According to Finextra.com, $200 million in fraudulent transactions has been stolen from banks in the years between 2003-2013. Merchants, who opened a merchant account with the expressed intention to sell legitimate goods, once approved, rack up fraudulent transactions, only to abandon the merchant account. This deceitful tactic allows merchants to process as many transactions as possible, before raising any kind of red flag to the merchant account provider.
In the online world, it is easy to create counterfeit identities and businesses. So much so that, on January 25, 2017, Habib Chaudhry was apprehended after running from the law for four years. His crime? In an unprecedented crime scheme, he and 18 other individuals were arrested for running a “synthetic identity” crime ring. This involved the creation of 7,000 new identities and both applied and received 25,000 credit cards where they were used to make fraudulent purchases.
Criminals like these set up fake stores, selling counterfeited products, only to help fund more criminal activity like human trafficking, money laundering, or simply causing harm to the end consumer.
High-risk merchant account providers must not be too eager to sign up just any prospect to increase their portfolios. They must be on high alert for these con artists as they are out to do serious damage.
Here is why high-risk merchant account providers must be vigilant and screen their prospects carefully, to avoid being victims and unknowing participants in their criminal activity.
- Consumers are the victims when purchasing counterfeit products.
A study conducted by the American Society of Tropical Medicine and Hygiene, reported that in 2013, a “substandard or degraded anti-malaria” drug was responsible for the deaths of 120,000 children under the age of 5 in the Sub-Saharan region of Africa. Despite this, counterfeit pharmaceutical sales continue to make up 10% to 30% of the market in drug sales.
- Mobile Malware and Phishing Scams are on the rise.
A growing number of consumers make their purchases on their mobile phones. This makes them more vulnerable to malware and phishing scams. More fraudsters are developing legitimate-looking apps and are used to steal money, identity, and other private information.
- As a high-risk merchant account provider, you could be liable.
When the scamming merchant is caught running up fraudulent transactions and disappears, the merchant is stuck with the bill. Furthermore, the chargebacks, not to mention a stain on your reputation are legitimate threats that could mean the end for your business.
- You could be funding an extremist group.
Fraudsters who are on the AML/ATF list know that they are ineligible to receive a merchant account, so they simply create a fake or steal an identity. Although they may be operating real businesses, you certainly do not want to encourage identity theft or funding firearm trafficking. Either way, you stand to be heavily fined or damaged reputationally.
- Financial losses due to Transaction Laundering.
More merchants are using the “green light” of having been approved of a merchant account, only to use it to sell goods in which they have not received prior approval for. According to Finextra.com, it is estimated that a total of $352 billion has been laundered every year, just in the US.
Something To Ponder
High-risk merchant account providers must become just as sly and agile as these scammers. Their sophisticated crime rings require sophisticated and advanced systems of anti-fraud technology to filter out criminals from the beginning.