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Network of dummy online stores used to hide internet gambling payments

Jun 26, 2017, 6:55 am

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Online GamblingOnline Gambling: Network of dummy online stores used to hide internet gambling paymentsRating:

A network of dummy online stores offering household goods has been used as a front for internet gambling payments, according to a recent investigation.

The seven sites, operated out of Europe, purport to sell items including fabric, DVD cases, maps, gift wrap, mechanical tape, pin badges and flags. In fact, they are fake outlets, part of a multinational system to disguise payments for the $40 billion global online gambling industry, which is illegal in many countries and some U.S. states.

The findings raise questions about how e-commerce is policed worldwide. They also underline a strategy which fraud specialists say regulators, card issuers and banks have yet to tackle head-on. 

That strategy is "transaction laundering" — when one online merchant processes payment card transactions on behalf of another, which can help disguise the true nature of payments.

Credit card companies including Visa and Mastercard require all online purchases to be coded so they can see what type of purchase is being processed and block it if it is illegal in a particular country. The codes are known as Merchant Category Codes. Gambling transactions, for example, are given the code of 7995 and subject to extra scrutiny.

The scheme found by Reuters involved websites which accepted payments for household items from a reporter but did not deliver any products. Instead, staff who answered helpdesk numbers on the sites said the outlets did not sell the product advertised, but that they were used to help process gambling payments, mostly for Americans.

Categorising a gambling transaction as a purchase of something else is against the rules of card issuers including Visa and Mastercard, the card companies said in response to Reuters' findings.

"Transaction laundering is serious misconduct — often criminal," said Dan Frechtling, head of product at G2 Web Services, a financial compliance company which works with leading banks and card issuers. "It violates the merchant's agreement with its acquirer, allows prohibited goods and services to enter the payment system, and may flout anti-money laundering laws."

Three other fraud experts consulted by Reuters said transaction laundering helps online merchants trade in areas that credit card issuers and banks may otherwise bar as "high risk," such as gaming, pornography or drugs. Some of them say thousands of online merchants may be using similar techniques to move billions of dollars that card companies would otherwise block.

"It is the digital evolution of money laundering," said Ron Teicher, CEO of Evercompliant, a cyber-intelligence firm that works with banks to identify suspect sites. "The only thing is it is much easier to do, and much harder to get caught."

Gateway for gamblers

The dummy stores came to Reuters' attention in late 2016, when an anonymous document posted on the internet pointed to three online outlets that advertised products but did not actually deliver any. In December, a reporter placed an order for a yard of burlap cloth on one of the sites, myfabricfactory.com, a website run by a UK company called Sarphone Ltd. The fabric, advertised in U.S. dollars at $6.48 per yard, has "many uses including lightweight drapes," the website says. Sarphone did not respond to requests for comment.

This order went unmet. After a few weeks an email from My Fabric Factory arrived saying the product was out of stock. The payment was refunded.

When a reporter called the helpline number given on the site, the call was answered by someone who gave her name as Anna Richardson. She said she was employed by Agora Online Services, a payment services provider. Payment services providers (PSPs) verify, process and code card transactions.

Richardson said Agora processes payments for poker and works with "hundreds" of online gambling sites. Asked which references on the reporter's card statement would be for online gambling, Richardson said, "If you have been using a betting site of any sort... they are normally processed by us."

It was not possible to verify Richardson's identity. The My Fabric Factory email came from Agora's email address, info@agrsupport.net. Agora, headquartered in Iceland and linked to companies from the UK to Germany, is owned by a Mauritius-based company, DueXX Ltd, according to Orbis, a company database. Andrej Brandt, one of two directors of Agora and listed as the sole point of contact on DueXX's website, declined to comment.

"Thank you very much for your interest but I don't like to share my views and insights," he said via text message after Reuters presented its findings. "I presume you understand."

The other director of Agora, Joerg Henning, could not be reached.

