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Online Criminals Are Tricking Entrepreneurs Into Doing Their Dirty Work

Discussion in 'BlackHat Lounge' started by Asif WILSON Khan, Apr 26, 2017.

  1. Asif WILSON Khan

    Asif WILSON Khan Executive VIP Jr. VIP

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    Cyber-crooks skillfully launder money through unwitting legitimate online storefronts, creating major legal liabilities for careless entrepreneurs.

    Online storefronts are enormous entrepreneurial opportunity but , unbeknown to many, those virtual storefronts have become increasingly popular with cyber criminals who have learned to hide illegal activities in a new form of online fraud called transaction laundering.

    Transaction laundering is a merchant-based fraud scheme whereby illicit transactions are funneled through seemingly unrelated ecommerce merchant accounts causing significant damage to legitimate merchant acquirers. Merchants suffer heavy losses from transaction laundering at the hands of the affiliates who they rely on to drive traffic and revenue.

    Here, we’ll take a look at how affiliates are taking advantage of poor vetting and onboarding, and what merchants can do to avoid becoming victims of this new digital form of money laundering.

    Related: Top 10 Affiliate Marketing Tracking Software Platforms

    What is affiliate marketing?
    Affiliate marketing is a performance-based sales system wherein merchants reward third parties (affiliates) for driving traffic or sales. Depending on the merchant’s business model and affiliate marketing strategy, affiliates are compensated either directly or according to sales. This has become a multi-billion dollar industry, one in which merchants spent almost $5 billion in 2016. Primary affiliate business models include:

    Pay-per-click (PPC): The affiliate is compensated each time someone visits or is referred to the merchant’s site, even if a sale is not made.

    Pay-per-performance (PPP): The merchant pays the affiliate based on a commission basis, as a percentage of actual sales or conversions generated.

    Multi-tier: Similar to multi-level marketing offline, affiliates earn commission based on the new affiliates they themselves refer.

    Related: The Affiliate Marketing Model: A Blueprint for Success in the Gig Economy

    Affiliates drive traffic to merchant websites using a variety of online marketing and promotion channels, including blogs posts, advertising, social media, incentivized traffic (giveaways, etc), email marketing and so forth. Affiliate marketing fraud occurs when any type of action on the part of affiliates is used to mislead merchants in relation to the quantity or quality of whatever metrics have been agreed upon.

    Historically, affiliate fraud encompassed generating false traffic, which would involve the affiliate driving traffic for which he or she is compensated through various false pretenses, including links planted on popular sites, or misleading (and often inappropriate) content. However, affiliate marketing fraud goes one level deeper. Affiliates not properly vetted or monitored may not only misrepresent results, they may also misrepresent their very identity and the true nature of their business.

    When affiliates drive fraudulent traffic, merchants can lose money and brand equity. When affiliates conduct fraudulent transactions under the auspices of legitimate merchants (transaction laundering), merchants are exposed to an entirely different and more severe legal and regulatory liability.

    Related: Don't Fall Prey to a Money-Laundering Scheme

    What is affiliate transaction laundering?
    Affiliate transaction laundering occurs when an affiliate uses his or her credentials with a merchant to process online payments for the sale of illegal or unreported goods or services. By way of example, consider an illicit merchant selling illegal drugs online who needs a legitimate online storefront to process credit card payments. This merchant couldn’t pass the rigorous vetting process required by most large MSPs but he or she can become an affiliate of a legitimate high-risk merchant, whose onboarding is less stringent. As an affiliate of a legitimate site, he could sell $100 worth of drugs through his own website, then use the $100 from the drug sales to pay for content on his affiliate partner’s website. The unsuspecting merchant receives what appears to be a legitimate order and pays a large commission under their Pay-Per-Performance business model. The affiliate now has $50-$80 in "clean" money that was received as a commission from the legitimate merchant.

    Ultimately, the unscrupulous affiliate earns money from selling $100 worth of illicit drugs on his own website, and then cleans the money through his affiliate partner program. Some affiliate programs pay handsome commissions: up to 80% in some high risk industries, making this scheme very attractive for transaction laundering purposes. A scheme this sophisticated is difficult to detect and very lucrative for the affiliate. Negligently allowing these transactions makes the legitimate merchant complicit in facilitating illicit trade, with all the liability (civil, regulatory, and possibly criminal) that this entails.

