Merchant Fraud

Transaction laundering involves using a legitimate merchant account to process payments for another business that cannot get an account usually due to illegality or high risk. This is the digital equivalent of money laundering.

We defend clients accused of factoring. We argue that they were acting as a payment aggregator or a marketplace rather than a launderer. We analyze the contractual relationships. If the merchant had a contract to resell goods for a third party we argue that the transactions were authorized. We challenge the government's characterization of the funds as illicit proceeds. We demonstrate that the underlying transactions were for real goods and services thereby negating the money laundering charge.

A bust-out scheme occurs when a merchant establishes a history of good payments to increase their processing limits and then floods the system with fraudulent transactions before abandoning the account and disappearing with the cash.

We defend against bust-out allegations by proving the legitimacy of the business failure. We present financial records to show that the business collapsed due to market forces or supply chain issues not a premeditated plan to defraud. We show that the merchant attempted to fulfill orders or issue refunds. We argue that insolvency is not a crime. We differentiate between a business that failed while owing money and a business that was built to steal.

The standards for placing a merchant on the MATCH list are strict but often ignored by risk managers who pull the trigger too fast.

We demand the evidence supporting the listing. If the processor claims excessive chargebacks we audit the dispute data. We often find that the chargebacks were caused by a technical error or a friendly fraud attack rather than merchant error. We negotiate directly with the legal department of the card brands (Visa/Mastercard) and the acquiring bank to remove the listing. We seek injunctive relief to restore the processing ability of the business while the dispute is pending.

When a processor suspects fraud they freeze all funds in the pipeline. This can amount to millions of dollars in working capital.

We challenge the contractual right of the processor to hold these funds indefinitely. We argue that the hold is punitive and exceeds the potential liability for chargebacks. We file actions for conversion and breach of contract. We demonstrate that the processor is holding the money to enrich themselves rather than to cover risk. We force the release of the funds so that the business can pay its vendors and employees.

We represent clients in investigations by the FTC and the Consumer Financial Protection Bureau (CFPB). These agencies seek to hold the processor liable for consumer losses.

We argue that the processor is a neutral infrastructure provider not a guarantor of the merchant's conduct. We demonstrate the robust monitoring systems our client uses to detect fraud. We show that once the fraud was detected the ISO acted immediately to shut it down. We negotiate consent decrees that allow the ISO to stay in business without admitting liability.

The government often claims that the ISO "should have known" the merchant was fraudulent. This is the willful blindness theory.

We defend the underwriting decisions. We present the dossier that was collected at the time of boarding. We show that the merchant provided falsified documents that would have fooled any reasonable underwriter. We argue that the ISO was also a victim of the merchant's deception. We protect the license and the reputation of the payment professional.