The Rise Of Payments Laundering

Getting paid is a worker’s number one priority — including the fraudster. And that’s why they have turned to alternative payments as a way to both get paid and elude the traps that fraud detection systems have put up to find them.

With that new focus also comes the rise of the payment hustler — a new breed of fraudster that deals in illicit products of services, typically operates online and has progressed from transaction laundering to payments laundering in the pursuit to get paid from their illegal crimes.

Dan Frechtling, CMO and CPO at G2 Web Services, joined Karen Webster in a live digital discussion to break down who these payment hustlers really are, what they’re after and why the payment industry needs to take notice.

Payment Hustlers on the Rise

One of the biggest hurdles in perpetrating fraud online is getting paid — and why fraudsters are always onto the next best opportunity. As industry stakeholders or authorities catch on to schemes and attack methods, cybercriminals are quickly moving to the next lucrative tactic they can put in place to make money.

That same cycle has continued when it comes to transactional laundering.

Transactional laundering has gained attention from banks and payment service providers, which has forced fraudsters to explore other ways to hustle consumers and businesses.

According to Frechtling, this is how the payment hustler persona was born.

When fraudsters get flushed out of card payments, they lose access to the card networks and acquirers, so they are forced to progress from hiding among front businesses and shell companies to then hiding among different payment methods, he explained.

This is the watershed moment where payment hustlers evolve to using payment laundering, which Frechtling defines as shifting the flow of funds between payment methods.

With payment laundering, APMs such as P2P payments, money service businesses (MSBs), eWallets, mobile payments, prepaid cards, vouchers, bank debits and credits or linked bank accounts and cryptocurrencies become fertile territory for fraud and crime.

Frechtling said that money laundering requires three steps: placement, layering and integration.

Layering is the key step where the alternative payments come into play by carrying out one or many transactions to hide the source of funds, he explained.

While some payment hustlers are self-taught, using online marketplaces and forums to learn how to commit fraud of all types and master the tricks of the trade, others rely on the growing supply of laundering-as-a-service offerings that are being made available online.

Using the dark web for refuge, payment hustlers can freely conduct illegal commerce as well as lurk and browse undetected to find the illicit products or services they are looking to buy or sell.

Payment hustlers are strategic, smart and also not afraid to use trial and error until they find the attack methods that work best, Frechtling noted. He said that their tactics typically include a Plan A of using alternative payment networks, a Plan B of using bank payments and a Plan C of relying on cryptocurrencies.

Knocking the Payment Hustler

Providers of alternative and emerging payments often find themselves unwittingly enabling crime.

Unfortunately for consumers and businesses, these crimes aren’t always a top priority or even on the radar of regulators and authorities.

“In many cases, these are small-time crimes in the eyes of law enforcement, so many times it goes unnoticed because it’s not large enough to draw the attention and resources of the already very stretched law enforcement agencies,” Frechtling said.

However, he noted that things are changing, as both regulators and authorities are starting to take notice to the growing payment hustler impact.

Frechtling noted the recent case of the FTC vs Paybasics, in which Paybasics was accused of recruiting merchants that enabled access to card systems through shell companies. In the case, the FTC’s comments addressed money laundering at great length and noted the huge ramifications for consumers and law enforcement. As money laundering continues to grow and evolve, the FTC noted that it gets more difficult to pull back the layers of deception to identify who is really causing harm. This has enabled launderers to continue to strike over and over again without being discovered.

Another reason payment hustlers are able operate online without being shut down is that sometimes their victims are actually the ones using websites to purchase illicit products and services. In those cases, reporting the fraud to authorities would only bring about more questions on the illegal purchases.

Frechtling said that oftentimes sellers will even go so far as to include a paragraph with a subtle threat or blackmail, which will lead most buyers to avoid reporting and just taking the fraud loss so they aren’t exposed.

But no one can take action unless they’re actually aware of what’s going on.

Regulators and authorities can only do so much, which is why organizations like G2 Web Services and other members of the payments ecosystem are stepping up to take payment hustlers down.

Flushing Out the Hustlers

“The playbook we would recommend starts with organizational communication,” Frechtling explained, noting that sales, underwriting and account monitoring are three key functions for addressing compliance and risk.

But in a payments ecosystem where consumers and businesses have a need for speed, slowing down processes to ensure people are who they say they are doesn’t always work.

In the competitive market to acquire merchants, time can be just as crucial of a factor as price. Bringing people in the door quickly is fine, but Frechtling said there has to be better monitoring in place.

This is what he called a risk equilibrium.

“If your door is going to be open wide, then you really need a containment area for monitoring so that you can eject the bad actors quickly,” he explained.

Monitoring is a very important part of the process, which is why there has to be a balance between it and speed.

G2 Web Services utilizes a combination of dedicated investigators and a broad net that’s scanning the internet all the time in order to identify and mitigate the threat posed by payment hustlers.

This involves helping their clients investigate what’s going on in their portfolios, while also analyzing database history and scanning the global network for clues in order to take advantage of what’s been monitored in the past.

It can be described as fraud forensics in real time.

“A lot of fraud can happen quickly. As we move to faster payments around the world, we can indeed see faster fraud,” Frechtling noted.

It no longer takes days for fraud losses to happen. Today consumers and businesses can feel the impacts of fraud in just hours, or even minutes.

Frechtling said businesses must have an in-depth defense and multiple layers of those defenses, because the fight against fraud is going to be a long war.

“The best you can do is share information and put into practice some of these functional best practices, because law enforcement won’t do it for you.”