any ISOs today need qualified salespeople to market their services. How well do you know the people you are hiring? The card associations require that a background investigation be completed on every ISO and independent contractor. It's a good idea for the ISO to do background checks on all "new hires." A con man is a con man and will beat you. You don't want clerical personnel compromising credit card information from your shop or wiring merchant funds to their personal accounts.

There are a lot of questions out there. One question we heard again recently:

If an ISO has an employee with a criminal background, must it notify the bank or processor?

Answer: Probably not, unless its ISO agreement provides otherwise or if the employee is an officer or would be considered a principal of the ISO organization. Some of the other questions recently asked by our clients include:

How extensive does this background investigation need to be? What happens if, during this process, something adverse is uncovered?

Answer: Establishing a policy for the hiring and screening of employees is a critical part of the operational aspects of the credit card business. We have a background format that includes both a civil and criminal background check. Depending on the type of position being filled, a federal criminal background check also may be recommended.

If something adverse is uncovered, we report this information to the client. The client then needs to decide whether to extend an employment offer to that individual. Felony convictions do not preclude hiring someone, but the hiring decision should be based on the type of conviction and when it occurred.

An important distinction to remember is that ISOs may hire independent contractors (individuals who provide card association services for the ISO) as long as the contractor is represented as working for the ISO and receives all compensation for services from the ISO.

An individual representing him or herself otherwise is considered to be subcontracting; a practice prohibited under card association rules. Independent contractors must register with the card associations if they work under their own corporate name or employ more than one individual.

An independent contractor is an individual whose bank card business relationship with a member bank ("member") or ISO involves any of the following:

• Merchant solicitation, sales or service.

• Merchant transaction processing solicitation.

• Cardholder solicitation or card application processing services. An Independent Sales Organization is an organization or individual that is not a member and whose bank card business relationship with a member involves any of the following:
• Merchant solicitation, sales or service.

• Merchant transaction processing solicitation.

• Cardholder solicitation or card application processing services. The member must conduct a background investigation to verify the financial responsibility of the ISO principals and ensure that no significant derogatory information exists. A member's review of the principals of an ISO is extensive and generally will include:

• Credit reports, an indicator of the principals' abilities and willingness to meet financial obligations.

• Personal tax returns and net worth statements. The latter typically include data on assets such as cash, liquid securities and holdings in other companies and on liabilities.

• Third-party background checks to identify criminal histories, tax liens, length of time in business and previous companies with which the principals have been affiliated.

• An assessment of the ISO's reputation in the industry. References will be checked focusing on entities with which the ISO has previously done business, such as terminal leasing companies and merchants. Often, checks for complaints with the local Better Business Bureau are included. Inquiries about an ISO sometimes are made with its previous acquirer or processor. Some maintain proprietary files of terminated ISOs based on their own experience and their alliance partners' and agent banks' experience.

• A query of the Visa Agent Reference File to determine if another member has discontinued its relationship with the ISO or independent contractor.

Approval must be based on sound business practices that will not compromise either the member or card associations and may not be based solely on any purported limitation of the member's financial liability in any agreement with the ISO.

The rationale for making an exception and hiring an individual should be documented at the time of the hiring. In addition, there are a few common-sense rules that apply.

For example, an individual convicted of any crime related to credit card fraud should not be hired; this will bring scrutiny from the card associations that could result in a substantial fine.

The actual results of these background checks do not need to be reported to the sponsoring bank unless required by contract. Also, the card associations do not need to be notified of the results.

For Visa registration of sub-ISOs and independent contractors, a completed Visa "Exhibit VV" must be filed before accepting any business from the sub-ISO or independent contractor. This exhibit is available from your sponsoring bank or processor.

Members may be required, upon request from the card associations, to provide documentation to confirm compliance with the card association risk standards and must perform an annual review of all ISOs to confirm ongoing compliance with the risk standards.