The Green Sheet Online Edition
July 11, 2016 • Issue 16:07:01
SAR obligations for transaction laundering
Given the ongoing government actions against payment companies accused of knowingly processing fraudulent transactions, we thought readers of The Green Sheet would be interested in our most recent blog post. Here's an excerpt:
Suspicious Activity Reporting (SAR) forms the cornerstone of the Bank Secrecy Act (BSA) reporting system. Broadly speaking, federal regulations require all banks and financial institutions to file a SAR with respect to a host of financial crimes and transactions conducted or attempted through them if they know, suspect or have reason to suspect that the transaction may involve potential money laundering or other illegal activity. FinCEN regards credit card laundering and factoring as a variation of money laundering, equally subject to SAR requirements.
Credit card laundering occurs when a merchant uses a straw entity to act as a front, pass-through or aggregator for the merchant's transactions. Other indicia include multiple MIDs, multiple corporations and a continuity negative option model. Almost always, such conduct violates federal civil law, such as Section 5 of the Federal Trade Commission Act and the Telemarketing Sales Rule, as well as federal criminal law, such as 18 U.S.C. § 1029 (factoring), 18 U.S.C. § 371 or § 1029(b)(2) (conspiracy), 18 U.S.C. § 1343 (wire fraud), or 18 U.S.C. § 1344 (bank fraud). Many states also have their own laws against transaction laundering.
Yet except for certain money services businesses (MSBs), nonbank third-party organizations such as ISOs/MSPs, payment facilitators/payment service providers, data processors and network providers (collectively TPOs) generally are not subject to BSA requirements. Thus, it is the acquiring bank's responsibility to (1) ensure that a TPO's incident reporting and management program contains clearly documented processes and accountability for identifying, reporting, investigating, and escalating incidents of credit card laundering and other suspicious activity; and (2) monitor TPO compliance and processing information on an ongoing basis to ensure compliance with the acquirer's SAR obligations.
Theodore F. Monroe and Bradley O. Cebeci,TFM, The Payments Law Firm
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