The Payments Hustler - · PDF file2016 Peer to Peer 100MM US Adults +25% 2017 (Javelin...

The Payments Hustler

Jane HennessyHead of External Alliances, G2 Web Services

UMACHA Navigating Payments Conference

October 5, 2017

• Who is the Payments Hustler?

• How does he work?

• How have authorities gotten involved?

• What do you do about it?

Agenda

Who is The

Payments Hustler?A brief overview

• Deals in illicit products

or services

• Usually operates online

• Learned to hide his transactions

by accepting credit cards under

a front business

(“Transaction Laundering”)

• Then lost his access after the

card networks and acquirers got

smart, causing him to rotate

alternative payment methods

(“Payments Laundering”)

Who is The Payments Hustler?

The Payments Hustler

ALTERNATIVE PAYMENTS METHODS

E-Wallets Mobile Pay Bank Debits/CreditsPeer-to-Peer

MSBs Pre-Paid Cards Vouchers Cryptocurrencies

What Payments Does He Use?

• Alternative Payment Methods (APMs) are payment methods apart from credit/debit cards used to make online purchases or transfer money

• While credit/debit cards are still the dominant online payment method, APMs are gaining ground rapidly

• While card brands become better at detecting “front” businesses, APMs are only slowly realizing this threat

What is the Growth and Acceptance of APMs?

$1.35T

+32% 2017

(Juniper Research)

Mobile Wallet

2016

Peer to Peer

100MM US Adults

+25% 2017

(Javelin Strategy)

2016

Pre-Paid Cards

$3.1T

by 2022

Pre-Paid

Self-Study Laundering-As-A-Service

Where Does He Learn?

Why Do They Dwell in the Dark Web?

What is The Dark Web?

• Information not searchable by traditional search engines

• Not easily traceable

• Used by Payments Hustlers to share tips in real time

The most popular browser is “The Onion Router” or simply known as TOR

The company profited

anywhere from $600,000 –

$800,000 a day

The company profited

anywhere from $600,000 –

$800,000 a day

Latest Take Down

How Does He Work?A high-level overview with case studies

With his merchant accounts closed,

he is forced to go back to the

drawing board

What Is His Strategy?

Transaction Laundering

Rule #1 — The Payments Hustler is Working to Get Paid

Payments Laundering

Point-to-Point

Mobile Wallet

$50

Vouchers

Pre-Paid Cards

Cryptocurrency

MSBs

And/Or

Pre-Paid

• Bad actors probe less monitored payment types for

weaknesses through trial and error

• Alternative and emerging payments are often unprepared and

find themselves unwittingly enabling crime

What Are His Tactics?

Plan A: Alternative Payment

Networks (money transfer, P2P)

Plan B: Bank Payments

(account-linked debits, credits)

Plan C: Cryptocurrencies

(general: bitcoin, specialized: potcoin)

Methods

Merchandise

Month 1 Month 2 Month 4

What Does It Look Like In Practice?

“If you can’t fix it,

feature it!”

-Sir Ernest Shackleton

What Does It Look Like In Practice?

Step 2 Step 1

What Does It Look Like In Practice?

Step 3 Step 4

What Does It Look Like In Practice?

Step 1 Step 2

What Does It Look Like In Practice?

Clearly this payment brand would not want to be seen as facilitating bestiality

Escrow

What Does It Look Like In Practice?

What Does It Look Like In Practice?

The payment has been laundered and no evidence of the illicit nature of the transaction is readily apparent

How Have Authorities Gotten Involved?Regulators and legislators take notice

Are Regulators Taking Notice?

US CongressState Laws

Are Legislators Taking Notice?

What Do You Do About It?A playbook for action

Sales Underwriting Account Monitoring

Look for Transaction Abnormalities

Regularly Initiate Test Orders

Create a Feedback loop with Customer Service

Key Tactics

Review Business Customer Online Reputation

Look for Process Abnormalities

Align Sales Practice with Business Goals

Use Clawbacks of Commissions

Key TacticsKey Tactics

Detect Related Undisclosed Businesses

Ferret Out Front Businesses

Detect Related Accounts

Apply a Common Business Detail Review

Key Tactics

Compliance & Risk

Sales Underwriting Account Monitoring

What Does Good Organizational Communication Look Like?

