. Long was highly skilled in creating RCCs.
Long operated a network of websites that appeared to offer consumers access to payday loans (see Figure 1). The terms of the website included a $30 charge for signing up (see Figure 2). He had the audacity to charge consumers who had never even visited his sites for these services.
Figure 1: Three of the sites used by Long to perpetrate fraud
Figure 2: The false rationale for Long’s fictitious $30 charges
Long’s enterprise was massive. According to the indictment, he created and deposited more than 750,000 RCCs totaling more than $22 million. Half of the transactions were returned by customers and their banks — meaning the half of the charges went through. According to the indictment:
“Long obtained the personal and financial information of his victims from two sources. First, he allegedly purchased large spreadsheets, referred to as “lead lists,” each of which contained detailed personal and financial information of thousands of American consumers. Second, Long used the data stored in his payment processing system to debit more than a hundred thousand accounts that had previously been debited by Long’s prior merchants. When he ran out of unique accounts to charge, Long allegedly created and deposited hundreds of thousands of additional, repeat charges against accounts he had already charged.”
Long’s sponsoring bank was charged with a felony violation of the Bank Secrecy Act (BSA). As stated by the Department of Justice last year:
“CommerceWest Bank ignored a parade of red flags indicating that a third-party payment processor was defrauding hundreds of thousands of innocent victims,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division. “As the civil and criminal actions filed against CommerceWest Bank today demonstrate, we will hold financial institutions accountable when they choose unlawfully to look the other way while fraudsters use the bank’s accounts to steal millions of dollars from American consumers.”
Most TPPPs and Third-Party Senders (TPSs) are honest businesses. G2 has written previously about the overhang of uncertainty caused by Operation Choke Point. But this case is a reminder of the consumer harm that can be caused by one illegitimate entity combined with the lack of bank oversight. The crimes would have been caught if CommerceWest applied proper due diligence, such as the services provided by G2 KYC Solutions.
Ensure you are not inadvertently harboring criminal activity. G2 KYC Solutions include complaint monitoring, negative news monitoring, business misclassification checks, and past fraud and compliance violations by unlawful businesses. Find out more here.