Government regulations laid out by the Bank Secrecy Act and the USA PATRIOT Act require businesses to follow certain practices to avoid facilitating criminal activity, even inadvertently. Together, these regulations form the backbone of anti-money laundering efforts in the U.S.
These government regulations are supported by card brand rules that provide direction on payment facilitators’ specific roles and responsibilities. This is an area that can be daunting to many new and even seasoned payment facilitators.
Dr. Heather Mark, Ph.D., director of compliance for ProPay, shared four critical AML practices the payment facilitators she meets do not always fully understand.
Onboarding. Payment facilitators exist in part to ease entry into the payments system for small and micro-merchants, for whom the process of signing up with a traditional payment processor can be difficult and/or costly. However, there are some steps to that traditional process that cannot be skipped.
“If we look at the genesis of payment facilitators, the goal is to lower barriers to get into a particular market or a particular industry. If we look at the goal of money laundering, it’s typically to find low barriers to get into,” Mark said.
That’s why, when onboarding merchants, payment facilitators must perform the full underwriting needed to verify that their customers are who they say they are, and that they are not sanctioned by the Office of Foreign Asset Control (OFAC) for ties to crime or terrorism. “Know Your Customer” practices and OFAC screening are critical practices that PFs cannot skip or shortcut.
Monitoring. Once the merchants are onboarded, the work isn’t over, Mark said. Payment facilitators are responsible to implement systems they can use to monitor their merchants’ transaction activity to watch for suspicious behavior and report it if needed.
“You may see something that doesn’t look right because you understand your merchant demographic. For example, you’ve got a merchant that’s doing pretty steady business, then all of a sudden they’re spiking, they’re up 200% over these three days, then they’re back down again. That’s anomalous behavior,” Mark said. “So figuring out what’s at the root of that and whether it’s something that is suspicious activity that merits reporting to the authorities or referral to your bank is very important.”
Documentation. So, what if a PF investigates that anomalous behavior and determine that there was a legitimate reason for it – it wasn’t likely activity that merits reporting after all?
“Certainly you’re going to be on the hook if you’re willingly flouting the law,” Mark said. “But in some cases, simply not taking an action is just as bad.”
For that reason, PFs must document not only their practices, but their criteria for making certain decisions. Proper documentation helps enable a PF’s AML processes to be repeatable, consistent, and in some cases, defensible, Mark said.
“Document your reasons, have your criteria, review it on a regular basis, and make sure you’re adjusting it in a way that’s appropriate to the risks that are evolving in your business,” she said.
Connection. The good news is, there is help out there, Mark said. Payment facilitators should look into support offered by organizations such as the Merchant Acquirers’ Committee (MAC) and the Association of Certified Anti-Money Laundering Specialists (ACAMS). These groups hold conferences, develop resources, and allow opportunities for networking with other professionals that can be invaluable to businesses wishing to understand more about AML practices and current fraud trends.
In addition to participating in industry groups, payment facilitators can learn about trends in criminal activity by watching for enforcement action bulletins and guidance coming from government entities such as OFAC, FinCEN, and CFPB.
“You can see where different industries might be an area of focus for regulators, and that may be specifically because they’re seeing a high level of activity there that’s concerning to them,” Mark said.
It’s important to keep in mind that not all AML work must be done in-house. Mark highly recommends seeking expert assistance in the form of partnerships with providers or outside counsel specializing in payments. Outside experts can advise PFs, help them define their internal processes and take on some of the tasks necessary to comply.