Apply organizational best practices and stay abreast of fraud trends so you direct countermeasures

In a comprehensive KYC/KYCC program, that deals

with APMs, we see two investigative components:

1.Known Universe — Your alternative payments solution(s) and their

associated business customers

2.Unknown Universe — Business customers who are claiming to have

accounts with your APM or are using your APM through some kind of

proxy as a means of hiding either the origination of the funds

and/or what it is being spent on

Confronting the Fraudsters

Strategies for Known Universe

Is: Enrolls your customer websites in

persistent Business Customer

Monitoring to seek prohibited or

malicious content

Does: Uses your portfolio to scan the

WWW for any changes in your

customers business profile

Means: You discover when merchants

turn to prohibited activities before

they can involve you in legal trouble

or damage your brand

• Business Customer Monitoring

• Fraud History Database

• Watch Lists/Negative News/Complaints

Is: A sizable database that checks

past fraud and compliance violations

for connections to your portfolio

Does: Checks your customers

against Business Customer records

to find those previously caught in

illicit activities

Means: You prevent your payment

system from being exploited as a

last resort by crooked merchants,

even when they try to use aliases

Is: KYC intelligence that helps you

comply with BSA/AML and consumer

protection laws

Does: Leverages both exclusive data

and aggregated data sourced from

hundreds of global watch lists and

hundreds of thousands of news and

information sources

Means: You are informed of merchants

connected to PEPs or sanctioned

persons so you avoid penalties and

other regulator actions that can

permanently harm your business

Data-driven:

machine crawling | bad actor database | expert analysts | data science

Source: Ripoff Report

“I actually worked for

iWorks in St. George,

UT and was very

troubled with the

fraud taking place

there”

“I actually worked for

iWorks in St. George,

UT and was very

troubled with the

fraud taking place

there”

Year 1 Year 2 Year 5Year 4Year 3

“The company name given to me

when researching was MIT, and was

in good standings with the BBB.

When my charge card statement

arrived, the charge read Real

Estate training. Later I learned it

was iWorks… I tried contacting the

original salesmen. After four

attempts by email and phone

messages, no response.

“The company name given to me

when researching was MIT, and was

in good standings with the BBB.

When my charge card statement

arrived, the charge read Real

Estate training. Later I learned it

was iWorks… I tried contacting the

original salesmen. After four

attempts by email and phone

messages, no response.

“The previous

comments by former

iWorks clients have all

been valid. There is

absolutely no one to

call, write, or to

negotiate with

regarding a refund”

“The previous

comments by former

iWorks clients have all

been valid. There is

absolutely no one to

call, write, or to

negotiate with

regarding a refund”

“They have several

lawsuits pending and I

regret ever working

for this company”

“They have several

lawsuits pending and I

regret ever working

for this company”

“If there is an Atty in UT that

would take this case to help

me recover my money, I

would like to talk. If iWorks

wants to resolve this, I am

open to discussion; however,

I cannot get in touch with

them”

“If there is an Atty in UT that

would take this case to help

me recover my money, I

would like to talk. If iWorks

wants to resolve this, I am

open to discussion; however,

I cannot get in touch with

them”

iWorks Consumer Complaints

Strategies for Unknown Universe

Is: A continuous crawl across the WWW

e-commerce sites looking for your

payment brand

Does: Finds merchants engaging in

forbidden activity — as defined by law,

regulation and credit card rules — and

who are using your brand to facilitate

their activity

Means: You avoid investigation by law

enforcement, unfavorable media

coverage and other brand damage

because you find and act on prohibited

commerce first

• Brand Monitoring

• Brand Investigations

Is: Portfolio audit of your payment

brand by trained analysts

Does: Finds concealed use of your

brand, such as shady business

customers that bait buyers with the

false pretense of credit card

acceptance and switch to your brand

after payment fails

Means: You have access to global

investigative tools to ferret out

hidden misuse of your payment

system, discovered through human

research experience and machine

driven web monitoring

• Test Transactions

Is: Sets up your system to trace

purchases to hidden endpoints without

buying the goods or services

Does: Combines analysis tools and

mystery shopping to expose fraud

within your system

Means: You find merchants violating

your terms and conditions that are

dealing in the most egregious

commerce, such as illegal drugs or

pharma, illicit gambling, counterfeit

and other endeavors

*May require third party assistance

Data-driven:

machine crawling | bad actor database | expert analysts | data science

Processing Sites Found Using Unknown Universe Tracing

Transaction Started On this site

Same Phone# is a clue

that this is a network

of sites

Process attempt #1

• With the growth of APMs comes the expanding opportunities for fraudsters to find ways to get paid

• Payments Hustlers rotate through new payment types to exploit loopholes and less developed due diligence policies

• Payments Hustlers are tech savvy and have access to data about the vulnerabilities of your financial products in great detail

• Legislators, law enforcement and regulators are not just targeting banks but new payment-method businesses as well

• Payments Hustling poses a threat to your brand and your bottom line

• You can protect yourself with the proper due diligence on Known Universe (recognized accounts) and Unknown Universe (concealed users)

Key Takeaways

Thank you! Jane HennessyHead of External Alliances, G2 Web Services

jhennessy@g2llc.com | 415-867-9293