Money laundering is the process of concealing the criminal origin of funds by channeling them through legitimate financial systems to make them appear clean. For acquirers, PayFacs, and ISOs, this represents a significant compliance and reputational risk, as payment systems can be exploited to facilitate illicit financial flows if proper controls are not in place.

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The laundering process generally follows three stages:

1. Placement – Illegally obtained funds are introduced into the financial ecosystem, often through small deposits, prepaid instruments, or high-cash businesses.
   
2. Layering – The funds are moved through complex transactions (e.g., cross-border transfers, crypto exchanges, or multiple merchant accounts) to obscure their origin.
   
3. Integration – Laundered funds re-enter the legitimate economy, often through the purchase of assets or by appearing as legitimate business revenue.

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In the acquiring context, laundering schemes may involve transaction laundering, where criminals funnel illicit funds through what appears to be a compliant merchant account. For example, a seemingly normal e-commerce merchant might process fake purchases using prepaid cards or crypto tied to criminal funds, making illegal money look like legitimate sales.

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To mitigate exposure, payment providers are subject to Anti-Money Laundering (AML) regulations that mandate due diligence and ongoing transaction monitoring. This includes screening merchants at onboarding (KYB/KYC), flagging anomalous transaction patterns (e.g., excessive microtransactions, velocity spikes, suspicious geographies), and filing Suspicious Activity Reports (SARs) when warranted.

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Failing to detect laundering activity can result in regulatory penalties, loss of banking relationships, and brand damage. As such, robust AML programs  combined with real-time monitoring and risk-based controls  are critical to preventing abuse of the payments infrastructure.

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