Recognising and thwarting transaction and payment laundering

Abstract

The internet has facilitated economic growth, new mass retail models and financial inclusion for the under-banked and micro-businesses. At the same time, however, it also enables new avenues of crime. The ease with which goods can be sourced and distributed online has enabled cyber criminals to thrive. Their endeavours are severely compromised, however, when credit card networks and acquirers deny access to payment systems. Criminals have adapted by utilising transaction laundering — the use of online ‘front’ businesses, and payment laundering — the use of alternative payment methods (APMs) with less mature risk policies. While credit card systems have strict rules and processes, APMs like peer-to-peer, e-wallet and money transfer have less robust due diligence and monitoring practices. Perpetrators dubbed ‘payment hustlers’ rotate between different front businesses and different payment methods through trial-and-error until they gain safe passage into the payment system. Banks and payment service providers can secure their operations through both organisational and technological best practices. Furthermore, rigorous due diligence can coexist with a smooth business customer onboarding experience.