24 Jul 2020
One website advertised dog products. Another advertised flowers; another, home decorations. All of them were really fronts to process payments for marijuana or designer drugs, prosecutors said.
The Justice Department and the Federal Trade Commission have recently brought a string of criminal and civil cases accusing individuals and companies of using legitimate-looking websites to deceive financial firms into processing unsavory purchases. Such schemes are often called credit-card laundering or transaction laundering.
Illegal purchases, including drugs, are being processed unwittingly by banks and payments networks including Visa Inc., Mastercard Inc. and American Express Co., according to court documents and people familiar with the matter. The yearslong boom in e-commerce, even before it got an extra boost during the coronavirus pandemic, has attracted entities looking to use its infrastructure in unintended ways.
Financial cops are zeroing in on a weak link in the online-payments system: middlemen that connect merchants to the banks that help approve and settle transactions. From low-tech independent sales organizations to Silicon Valley players like PayPal Holdings Inc., Square Inc. and Stripe Inc., an array of companies have sprouted up to help internet businesses take payments.
The companies say they’re committed to fighting misconduct. Jodie Kelley, chief executive at the Electronic Transactions Association, which represents payment processors, said her members regularly terminate fraudulent merchants, including more than 10,000 merchants that were cut off in 2017 because of fraud. Ms. Kelley said her members alert authorities about “bad actors,” citing members who reported merchants for price gouging on face masks and other goods when the coronavirus pandemic hit.
But the amount of due diligence each performs on merchants varies. Some try to detect any fraud on their platform, and major networks will often provide information to law enforcement to help them catch culprits. Others turn a blind eye or willingly enable it, authorities say.
“No processor, even if it spent a fortune, is going to perfectly shield itself from fraudulent merchants,” said Lois Greisman, associate director of the FTC’s Division of Marketing Practices. The FTC, she said, “is seeking to root out processors that are knowingly facilitating fraud.”
In one recent high-profile case, the Manhattan U.S. attorney’s office accused two businessmen, Ruben Weigand and Hamid “Ray” Akhavan, of tricking banks into processing more than $100 million in transactions made through Eaze Technologies Inc., an online marijuana marketplace.
Major card networks don’t allow card purchases of products or services that are deemed illegal, and marijuana is illegal under federal law.
Prosecutors said in court filings that the two men set up online retailers advertising dog products, diving gear and soda and conspired to deceive banks to accept payments for marijuana sales. The Federal Bureau of Investigation is also investigating whether scandal-plagued German payments company Wirecard AG worked with Mr. Weigand and Mr. Akhavan, The Wall Street Journal previously reported.
By Peter Rudegeair and AnnaMaria Andriotis, The Wall Street Journal, 22 July 2020
Read more at The Wall Street Journal
RiskScreen: Eliminating Financial Crime with Smart Technology
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