Payments processing giant First Data Merchant Services and one of its executives will pay $40.3 million to settle allegations that they laundered credit card transactions for scams targeting hundreds of thousands of consumers, the Federal Trade Commission (FTC) said on Tuesday (May 19).
The FTC alleged that First Data ignored repeated warnings from employees, lenders and others that Chi “Vincent” Ko, who ran an independent sales organization affiliated with the company, was laundering payments for clients that were breaking the law.
“First Data is paying $40 million because it repeatedly looked the other way while its payment processing services were being used to commit fraud,” Daniel Kaufman, deputy director of the FTC’s Bureau of Consumer Protection said in a statement. “When companies fail to screen out fraudsters exploiting the payment processing system to steal people’s money, they’re breaking the law and injuring consumers.”
The FTC said that Ko operated First Pay Solutions LLC, an independent sales organization (ISO) affiliated with First Data, from 2012 to 2014. During that time, the ISO allegedly opened accounts under false names, provided Wells Fargo with deceptive information to open accounts and ignored evidence that some clients were engaged in fraud. Ko later joined First Data directly as a senior vice president of strategic partnerships, the agency said.
In 2014, Visa required First Data to return $18.7 million in charges processed by Ko’s ISO and temporarily banned First Data from working with high-risk merchants, according to the FTC’s complaint.
First Data will pay some $40 million of the settlement, while Ko will cover about $270,000. The FTC said it will use the money to provide refunds to consumers allegedly harmed in the case.
First Data, which was acquired by Fiserv Inc. last year for $22 billion, also agreed to screen high-risk clients in the future and implement an oversight program. The company said in a statement that “we remain committed to ensuring that our business partners and merchants operate with integrity, and our enhanced practices will enable us to continue to lead the industry in fraud prevention and business and consumer protection.”
Ko’s attorneys said in a statement that First Pay Solutions “allowed a small number of rogue independent agents to sign up fraudster merchants for credit card processing. … These bad actors operated without Mr. Ko’s knowledge, and many of these agents were convicted based upon the cooperation of Mr. Ko, himself described by the government as a victim in those government cases.”
Ko’s lawyers further said that he “agreed to turn over his entire $100 million First Pay portfolio to First Data in 2014 so that the income could be used to repay consumers harmed by the dishonest activities of these fraudulent agents and merchants.”