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Agents Laundered Millions in Credit Card Charges

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Agents Laundered Millions in Credit Card Charges
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FTC alleges ISO, sales agents laundered millions in credit card charges.

Consumer scams need four things to survive: food, water, air – and access to the credit card system. Credit card networks build protections into the system to engage lawful businesses while keeping an eye out for fraud. When people use tactics to try to work around those protections, law enforcers take notice.

Illustrating this principle is an FTC action charging Arizona-based Electronic Payment Solutions of America, Inc. and related companies, Colorado-based Electronic Payment Systems, LLC, and six individuals with laundering millions of dollars of credit card charges through fraudulent merchant accounts.

First, a Credit Card 101 refresher. To accept credit cards, a business needs a merchant account with an acquirer. The acquirer typically has relationships with the credit card companies (MasterCard, Visa, etc.) and also enters into contracts with independent sales organizations (ISOs) to sign up merchants.

When the system performs as it should, ISOs serve an important gatekeeper function by screening out questionable merchants and identifying them if problems arise later. They’re supposed to take steps to ensure that the merchant is legit and to respond accordingly if it appears that fraudmeisters that can’t get merchant accounts under their own names are trying to sneak in. Tell-tale signs could include high consumer complaint rates, excessive chargebacks, or a history of illegal activity.

But when an ISO ignores obvious red flags that something is amiss or if the ISO is in cahoots with fraudsters to get them access to the credit card system, consumers can end up injured. That’s why processing one company’s credit card transactions through another company’s merchant account is a big-time no-can-do. Credit card companies forbid it and it violates the Telemarketing Sales Rule.

In 2015, the FTC secured court orders against multiple defendants involved in Money Now Funding, an outfit that had taken consumers for more than $7 million through bogus business opportunities and work-at-home schemes. End of story? Not on your life.

The lawsuit alleges that the defendants – an ISO and its sales agents – submitted and approved fraudulent merchant applications in the names of more than 40 fictitious companies affiliated with Money Now Funding. According to the complaint, the ISO processed transactions through the fictitious companies’ merchant accounts despite obvious signs that fraud and credit card laundering was afoot.

Two defendants charged with laundering millions of dollars in credit card charges through fraudulent merchant accounts have since settled with the Federal Trade Commission.

Under the proposed settlement order, the defendants, Nikolas Mihilli and Dynasty Merchants, LLC – a company created by Mihilli to launder fraudulent transactions – are prohibited from engaging in credit card laundering. They are also banned from telemarketing, and from acting as payment processors, independent sales organizations, or sales agents.

A monetary judgment of $5.8 million has been suspended due to the defendants’ inability to pay. If the court finds that either defendant misstated or omitted the value of any material asset, the judgment will immediately become due.

The complaint includes allegations of what was going on behind the scenes. According to the FTC, the defendants caused the laundering of close to $6 million in payments from consumers’ credit cards through the fraudulent accounts they helped secure.

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