Transaction laundering detection refers to the process of identifying situations where a legitimate merchant account is being used to process transactions on behalf of an undisclosed or unauthorized third party. This type of fraud bypasses onboarding, compliance, and monitoring protocols, making it a significant concern for acquirers, PayFacs, and ISOs.

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Unlike standard fraud, transaction laundering is not always evident in the payment data alone. It is primarily uncovered through web monitoring, content analysis, and investigative techniques that assess the digital footprint of the merchant.

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Detection efforts focus on uncovering:

• Hidden websites or subdomains not declared during onboarding
  
• Discrepancies between product listings and merchant category
  
• Suspicious checkout flows or redirects to other domains
  
• Unusual traffic sources inconsistent with the merchant’s declared operations
  
  

For example, a merchant approved to sell motorcycle gear may appear legitimate—but deeper investigation might reveal that their checkout process is embedded in or serving a different website selling unapproved goods or services.

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Why It Matters:

• Regulatory compliance: Card networks require acquirers to prevent unauthorized and high-risk activity, including transaction laundering.
  
• Operational risk: Laundered transactions often involve illegal or prohibited goods, exposing the payment provider to fines, audits, and brand damage.
  
• Portfolio integrity: If a launderer operates undetected, it compromises the accuracy of risk ratings, underwriting models, and overall compliance reporting.

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Transaction laundering detection is a critical layer of merchant oversight, supporting content compliance programs and protecting the broader payments ecosystem from abuse.

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