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Education

by nominee directors who are hired simply to hold the
company on behalf of someone else—perhaps a foreign
entity.

To be clear, it is illegal to make misrepresentations on
a bank account (MID, for example) application. ISO
Legal ease: participation in any deception of acquiring banks is also
illegal.

Is my merchant a terrorist front?

It is legitimate for a non-U.S. business to own a U.S.
subsidiary that conducts business in the United States.
However, not all foreign owners are legitimate or even
legal. The U.S. Department of the Treasury Office of
Complex international Foreign Asset Control (OFAC) maintains lists of Specially
Designated Nationals (SDNs) with whom no U.S. financial
processing: institution can transact, among other restrictions.

SDNs are terrorists, money launderers, other criminals
opportunity and risk and targets of U.S. sanctions in places like North Korea,
Iran and Russia. Together, OFAC and the U.S. Department
of the Treasury Financial Crimes Enforcement Network
By Adam Atlas (FinCEN) help U.S. financial institutions avoid becoming
Attorney at Law willing or unwitting facilitators in domestic or foreign
terrorist financing, money laundering or other criminal
long, long time ago, the ISO business was activity.
simple. Main Street U.S. merchants needed
merchant accounts to accept payment from This is why ultimate beneficial owner (UBO) information
A U.S. consumers who walked in the door. That is gathered on every merchant—from the local bodega to a
era is ancient history and indeed predates the adult lives high-flying international dot-com. Acquires are required
of most of today's processing professionals. by law to gather that information and scrub it against
OFAC SDN lists and other lists like the MATCH list to
Now ISOs are navigating U.S. merchants with international reduce the chance of the acquirer being abused by such
affiliates, foreign-owned U.S. merchants with online bad actors.
international consumer clients, and a complex web of flows
of funds, flows of data and business models. A number of Beyond the technical verification of merchants against
legal issues arise from this contemporary reality, and the SDN and other lists, ISOs can add value to the fight against
purpose of this article is to highlight several of them. financial crime by considering the merchant's business
model and whether it is suspicious (for example, collecting
Who is the merchant? and sending funds overseas that are not intended for
legitimate business or charitable purposes).
The networks and domestic banks have a strong preference,
and some rules, to the effect that a U.S. merchant needing Where is the money coming from?
acquiring should be served by a U.S. acquiring bank.
However, a non-U.S. business can quickly incorporate a Currently, prepaid issuing is the flavor of the month. It
U.S. company and supply that company as the merchant seems everyone and their cousin is running a prepaid
of record for the acquirer. card issuing program these days. The result is that virtual
debit and credit cards are being issued by the hundreds
Depending on the acquirer and the network, using a every minute. Unlike their physical ancestors, digital
thinly capitalized U.S. entity to operate what is essentially debit and credit cards travel quickly around the world. It
a non-U.S. business can be risky, prohibited or even illegal. is sometimes hard to connect the dots between the source
ISOs serving this kind of merchant should endeavor to see of funds, the cardholder, the card issuer and then the
that the merchant of record is a real business that operates merchant.
in compliance with network rules and laws.
To be fair, the current laws and network rules pepper that
An ISO can, for example, interview the directors of the responsibility around the various actors. For example,
U.S. entity to see if they have knowledge and expertise card issuing banks are generally obligated to verify new
in the merchant's business so as to reduce the changes cardholders against SDN lists.
of boarding a merchant that is owned and controlled

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