    What can be done?
    Merchants need to dramatically tighten their affiliate vetting and onboarding process to protect against the liability of affiliate transaction laundering. Merchants bringing in a new affiliate should follow these seven steps:

    1. Review and constantly monitor affiliate sites to ensure that affiliates are not using inappropriate content or false advertisement to promote traffic.

    2. Understand exactly how merchant products are marketed by affiliates, and if other seemingly-unrelated products are bundled with them.

    3. Ask for all URLs where their products are sold.

    4. Monitor their affiliate sites’ ecosystem, including additional sites that may sell products yet not be reported.

    5. Closely evaluate affiliate networks and work only with reputable networks.

    6. Adopt advanced technology to monitor affiliates.

    7. Create and enforce a clear affiliate policy.

    When merchants let down their guard, affiliates can take advantage of them. Insufficient vetting and sloppy onboarding can turn legitimate merchants into innocent victims of affiliate transaction laundering who are unwittingly complicit in crime. By adopting the right technological solution, merchants can ensure more secure vetting and constant monitoring of affiliate activity, eliminating the liability of affiliate transaction laundering.


    SOURCE: https://www.entrepreneur.com/article/292857
     
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  2. bartosimpsonio

    bartosimpsonio Jr. VIP Jr. VIP Premium Member

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    Holy shit, this is big.
     
  3. HoNeYBiRD

    HoNeYBiRD Jr. VIP Jr. VIP

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  4. MisterF

    MisterF Jr. VIP Jr. VIP

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    There's too many people fall foul of the small time cons out of a mix of greed, stupidity and haste.
    Those who get away with it then upscale and get bigger and bolder.

    Sobering reading though.
     
  5. ciaozz

    ciaozz Junior Member

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    Merchants has to be careful who they employ for recruiter of affiliates, as thats part of that criminal network from the start. I have seen in some networks I'm participating that recruiters or hosts of affiliates are changed by the merchants after some affiliates complains about their work or relation with the affiliates. So basically it about - don't let it so criminal will not happen. Big companies works seriously on this matter, although today all is with purpose to be more and more infected.
     
  6. KHer0

    KHer0 Supreme Member

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    Call me stupid but I dont get it. Who is buying from the merchant (store owner)? Drug dealer?

    Then where is the problem! Drug dealer bought from merchant, affiliate takes commision, now the money is clean

    If my understanding is correct, why is this bad for the merchant!
     
  7. HoNeYBiRD

    HoNeYBiRD Jr. VIP Jr. VIP

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    I guess you missed this bit:
     
  8. KHer0

    KHer0 Supreme Member

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    If my understanding was right then there is a huge problem with the law

    So, if I have real store and a drug dealer buys something from me, then I am participating in the crime

    As far as I know he is a customer paid for the product, its their job to catch him not mine
     
  9. Asif WILSON Khan

    Asif WILSON Khan Executive VIP Jr. VIP

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    If you know that the person is committing an offence(fraud/theft) then you are liable. If you don't have anti-fraud measures you can be liable.
     
  10. KHer0

    KHer0 Supreme Member

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    Again, I feel my English is failing me. Isn't the Affiliate partner is the one in question here, the merchant knows nothing. And there is no way an affiliate will be in this without his full knowledge or he wouldn't give the money back to the drug dealer.

    So, he is a full criminal just like the dealer, not a novice entrepreneurs ( What is wrong with this long word, can't write nor pronounce it ! )
     
  11. Asif WILSON Khan

    Asif WILSON Khan Executive VIP Jr. VIP

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    Unless the merchant does his best to eliminate fraudulent transactions then he risks his merchant account.
    If the merchant is not vetting sales of the affiliate then he can be responsible.
    Every merchant account will have ToS that state what merchants are responsible for.
    In Law ignorance is not a defence, if the merchant accepts all payments without some form of due diligence then he will be liable for at least some costs.

    I am not a Lawyer and this is my limited understanding of the situation.
     
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