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Cooking the Bookings? How Airbnb Became Entangled in a Transaction Laundering Scandal

In 2008, Airbnb entered the international hospitality scene and, in no time, changed the shape of the industry – offering a non-traditional, traveler-friendly alternative to hotels and lodging, both short-and long-term rental options of people’s apartments and homes with reasonable rates and a variety of amenities. In March 2017, the company closed a $1 billion round of funding, and was valued at approximately $31 billion.

The company commands the online hospitality market, with more than 3,000,000 lodging listings in 65,000 cities across 191 countries. But herein lies the crux of the problem: with a seemingly immeasurable number of transactions happening worldwide in a clickable instant, doors are left open for criminal activity.

Because Airbnb spans thousands of locations with numerous governing jurisdictions, there is no standard regulation that can effectively apply to its services.  Cyber criminals have been quick to seize this opportunity. The latest story featured in The Daily Beast explains how Russian scammers are leveraging Airbnb’s platform to launder dirty cash from stolen credit cards. The scammers work with complicit hosts through underground, online forums to set up fake Airbnb listings. When the bookings are processed through Airbnb, no one actually stays at the accomodations; instead the two parties split the payment and create false end-of-stay reviews to close the transactional loop.

The scandal was recently exposed because the crooks involved in the scheme were recruiting complicit hosts on Russian-language crime forums.

But the question remains: Is Airbnb’s platform and situation unique, or is there a larger issue at play?

There is, and the name of the problem is - Transaction Laundering.

Transaction Laundering is a sophisticated, merchant-based fraud scheme, whereby an unknown entity funnels e-commerce transactions through a legitimate merchant account.

The Magnitude of Transaction Laundering

Let’s start with the facts: We estimate that Transaction Laundering costs as much as $200 billion a year.

In 2016, according to Statista – The Statistics Portal, U.S. retail e-commerce sales (of physical goods) amounted $360.3 billion.  These figures are projected to surpass $603.4 billion by 2021, with the apparel and accessories industry expected to generate more than $121 billion alone.

It’s this growth that’s led to the popularity of frictionless, online merchant onboarding: the ability to setup a virtual storefront and accept credit card payments in hours or even minutes.

The issue here, is that these newer options also lead to reduced visibility of the end merchant, making it easy for criminals to set up seemingly legitimate websites with working payment pages that are linked to other sites selling illegal goods.

E-commerce Use and Abuse

Bottom line: The growing complexity of online payment processes makes it easy for hidden online entities to funnel their money using a variety of online methods.

Today, credit card processing involves numerous interactions between multiple entities. From the consumer to the consumer’s bank, to the merchant and the merchant’s bank and everyone along the payment path, it’s easy for criminals to leverage the payment credentials for a legitimate storefront in order to process payments for other, illicit goods and services.

Fraudulent merchants, who do not pass the standard, onboarding compliance checks, are able to easily hide behind legitimate accounts. The entanglements of the multi-party system make it difficult to trace the source of a criminal transaction which is why, according to an FATF (Financial Action Task Force) report, Emerging Terrorist Financing Risks, electronic, online and other payment methods are gaining popularity for disguising criminal activity.

A New Twist: The Airbnb Scandal

Airbnb is the latest major company to be abused by Transaction Launderers. In this case, scammers are using it to launder money from stolen credit cards –  and it’s with the cooperation of corrupt hosts.

And that’s where the Airbnb situation is different from other Transaction Laundering stories. The scheme involves real estate, instead of e-commerce transactions.  

Blind Spot Within the Law?

Though regulators devote significant resources to anti-money laundering activities, their focus has remained on the traditional, physical world. Online payment activities currently fall under the radar for both regulators and law enforcement officials, but they are starting to take notice.

The reality is that anti-money laundering efforts need to extend to the digital world, utilizing new technological solutions to detect and prevent Transaction Laundering.

Technology Should Be Leveraged to Stop Crime and Terror

With the discovery of links between Transaction Laundering and terror, enforcement officials now are considering employing sophisticated, automated monitoring technologies to discover repeatable patterns quickly. These enable new levels of response and provide what’s necessary to stop hidden online entities from engaging in problematic activities.

It’s time for law enforcement officials and other relevant parties to tackle this serious problem full-on, and make it the focus of regulatory efforts.

So here’s the clarion call for 2018:  Let’s work together to eliminate Transaction Laundering through collaborative efforts –involving law enforcement, e-commerce companies, regulatory organizations, service providers and the entire Fintech industry.



Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 28 February, 2018, 18:46Be the first to give this comment the thumbs up 0 likes

Good post. I like the expression "Transaction Laundering". The other day, I read an article on KrebsOnSecurity that suspects Money Laundering Via Author Impersonation on Amazon?

On a side note, AirBnB was founded by exploiting "regulatory gaps", as I'd highlighted in Fintechs Need Marketers And Lobbyists, Not Lawyers. It's not surprising that somebody else would use it to outright break the law!