Transaction laundering and card fraud prevention solutions

transaction laundering prevention

Thanks to explosive growth in electronic commerce, merchants currently have a possibility of selling goods and services cross-border without any need of establishment of a physical store. E-commerce is growing rapidly (as we already discussed in our previous article). However, e-commerce growth has a darker side in the appearance of transaction laundering which is one of the payment industry’s most complex and pernicious problems. In this article, we will explain what are major threats which both acquirers and online marketplaces should use to reduce the susceptibility of exploitation by bad actors.

What is transaction laundering?        

Prior to jumping right into a discussion of the money laundering issues occurring in e-commerce, we are going to provide you with a brief and coherent definition of transaction laundering to put everyone on the same page.

The transaction laundering is basically an activity in which entities, unknown to an acquirer, are processing payments through the merchant account of the onboarded merchants. Under this method, criminals and terrorists use legitimate websites to execute transactions for third parties unknown to the acquirer. For example, a merchant can set up an online store registered as selling apparel, a legitimate business selling legitimate goods. But this same merchant or his accomplice can have another website selling, for example, counterfeit apparel. Whenever a customer buying from a website selling counterfeit apparel, that online store will direct him to the checkout page of the legitimate store, where a card transaction will take place. Therefore, in this scheme, a merchant has a possibility to process a payment for the illegitimate goods and disguise it in such a way, so it will appear as an ordinary sale.

Transaction laundering scheme showing how a merchant has a possibility to process a payment for the illegitimate goods and disguise it in such a way, so it will appear as an ordinary sale

Transaction laundering is comparable to a well-known money-laundering scheme of employing front companies posing as a legitimate business. The inflow of money coming from the legitimate business is commingled with the ones coming from unlawful activities. Moreover, criminals can declare illegitimate funds as legitimate income.


Such arrangement posed difficulty for the law enforcement to trace the dirty money. Therefore, it created a perfect front disguising the origin of funds. To outline why transaction laundering is of paramount importance we need to look at the scale on which it is happening. By some estimates, it will amount for around 20% of entire money volume laundered by 2020. The estimated amount of money laundered by whichever means in one year is about 2-5% of world GDP. Hence, by 2020, through e-commerce criminals will launder in total around EUR 350- 800 billion.

Transaction laundering is extremely popular among unlicensed online gambling companies. More than 90% of illegal gambling sites using it to move their credit card receipts into the payment system.

Is there an issue with online marketplaces?

The online marketplaces offer a possibility of cutting costs and presenting a variety of products in one place. They do it by facilitating peer to peer transactions in a consolidated environment where third parties may conclude deals. The operator, who is often itself an acquirer in case of large marketplaces, processes the transactions. Regardless of the status of the operator of the marketplace, they have multiple parties trading on the platform and hence oversight is burdensome. The entry requirements for marketplaces are quite low. In its turn, it reduces initial screening and sadly, allows to exploit the shortcomings. 

In large marketplaces, there is always a blending of legitimate funds with those of illegal nature. These situations infamously happened with the Amazon, eBay, UBER, and Airbnb. Complicit actors were legitimising funds by the means of ordering goods for excessively high prices (even making ghost shipping), accepting non-existent ride requests, or booking apartments without staying there. Such activities are more difficult to detect as complicit parties carried them out. They can arrange everything so as it would look like business as usual from the perspective of everyone else.

Card fraud

After engaging in phishing, skimming or buying information of compromised payment cards, fraudsters need to somehow legitimise the funds. They can do it by ordering some goods of value. Alternatively, there is laundering through a storefront posing as a legitimate business. Hence, acquiring stolen payment cards is also a risk of paramount importance. It helps not only to perpetuate the crime but as well to legitimise the origin of funds.

How can acquirers and marketplaces counter transaction laundering and prevent card fraud?

