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Education

However, digital cards have wings and might be used by
people who did not go through standard underwriting
processes and are not actual cardholders.
In one card program, for example, I have found it very
difficult (even as a lawyer) to distinguish between the
cardholder and card user because end users agree to
a card user terms but not cardholder terms. The hot
potato of title in funds and liability for their getting into
the wrong hands is being passed around in payments.
ISOs usually have some distance from these issues,
but they can contribute to the fight against financial
crime by spotting suspicious activity at a merchant that
involves virtual or other cards.
Where is the money going?

Most merchant agreements provide for the settlement
of funds to a merchant's bank account. In cash advance
or financing arrangements, acquirers may be directed
to settle funds to a creditor’s bank account so that the
creditor can recoup the amounts owing to them and
settle the remainder to the merchant.

Now, however, there are more creative (not all bad)
ways to settle merchant funds including settlement to
prepaid cards, crypto exchanges and crypto wallets.
These novel flows of funds can increase efficiency for
merchants, but they also present new challenges for law
enforcement and financial institutions trying to fight fi-
nancial crime.

ISOs are within their rights to query why a merchant
might be sending funds to a non-traditional destina-
tion—if only so they can answer that question if some-
thing goes wrong later on.
What do compliance blunders cost ISOs?
Back in the day, when a merchant was caught selling
fake purses, the ISO was able to say that they knew
nothing and had no liability. In contemporary reality,
the complexity of criminal activity has vastly increased.
ISOs may find themselves carrying some liability for
merchant wrongdoing, certainly when they knowingly
participated in the wrongdoing and perhaps also when
they didn't participate but turned a blind eye to it.

For this reason, adhering to acquirer underwriting and
AML programs is vital in our collective fight against
financial crime.

In publishing The Green Sheet, neither the author nor the publisher
is engaged in rendering legal, accounting or other professional ser-
vices. If legal advice or other expert assistance is required, the services
of a competent professional should be sought. For further informa-
tion on this article, please contact Adam Atlas, Attorney at Law via
email at atlas@adamatlas.com or by phone at 514-842-0886.

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