No: 17264 Friday, June 23, 2017

41

B u s i n e s s

FRIDAY, JUNE 23, 2017

NEW TAIPEI CITY: Terry Gou, Chairman of Taiwan’s

Foxconn, also known as Hon Hai, tears apart a

Chinese version of the Commercial Times during a

press conference yesterday. —AFP

LONDON: A network of dummy online stores

offering household goods has been used as a

front for internet gambling payments, a

Reuters examination has found. 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 multina-

tional system to disguise payments for the

$40 billion global online gambling industry,

which is illegal in many countries and some

US 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 “trans-

action laundering” - when one online mer-

chant 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 transac-

tions, 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 num-

bers 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.

Categorizing 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 prod-

uct at G2 Web Services, a financial compli-

ance company which works with leading

banks and card issuers. “It violates the mer-

chant’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 compa-

nies would otherwise block. “It is the digital

evolution of money laundering,” said Ron

Teicher, CEO of Evercompliant, a cyber-intelli-

gence firm that works with banks to identify

suspect sites. “The only thing is it is much easi-

er to do, and much harder to get caught.”

Gateway for Gamblers

The dummy stores came to Reuters’ atten-

tion in late 2016, when an anonymous docu-

ment 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 US dol-

lars at $6.48 per yard, has “many uses includ-

ing 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 pay-

ments for poker and works with “hundreds”

of online gambling sites. Asked which refer-

ences 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@agrsup-

port.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 con-

tact on DueXX’s website, declined to com-

ment. “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 prod-

ucts on six other websites, all owned by com-

panies in the UK. All the orders went unfilled

and payment was refunded without com-

ment. 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 compa-

ny that specialised in processing gambling

payments. One was the woman who identi-

fied 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 headquar-

tered 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 con-

firm or investigate the allegation.” After

Reuters approached the payment process-

ing 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 US Treasury

Department’s Financial Crimes Enforcement

Network and as a trial attorney for the US

Department of Justice prosecuting money-

laundering and fraud cases. “It is a very diffi-

cult arms race between the government and

illicit actors and their financiers.” Fraud spe-

cialists 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 dum-

my stores in payment records, the consultan-

cy 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 transac-

tion actually corresponds to gambling - as

Agora staff told the Reuters reporter.

Evercompliant, which has developed propri-

etary technology to help large banks and

finance firms check sites they deal with, ana-

lyzed 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 analysed

these sites and said if it had found such a net-

work 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 sys-

tem, 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 per-

functory, 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 spon-

sored by a bank it is often easier.”

It was not possible for Reuters to deter-

mine 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 com-

pany 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. —Reuters

Fake sites reveal gamblers’ 

shadow banking system

Foxconn says 

Toshiba deal 

‘not yet over’

NEW TAIPEI CITY: The head of Taiwan’s tech giant Foxconn

said yesterday its pursuit of Toshiba “is not yet over”, a day

after the Japanese firm announced it preferred another group

of bidders to acquire its prized chip business. Foxconn, also

known as Hon Hai, is controlled by billionaire Terry Gou and

reportedly had Apple as a financial backer in its multi-billion

dollar bid for Toshiba’s memory chip unit, seen as crucial for

the cash-strapped Japanese firm to turn itself around.

Toshiba said Wednesday it would hold exclusive talks with

a consortium of US, South Korean and state-backed Japanese

investors, dashing Gou’s ambitions. Gou blasted the decision

as a “scam” after an annual shareholders meeting in New

Taipei City Thursday, accusing Japan’s Ministry of Economy,

Trade, and Industry (METI) of interfering with the sale and

engaging in “bureaucratic politics”. The ministry declined to

comment on Gou’s remarks when approached by AFP. 

Foxconn chairman Gou vowed to keep pursuing the acqui-

sition, telling reporters the Taiwanese firm still had a “more

than 50 percent chance”. “The Toshiba case is not yet over. It

is very similar to the Sharp deal,” Gou had told shareholders

earlier yesterday. He was referring to his takeover last year of

the Japanese electronics firm for $3.7 billion, a move he

described as “really worth it”. Gou is known for his aggressive

dealmaking prowess, shown by his dogged determination to

acquire Sharp despite concerns over the Japanese firm’s

mounting losses.

The inclusion of Japanese investors in the selected bidding

group by Toshiba will ease reported government concerns

about losing a sensitive technology to foreign owners. But a

Foxconn official criticized Japanese authorities for taking a

protectionist approach. “There’s no end to their corporate cri-

sis if they are not able to open up,” said Tai Jeng-wu, who took

over as president of Sharp after Foxconn’s buyout. Gou said

the deal had been “directed from the very beginning”. “It’s a

big scam of the high-tech sector,” he told reporters. 

The Taiwanese firm is the world’s largest contract electron-

ics maker and is best-known for assembling products for inter-

national brands such as Apple and Sony. Gou said earlier this

year he was mulling a $7 billion investment to make flat pan-

els in the United States in a joint project with Japan’s

Softbank. Foxconn plans to spend more than $10 billion over

five years investing in the US, a plan codenamed “Flying

Eagle,” Gou told reporters Thursday. He is in talks with six

states, including Wisconsin and Ohio to build plants, which

will create tens of thousands of jobs, he said. “The US has land,

talent, resources. There is also protection in its legal and

investment climate,” he said. Gou has also said Foxconn aims

to increase investment in China this year to try to boost

Sharp’s market share in the country.  —AFP 

Dummy online stores help launder money

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