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availability of funds. Banks need to be an end-to-end traditional methods of validating merchants for boarding.
system with risk management and governance that gives
the bank the confidence to give the money [to a particular The implications for merchant service providers (MSPs)
customer] right away." that get caught up in these schemes can be catastrophic,
with regulators holding MSPs accountable for their clients'
Dan Gonzalez stated that the Federal Reserve has been misdeeds and imposing huge fines when they don't.
involved in a far-reaching initiative to energize payments
providers and make payments faster. He said the initiative "Online transaction laundering is a big problem because
extends "beyond the four walls of the banking system." it requires an all-new approach to merchant risk
Desired outcomes include faster payments; ubiquity of monitoring," said Joan Herbig, Chief Executive Officer
applications and technology, and safer payment processing at ControlScan, a compliance and risk management firm
that "doesn't exist today." Gonzalez framed his remarks headquartered in Alpharetta, Ga. That's because the
with a disclaimer that his views were his own and not the fraudsters are innovating constantly and searching out
official position of the United States government. weaknesses they can exploit to remain under industry
radar. "Knowledge sharing is critical to mitigating the
"We created a task force to bring together industry problem, as is technology innovation," Herbig added.
stakeholders to help define [real-time payments] where the
commitment to pay can be as important as the settlement," ControlScan released a white paper on the topic titled
Gonzalez said. He further noted that the Federal Reserve Online Transaction Laundering and the Evolving Landscape of
is exploring real-time payment as it relates to the following E-Commerce Merchant Fraud. It explains how transaction
five use cases: emergency bill and healthcare payments; laundering occurs and how ISOs and their partners in
person-to-person payments; consumer-to-business bill the acquiring stream can identify and stay clear of these
pay; business-to-person payroll; and adhoc high value fraudsters.
payments. Many of these categories are a vital concern for
unbanked and under-banked consumers. A huge, costly problem
Future NY events slated So just how prevalent is transaction laundering? A
single known website can be connected to hundreds
NYPay has been hosting events since 2006 with the goal of unreported sites, many of which are engaged in
of connecting innovators and leaders from the payments- laundering. For example, while running a fraud detection
commerce arena. Merchants, networks, payment screening for two international acquiring banks over a six-
processors, startups, regulators and others are welcome to month period the Israeli firm EverCompliant discovered
participate in future events. that an average of five unknown websites existed for every
known website the firm examined.
NYPay members and guests reconvened on July 22 at
MasterCard's New York City Tech Hub to explore "APIs What's more, on average, 3 percent of those unknown
in Fintech: What They Do and Why They Matter." The sites contained high-risk content that indicated likely
organization's third annual Unconference, a full day event transaction laundering. "In an e-commerce portfolio of
co-hosted by Consult Hyperion, will be held on September 10,000 merchants, this equates to 300 potential incidents
15 at the Microsoft Technology Center in New York City. of financial damage to the MSP organization," the
ControlScan white paper noted.
Digging deeper into KYC Another example cited in the white paper is that of a
payment facilitator fined by a card brand for content
violations attributed to a seemingly legitimate fundraising
YC is more than just an acronym for "know website. When the company investigated, it discovered
your customer"; it has become a guiding that one of its merchant's known sites had an extensive
principle of financial services. And with the hidden ecosystem of 70 unreported websites, 20 of which
K proliferation of e-commerce, it has become were engaged in illicit pornography.
increasingly important to get a handle on who your cus-
tomers' customers are. Not doing so could land an ISO "Transaction laundering activity is a significant and
or acquirer in hot water. That's because the Internet has growing problem within the online space, further
become a haven for money launderers, according to a new intensifying the urgency for MSPs and other payments
report from ControlScan Inc. industry stakeholders to become as agile and efficient as
the fraudsters themselves," the white paper stated. "Yet
Online money laundering, also known as undisclosed in the evolution of online merchant fraud, the old tactics
transaction aggregation, refers to payment activity that never completely disappear; the evolution is cumulative,
emanates from unknown websites and gets processed with new types of fraud layering onto the old. The
through known clients. The existence of these unknown resulting challenge is complex and therefore requires a
websites – engaged in illegal activities, such as online drug multifaceted solution."
