CBD Interest Driving Spike in Transaction Laundering

Jun 20, 2019

As interest in CBD products have risen, online merchants experience spike in transaction laundering incidents, threatening payment service providers.

In general, transaction laundering often is used to process credit card transactions for illegal medications and intellectual property infringement. With the decriminalization of CBD and other hemp products, transaction laundering has been targeting this sector, making the promising CBD industry riskier and more complex.

Legal Murkiness and Other Factors Lead to Increase in Transaction Laundering

Though many reasons have led to the rise in transaction laundering for CBD sales, the most notable one is that it falls in a legal gray area.

Shortly after the farm bill, which decriminalized industrial hemp, was signed into law in December, the U.S. Food and Drug Administration (FDA) stated it was responsible for regulating products that contained CBD. The FDA said it had the authority because it had approved the CBD-based epilepsy medicine, Epidiolex.

Since it is approved in a drug, the FDA claimed that any product that contained CBD should go through its rigorous review process before they could be legally sold. Currently, the FDA states that food, drinks, and supplements cannot contain CBD and be legally sold. The agency held a hearing on the matter and will continue to take public comment on the issue until July.

Until a decision is made, merchants that sell CBD products need to be cautious and consider the laws where they live. For instance, New York and other states have banned the sale of edible CBD products. Some states also still consider CBD a controlled substance.

The legal ambiguity creates opportunities for cybercriminals. Some fraudsters find ways to market products in ways that not only violating regulatory standards, such as labeling it as a dietary supplement. Also, they can sell in unauthorized areas, such as those states that still consider CBD illegal.

Attracted to CBD’s Potential Profits

As the demand for CBD products grow, the increasing profit potential may trigger unethical merchants to go around the fierce competition among legal sellers and instead market and sell products illegally.

Additionally, increased demand may push manufacturers and merchants to look for cheaper, more competitive ways to source CBD, like creating synthetic forms of the derivative. Fake forms put consumers and payment service providers at risk.

Learn to Identify Potential Transaction Laundering Merchants

For example, payment service providers should be suspicious if a merchant website uses an IP address that is shared with other sites, including one that sells CBD products. Another red flag is if the site includes no contact information. Without contact information, a business cannot be legitimized. Finally, PSPs should look out for business emails that end up being associated with a social media accounts, which are often created to facilitate the sale of CBD.

In Conclusion

The legal gray area surrounding CBD sales have not only made it difficult to navigate the industry but has made problematic for those in the payments sector.

Payment service providers need to protect themselves by thoroughly vetting CBD merchants before onboarding them. Providers need to know the laws and make sure all merchants are following the rules.

Apply for Merchant Account Services

Merchants that need CBD merchant accounts should contact eMerchantBroker.com. EMB works with high-risk merchants, including those in the CBD industry. Applying online is simple and easy.

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