E-commerce Transaction Laundering

by Raymond Pucci 0

Fraudsters gravitate to where the money is, and right now e-commerce marketplaces are becoming a popular venue for illicit transactions. According to the following report, scammers are using online shopping sites as a means for money and transaction laundering.

E-commerce sites may never completely replace Main Street stores, but online shopping is growing at a very healthy clip. In 2015, online shoppers in the US spent some $300 billion, and that figure is expected to grow to nearly $500 billion by 2018.

When customers engage with large shopping sites like Amazon, they are more often than not buying not from Amazon, but from one of the many independent merchants that use Amazon Marketplace.

In fact, the mini and micro merchants on Amazon Marketplace now account for over 45% of the total number of items sold on the site, according to company figures, while E-bay, which created a marketplace of small online merchants, sports 25 million sellers

The online merchants who sell on these marketplaces have a number things in common: As far as customers are concerned, they are buying from the site that sponsors the marketplace, like Amazon, Etsy, etc. The customer often doesn’t know, and doesn’t care, that they are buying from an independent small e-tailer. The merchants, meanwhile, use the marketplace’s logistic services – shipping system, and especially the payment system – to sell. All these factors – the massive growth in the number of online merchants, the ease with which one can join a marketplace, the anonymity provided by being part of an army of merchants under the banner of a big marketplace, and the built in ability to process payments – have led to a corresponding exponential rise in the level of fraud and money laundering activities. One of the newest scams, transaction laundering, has been growing at exponential rates, and poses a major challenge for marketplaces, as it exposes them to regulatory risk, and threatens their brand and reputation.

Software security vendors, working with online merchants, have been highly successful in identifying and rejecting fraudulent e-commerce orders. Some of their most effective measures, are machine learning programs that sift through thousands of sales transactions, looking for telltale signs of fraud. Merchants and their e-commerce partners can certainly try these software solutions to test their effectiveness in rooting out transaction laundering as well. Brands, reputations, and money are at stake.

Overview by Raymond Pucci, Associate Director, Research Service at Mercator Advisory Group

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