EXPERTS SAY ILLEGAL TOBACCO PSPS IGNORE DATA AND FAIL TO MAKE CUSTOMER CHECKS

Point of sale providers to stores that sell illegal tobacco have no excuses if they fail to identify which of their merchant clients are selling illicit goods closely linked to organised crime, experts and industry figures say.

But despite claims from many banks and PSPs that they have zero tolerance for criminal activities by their clients, there are few signs that they are making any real efforts to check on their clients and help halt a trade linked to organised crime.

Inconsistent approaches to the illegal tobacco trade and an industrywide push for online onboarding that has weakened Know Your Customer (KYC) checks, are also contributing to the lack of action by the sector.

This has led industry figures to question the efficacy of the Federal government’s latest attempt at a coordinated multi-agency effort to halt a trade esteemed to be worth $10 billion, accounting for 64% of all tobacco sales that is making deep inroads into tobacco tax revenue.

As reported previously by PayDay News, the new group will not start operations until next year.

Australian Association of Convenience Stores CEO Theo Foukkare told PayDay News he was concerned the group had no additional funding and would not solve issues such as inconsistent rules across the carious states and territories.

Foukkare said he had also seen was no evidence from his 7,000 members that any banks or PSPs were undertaking in-store checks on their clients.

In recent weeks PayDay News have gathered evidence that the major banks, Fiserv, Clover, Zeller and Tyro are all providing services to retailers who are breaking the law.

Backend providers like Cuscal have some of these companies as clients.

Independent payments consultant David Lunt told PayDay News that it is the responsibility of PSPs to make sure that those businesses are legitimate but the proliferation of remote onboarding and the use of third party sales channels had weakened the connection between PSPs and their clients.

“Up until relatively recently the PSPs would walk around to the premises and actually see physical bricks and mortar establishments and say, oh yes, they are selling flowers.

“There’s so many intermediaries now that what’s happening is the intermediaries can onboard them onto the big guys, but it doesn’t change the responsibility.”

Associate Professor Doron Goldbarsht, Director of the Financial Integrity Hub at Macquarie University, an expert in the proceeds of crime told PayDay News: “From a payments-acquirer perspective, several indicators can suggest that a merchant may be engaged in illicit tobacco or contraband trade.

High volumes of restricted products without corresponding regulatory licenses, locations in areas known for illicit activity, and disproportionate cash transactions are all potential red flags.”

“Despite this, many payment processors believe that AML/CTF (Anti-Money Laundering and Counter-Terrorism Financing) obligations do not apply to them.”

Goldbarsht added that for other services the misconception stems from fragmented regulatory guidance or a lack of understanding of the service or product being provided.

“In practice, this leads to weak due diligence, limited ongoing monitoring, or a greater appetite for risk under the risk-based approach, and insufficient staff training, leaving processors exposed to financial crime risk,” he said.

Goldbasht said that from a regulatory-risk perspective, PSPs and acquirers should adopt robust measures to manage exposure.

“This includes enhanced merchant screening, risk-based, KYC, contractual safeguards prohibiting illegal activity, ongoing transaction monitoring, clear escalation protocols, and staff training to improve compliance with AML/CTF obligations,” he said.

“Systemic changes in payments infrastructure and regulatory oversight could further disrupt illicit trade.

Greater data-sharing between regulated entities and government agencies, as well as private-to-private information sharing (which may become easier under the AML/CTF reforms), would help reduce opportunities for illicit actors to exploit payment systems.”

Mark Fletcher, CEO of newsXpress, which acts as the marketing arm for over 200 newsagents around the country, told Payday News that he has already cut one newsagent off after a customer had identified that it was selling illegal tobacco.

“We are not a franchise, so we don’t have a tight legal agreement, so the best option was to cut them off and tell the authorities,” Fletcher said.

Fletcher, who until last year owned technology company Tower Systems that provided business software including proprietary point of sale services to newsXpress members, poured cold water on suggestions that it was too hard for PSPs to identify stores that were pushing illicit products through their tills.

“The sophistication of point of sale software and widely available legitimate product databases mean that all Payments Service Providers could identify merchant clients who are selling illicit tobacco”, Fletcher said.

“There are certainly ways for the payment systems to know what’s being paid”, he added.

“The PSPs have all these sorts of rules to look at their baskets because of the way point of sale is integrated with Tyro and all of the others.

They can easily see what’s being put through in a transaction.

And if something’s not identifiable, then the payments company can easily deny access, if you want.

“If the payment gateways were serious about this, they could take immediate, easy action, and that would require the state and territory and federal governments to all be serious about it too, but they act as if it seems all too hard.”