Reuters placed orders for household products on six other websites, all owned by companies in the UK. All the orders went unfilled and payment was refunded without comment. The sites used the same mail server as one of Agora's web addresses, agrsupport.net, according to domain name records.

The site helplines were answered by three individuals who all said they worked for Agora, a company that specialized in processing gambling payments. One was the woman who identified herself as Anna Richardson. Another gave her name as Lucy, and the third, who did not give his name, told the reporter, "Most of the people who gamble and end up having our charges on their accounts are Americans. Gambling is illegal in America." The staff said they were based in Germany.

When Reuters made payments on the seven sites, in each case the reporter's credit details were processed by Deutsche Payment, a payment processor headquartered in Berlin. Its website says it is certified by the PCI Security Standards Council, a global payment card security body. It was included in Visa Europe's May 2017 list of approved agents. Deutsche Payment did not respond to requests for comment.

The PCI Security Standards Council said it was up to the card companies to regulate payment processors.

Presented with Reuters' findings, a spokesperson for Visa said, "We require all gaming sites to be processed under the relevant Merchant Category Code. Our rules are always subject to local law and we do not tolerate criminal activity."

A spokesperson for Mastercard said: "When we are alerted to activities that may be against our rules or against the law, we work with the merchant's bank to confirm or investigate the allegation." 

After Reuters approached the payment processing companies, all seven online stores stopped accepting payments, although they remain visible online.

Ecosystem

Illicit gaming is hard to detect, partly because those involved cooperate to hide what they are doing, said Scott Talbot, head of government relations at the ‎Electronic Transactions Association, a trade organization for the payment processing industry that counts some of the world's largest banks as members.

Also, sites like those found by Reuters are small cogs in a complex global infrastructure.

"Illicit finance is incredibly creative," said Gregory Lisa, a partner at law firm Hogan Lovells who has worked for the U.S. Treasury Department's Financial Crimes Enforcement Network and as a trial attorney for the U.S. Department of Justice prosecuting money-laundering and fraud cases. "It is a very difficult arms race between the government and illicit actors and their financiers."

Fraud specialists say dummy stores like those found by Reuters are not meant to be visited by the normal public. They are designed to be hard to spot, and their role is simply as a shop front to back up the bogus description.

Gambling sites that operate in countries where online gaming is illegal will take payment through their own sites, but then simply program the sites to give a reference to sites like the dummy stores in payment records, the consultancy Evercompliant says.

As far as the gambler is concerned, their payment has gone to the gambling site. Only when they see their card statement do they find a reference to the bogus store. If they visit the store and call the helpline number, the people who answer explain that the transaction actually corresponds to gambling — as Agora staff told the Reuters reporter.

Evercompliant, which has developed proprietary technology to help large banks and finance firms check sites they deal with, analyzed the seven dummy stores at Reuters' request.

It found they were part of what it called an "ecosystem" of nearly 50 interlinked websites, owned by companies in countries ranging from Georgia to Latvia. It analyzed these sites and said if it had found such a network in a bank's portfolio of customers, it would suspect transaction laundering, CEO Teicher said.

Loopholes

Such sites get around checks by credit card companies by using loopholes in the system, according to Frechtling at G2.

Some banks rely on payment processors to vet online merchants. While most PSP firms are legitimate, their due diligence can be perfunctory, he said.

"Some PSPs will make a basic anti-money laundering check — for example, using sanctions lists," he said. "But they may not do a full vetting of you until you start transacting. That is a weak link.

"Transaction laundering directly through a bank doing thorough due diligence would be relatively difficult, but at a PSP that is sponsored by a bank it is often easier."

It was not possible for Reuters to determine which bank or banks work with Deutsche Payment or Agora.

The UK firms that own the seven dummy online stores were set up by Simon Dowson, whose company formation agency closed down in 2015 after businesses it set up were involved in global scams including money-laundering. Reuters revealed last year how Dowson used residents of the English town of Consett as part of the scheme.

