Illegal tobacco stores are popping up around the country in what is fast becoming multi-billion dollar market for organised crime which appears to be serviced by multiple banks and fintechs for payments.
A PayDay News special investigation
The trade has already been linked to numerous firebombing incidents and one death.
An investigation by Payday News last week revealed that a large number of illegal tobacco outlets are using card payments terminals provided by banks and fintechs to sell their illegal products which, according to experts, could have serious legal implications.
While PayDay News won’t be naming these institutions in this story, we did want to point out the legal and commercial obligations on acquiring banks, fintechs and aggregators supporting illegal trade and potential money laundering in many hundreds of towns around the country.
Three shops visited by Payday News last week were taking electronic payments from customers buying illegal cigarettes on terminals provided by banks and fintechs.
Some shops have ATMs inside their premises for customers to access cash.
Financial Crime Compliance expert Luke Raven told PayDay News illegal tobacco was fraught for payment processors, who often mistakenly think they aren’t captured by Anti-Money Laundering (AML) or Counter-Terrorism Financing (CTF) laws, or misunderstand the extent of their obligations.
“Many payment processing firms think that they aren’t regulated under the AML/CTF regime in Australia, and candidly, they’re wrong,” Raven said.
“AUSTRAC requires payment processors to enrol, to conduct KYC and account monitoring, and to report at the very least the flagrant breaches of laws they find.
And the sale of illegal tobacco through a payment terminal stands out like a sore thumb.”
The aftermath of one of dozens of firebombings across Australia linked to illegal tobacco wars.
Raven, who previously worked for Square (now Block) in their Point-of-Sale product’s Anti-Money-Laundering team, said that some firms do understand that they are captured but still have a crude understanding of what that actually means.
“The AML regime is complex, and many firms engaged in payment processing fall for the misnomer in the title – they mistakenly think that they only need to look for explicit ‘money laundering’ and ‘fraud’ as opposed to broader financial crimes,” Raven said.
According to Raven, the Crimes Act and the various criminal codes which target the sale of illegally imported or grown tobacco are also potential causes for reporting customers to AUSTRAC.
But the attitude and culture in fintech startups, and the demand for revenue, can often lead to firms turning a blind eye.
When a red flag is surfaced, such as a larger than expected volume of payments or a link to a known outlaw motorcycle gang, firms don’t have to necessarily ‘de-bank’ a customer, but they should have a defensible position around what they will and won’t accept rather than trying to downplay or ignore risks wholesale, he said.
“Firms should have reasonable practices in place to identify the risks, and then a board risk appetite position that clearly shows why a customer has been allowed to continue,” Raven continued.
“Where there’s smoke, there’s often fire.
Making sure you have a really clear and documented position is important as it very well may be needed in future when the regulator or police come knocking.”
Illegal cigarettes seized at Melbourne Airport by Border Force.
Mastercard, Visa and eftpos all require acquirers to ensure their merchant clients comply with the law.
In a submission to Parliament in 2021, Visa said its rules require every client to comply with all applicable laws, regulations, and other legal requirements for each country in which the client operates.
“The Visa Rules prohibit acquirers from submitting illegal transactions into the Visa payment system.
To comply with this requirement, acquirers must ensure that their business clients’ (hereafter referred to as merchants) transaction activity is legal in both the buyer’s and seller’s jurisdiction.”
Similarly, eftpos Scheme Rules requires Acquirers have “complied with all applicable Laws with respect to the provision of merchant acquiring services to its Merchant customers”.
Subscribe to our free mailing list and always be the first to receive the latest news and updates.