Daily Management Review

Gamblers' Shadow Banking System Revealed By Fake Online Stores: Reuters


06/23/2017




Gamblers' Shadow Banking System Revealed By Fake Online Stores: Reuters
Internet gambling payments are being made with a network of dummy online stores that offer household goods as a front, claims Reuters.
 
Seemingly selling items including fabric, DVD cases, maps, gift wrap, mechanical tape, pin badges and flags, there are seven sites that are operated out of Europe. Payments for the $40 billion global online gambling industry, which is illegal in many countries and some U.S. states are made from these sites which are just fake outlets and part of a multinational system to disguise such payments.
 
Questions about how e-commerce is policed worldwide is essentially raised by these questions. Strategy that regulators, card issuers and banks have yet to tackle head-on is also underlines byy these sites, fraud specialists say.
 
That strategy – which can help disguise the true nature of payments, is called "transaction laundering" where one online merchant processes payment card transactions on behalf of another.
 
In order to enable them to see what type of purchase is being processed and block it if it is illegal in a particular country, credit card companies including Visa and Mastercard require all online purchases to be coded. They are known as Merchant Category Codes. For example, the code of 7995, which is subject to extra scrutiny, is for gambling transactions.
 
"Transaction laundering is serious misconduct - often criminal," said Dan Frechtling, head of product at G2 Web Services, a financial compliance company which works with leading banks and card issuers. "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."
 
"It is the digital evolution of money laundering," said Ron Teicher, CEO of Evercompliant, a cyber-intelligence firm that works with banks to identify suspect sites. "The only thing is it is much easier to do, and much harder to get caught."
 
"We require all gaming sites to be processed under the relevant Merchant Category Code. Our rules are always subject to local law and we do not tolerate criminal activity," said spokesperson for Visa when presented with Reuters' findings.
 
"When we are alerted to activities that may be against our rules or against the law, we work with the merchant's bank to confirm or investigate the allegation," a spokesperson for Mastercard said.
 
Scott Talbot, head of government relations at the ‎Electronic Transactions Association, a trade organization for the payment processing industry which includes some of the world's largest banks as members says that partly because those involved cooperate to hide what they are doing, illicit gaming is hard to detect.
 
"Illicit finance is incredibly creative," said Gregory Lisa, a partner at law firm Hogan Lovells who has worked as a trial attorney for the U.S. Department of Justice prosecuting money-laundering and fraud cases. "It is a very difficult arms race between the government and illicit actors and their financiers."
 
Dummy stores are not meant to be visited by the normal public, say fraud specialists. Their role is simply as a shop front to back up the bogus description and they are designed to be hard to spot.
 
The consultancy Evercompliant says that gambling sites simply program the sites to give a reference to sites like the dummy stores in payment records when they operate in countries where online gaming is illegal and will take payment through their own sites.
 
(Source:www.reuters.com) 






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