Dowson's wife, Tanaporn Thompson, also known as Tanaporn Dowson, was named as director of Sarphone Ltd, the owner of My Fabric Factory, for a week in January 2017. She could not be reached.

The person named in the UK company register as having ultimate control of Sarphone is another Consett resident, Emma Chambers. Chambers and Dowson did not respond to requests for comment for this story.

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Reuters

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5 comments. Last comment 3 years ago by cbr$.
Page 1 of 1
music*'s avatar - DiscoBallGlowing
Fresno, California
United States
Member #157851
August 2, 2014
3931 Posts
Offline
Posted: June 26, 2017, 7:51 am - IP Logged

 Should online gambling be legal here in the U.S.? With no restrictions.

 "We are all in this together!" 

    Avatar
    Baton Rouge, LA
    United States
    Member #4602
    May 7, 2004
    715 Posts
    Offline
    Posted: June 26, 2017, 11:18 am - IP Logged

    My credit card got hit by one of these a few years ago. It appeared to be a furniture store in London. When I dug further, I found several other sites that looked identical to the first one selling tools, cakes, video games, you name it. The 2 things they had in common were the same credit card processor in Germany and the same mail drop in London. It wasn't the same company in the article, but they were doing the same thing.

    I told my credit card company this and they said they'd look into it, but I never heard anything else. They did take off the charge and issued me a new card though.

    Prisoner Six

    "I am not a number, I am a free man!"

      Avatar
      100

      United States
      Member #70685
      February 8, 2009
      11348 Posts
      Offline
      Posted: June 27, 2017, 12:24 pm - IP Logged

      Well this would be less of an issue if people were allowed to use their own money to gamble. I can understand banks perhaps not wanting their credit cards used since you are using borrowed money. However if I use my debit card, I should be able to use it to fund a gambling account when it is technically my money!

      The official poster of NYL results Jester

        Groppo's avatar - cat anm.gif

        United States
        Member #162626
        January 7, 2015
        778 Posts
        Offline
        Posted: June 27, 2017, 1:49 pm - IP Logged

        .

        "Illicit financing is incredibly creative" is what I took out of the article.
        To that, I say, yes, and I can only imagine what else goes on.  But, this is enough to not really bother me
        for a few reasons:

        • I don't online gamble.
        • I am strictly a cash gambler (no I don't go around with thousands or hundreds in my pocket. As of late, I find myself having to make more trips to the atm, for tiny amounts).
        • I don't have a smart phone, which keeps such gambling habits further at bay.
          I'm just looking for that 'big' payout from MM or PB.

          I take it then, that the gist of the article is: "Creative ways online .coms feed on peoples' greed".
          (as if having a lottery like we do have wasn't enough.  I'm not complaining, mind you.)

        Thanks to Todd and/or whoever else at Lottery Post, as usual, for an informative article.

        • Don't chase the numbers you play.
        • Play only numbers you've already played, plus however many random picks.
        • But, ALWAYS the regular numbers you play.  This will make you a winner, not a chaser.
                   (so far, though, I've yet to win any significant lotto prize)
        • Oh, but always know where your tickets are, as well as your ticket's deadline.
          cbr$'s avatar - maren
          100
          Cordova,Al.
          United States
          Member #104478
          January 15, 2011
          11420 Posts
          Offline
          Posted: June 27, 2017, 4:03 pm - IP Logged
          This article may have save someone a few dollars in on line gambling sites. I can understand credit
          card companies wanting to know what they're processing transaction for. I don't think this extra
          scrutiny should be used on debit cards not even vista. It is your money. The laundering money scare
          tactic statement is back again to make people see the U.S. point of view. The last time the U.S. used
          this statement about 15 years ago. They took the $500 & $1,000 bills off the market in the U.S. Now,
          you have to order them from the reserve. Plus pay a extra fee for it. When do this be come stalking
          our money ?