Per an examination by the international news agency, seven “dummy” sites operating in Europe pretended to sell DVD cases, fabric, flags, gift wrap, maps, mechanical tape and pin badges, among other items. The sites were actually elements of a multinational system aimed at hiding payments for the $40 billion online gambling industry. Online gambling is illegal in many countries and in some U.S. states.
Reuters noted its findings raised serious questions about how eCommerce is policed around the globe. It also revealed a fraud perpetration strategy that card issuers and banks have not yet addressed.
According to the report, the strategy is known as transaction laundering and occurs when an online merchant processes a payment card transaction for someone else, hiding the true nature of the payments. The report noted that all Visa and Mastercard online purchases are assigned internal system codes to monitor purchase types as they are processed, allowing the companies to stop transactions flagged as illegal in a given country. Gambling transactions are allotted code 7995 and receive further scrutiny.
The websites involved in the Reuters-revealed scam held payment codes for household items, but no products were delivered. The staff answering phone calls for the websites in question provided aid in processing gambling payments, mainly for U.S. citizens.
Categorizing a gambling transaction as a different type of purchase violates Visa and Mastercard policies, the card companies said in response to Reuters’ findings.
“Transaction laundering is serious misconduct — often criminal,” said Dan Frechtling, head of product at G2 Web Services, a financial compliance company working with leading banks and card issuers in the report. “It violates the merchant’s agreement with its acquirer, allows prohibited goods and services to enter the payment system, and may flout anti-money laundering laws.”
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