sales, gambling and pornography – renders ineffective
16
availability of funds. Banks need to be an end-to-end traditional methods of validating merchants for boarding.
system with risk management and governance that gives
the bank the confidence to give the money [to a particular The implications for merchant service providers (MSPs)
customer] right away." that get caught up in these schemes can be catastrophic,
with regulators holding MSPs accountable for their clients'
Dan Gonzalez stated that the Federal Reserve has been misdeeds and imposing huge fines when they don't.
involved in a far-reaching initiative to energize payments
providers and make payments faster. He said the initiative "Online transaction laundering is a big problem because
extends "beyond the four walls of the banking system." it requires an all-new approach to merchant risk
Desired outcomes include faster payments; ubiquity of monitoring," said Joan Herbig, Chief Executive Officer
applications and technology, and safer payment processing at ControlScan, a compliance and risk management firm
that "doesn't exist today." Gonzalez framed his remarks headquartered in Alpharetta, Ga. That's because the
with a disclaimer that his views were his own and not the fraudsters are innovating constantly and searching out
official position of the United States government. weaknesses they can exploit to remain under industry
radar. "Knowledge sharing is critical to mitigating the
"We created a task force to bring together industry problem, as is technology innovation," Herbig added.
stakeholders to help define [real-time payments] where the
commitment to pay can be as important as the settlement," ControlScan released a white paper on the topic titled
Gonzalez said. He further noted that the Federal Reserve Online Transaction Laundering and the Evolving Landscape of
is exploring real-time payment as it relates to the following E-Commerce Merchant Fraud. It explains how transaction
five use cases: emergency bill and healthcare payments; laundering occurs and how ISOs and their partners in
person-to-person payments; consumer-to-business bill the acquiring stream can identify and stay clear of these
pay; business-to-person payroll; and adhoc high value fraudsters.
payments. Many of these categories are a vital concern for
unbanked and under-banked consumers. A huge, costly problem
Future NY events slated So just how prevalent is transaction laundering? A
single known website can be connected to hundreds
NYPay has been hosting events since 2006 with the goal of unreported sites, many of which are engaged in
of connecting innovators and leaders from the payments- laundering. For example, while running a fraud detection
commerce arena. Merchants, networks, payment screening for two international acquiring banks over a six-
processors, startups, regulators and others are welcome to month period the Israeli firm EverCompliant discovered
participate in future events. that an average of five unknown websites existed for every
known website the firm examined.
NYPay members and guests reconvened on July 22 at
MasterCard's New York City Tech Hub to explore "APIs What's more, on average, 3 percent of those unknown
in Fintech: What They Do and Why They Matter." The sites contained high-risk content that indicated likely
organization's third annual Unconference, a full day event transaction laundering. "In an e-commerce portfolio of
co-hosted by Consult Hyperion, will be held on September 10,000 merchants, this equates to 300 potential incidents
15 at the Microsoft Technology Center in New York City. of financial damage to the MSP organization," the
ControlScan white paper noted.
Digging deeper into KYC Another example cited in the white paper is that of a
payment facilitator fined by a card brand for content
violations attributed to a seemingly legitimate fundraising
YC is more than just an acronym for "know website. When the company investigated, it discovered
your customer"; it has become a guiding that one of its merchant's known sites had an extensive
principle of financial services. And with the hidden ecosystem of 70 unreported websites, 20 of which
K proliferation of e-commerce, it has become were engaged in illicit pornography.
increasingly important to get a handle on who your cus-
tomers' customers are. Not doing so could land an ISO "Transaction laundering activity is a significant and
or acquirer in hot water. That's because the Internet has growing problem within the online space, further
become a haven for money launderers, according to a new intensifying the urgency for MSPs and other payments
report from ControlScan Inc. industry stakeholders to become as agile and efficient as
the fraudsters themselves," the white paper stated. "Yet
Online money laundering, also known as undisclosed in the evolution of online merchant fraud, the old tactics
transaction aggregation, refers to payment activity that never completely disappear; the evolution is cumulative,
emanates from unknown websites and gets processed with new types of fraud layering onto the old. The
through known clients. The existence of these unknown resulting challenge is complex and therefore requires a
websites – engaged in illegal activities, such as online drug multifaceted solution."
sales, gambling and pornography – renders ineffective
16