Naturally, the question appears whether acquirers and online marketplaces have any tools of countering the transaction laundering and card fraud? The answer, unfortunately, not completely, but they can reduce transaction laundering to the lowest possible extent. Acquirers and marketplaces must follow well-known practices strongly advocated by card associations and perform ongoing and robust screening. Here are a couple of practical solutions, which will help to reduce transaction-laundering risks. 

Robust underwriting and onboarding KYC, AML procedures and screening

First and foremost, acquirers and marketplaces have to develop and deploy robust underwriting and onboarding KYC and AML procedures for each merchant. It is true for online marketplaces to the same extent as for acquirers since such marketplaces are itself acting as acquirers (even when they are acting, and not their clients, as merchants of record). Therefore, marketplaces must establish onboarding practices allowing them to be certain regarding goods or services provided by the merchant.

In practice, it would mean that they must perform additional checks on the products and services prior to allowing the merchant to fully operate. It would deter the establishment of the bare online fronts which do not even operate and simply provide the impression that something exists there. For acquirers, it would be to fully understand all supply chain of the goods and perform robust screening of all partners of the merchants which they are onboarding.

Let’s not forget that in many cases the illegitimate transactions will only be injected after the legitimate online store is up and running for a few months with no reasons for suspicion from the acquirer. Therefore, there should be ongoing screening practices and occasional checks. Regardless of the time for how long the merchant is operating, each of them is susceptible to fraud. Sometimes even unwillingly but with the engagement of the lower-tier employees who are promised a share of laundered funds. Therefore, ongoing screening is a must and carrying out occasional calls to supporting the centre and inquiring regarding the goods sold on a marketplace could strengthen it. Such practice allows detecting whether there is an adequate knowledge of the products offered through the websites. 

An ongoing program for monitoring the merchant or sub-merchant portfolio

Another aspect to consider in order to reduce the susceptibility of acquirers and marketplaces to transaction laundering is the establishment of an ongoing program for monitoring the merchant or sub-merchant portfolio. Ideally, it should be implemented through tools based on artificial intelligence, which would track suspicious patterns combined with well-trained AML staff. It is very difficult for a human eye to oversee hundreds or thousands of active merchants. Therefore, robust screening combining the best of both worlds is the key. 

Thankfully there is an existing effective solution to counter transaction laundering: G2 Web Services which is the market leader in providing acquiring banks and their value chain constituents with global business risk intelligence. G2’s advantage in finding transaction laundering lies in both the robust data in the G2 Merchant Map combined with human curation to avoid false positives. Because over 25% of launderers are re-boarded with operations intact and 50% return under aliases or other adjustments, only the G2 Merchant Map with 105 million URLs and trillions of data points stand the best chance of spotting them.

By leveraging data science and technology, G2 recognizes links to past violators and webs of fraudsters, so that acquirers and marketplaces can catch them and remove them from their portfolios. G2 also regularly crawls the World Wide Web to look for merchants outside of its clients’ known merchant portfolio that may be engaged in laundering. G2 TLD leverages technology, machine learning, and AI to crawl and classify illegal merchants, which G2 then connects to acquirer’s portfolio. It has best-in-class tools, honed for over a decade, to run test transactions and obtain definitive proof of transaction laundering, which supports clients’ decision to terminate.

Transaction filters and data analysis

When it comes to countering processing of stolen payment cards, the best solution is to establish robust filters for transactions. As well, there are ample solutions, which offer worldwide information about cards. For instance, MaxMind helps to identify the digital identity and verify whether the card was appearing in any of the suspicious transactions. As well, it is advisable to use data providers who have information regarding stolen payment cards. Some of such data providers have information that they acquired from the dark web, where this information often originates.

Not surprisingly, the best solution to the problem occurring in a digital world is digital. Contextual monitoring software should use big data analytics to make links between transactions and parties, across internal and external third-party data sources. The aim is to put each transaction on a network into a wider context. Only by looking at the macro picture, marketplaces and acquirers can gain a full view of their customers and identify unusual and illegitimate transactions consistently and accurately among thousands of genuine dealings.


Originally published at on 2nd of May 2019