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Kevin Smith

MasterCard Tells Merchants to Halt Illegal Activity

13 February 2004

MasterCard International issued a bulletin to its member financial institutions Thursday reiterating the importance of compliance with MasterCard standards. Numerous references are made to Internet gambling, although there's not an emphasis on any particular illegal activity.

MasterCard said the measure has been taken to prevent the use of its system for illegal activities.

Despite the timing of the bulletin--two weeks after the Super Bowl--MasterCard spokesperson Lindsey Mucheoloo said the association is concerned about "a wide range of illegal activities."

Sharon Gamsin, vice president of global communications for MasterCard, added, "The bulletin was not aimed specifically at internet gambling. It was meant to reinforce the need for our members to comply with all our standards that relate to the use of MasterCard cards for any purpose that could potentially violate law."

Nevertheless. MasterCard's general counsel, Noah Hanft, acknowledged that Internet gambling was among activities with the highest risk potential, along with pornography and prescription medications.

"Strict adherence to MasterCard's standards has become increasingly important as the use of the Internet and e-commerce has grown and created new means by which people may attempt to use MasterCard cards for activities that may not be legal in all jurisdictions," Hanft said.

MasterCard also warns in the bulletin that it can require a member that fails to comply with the standards to absorb the cost of any illegal transaction. It can also suspend or terminate the member.

The bulletin was not made available to the press, but the association outlined the key standards in a press release:

  • Due Diligence - Members must conduct due diligence on merchants with whom they want to do business. The burden is on the financial institution to ensure the business is not illegal.

  • Properly Identify Transactions - Members must ensure that transactions are identified properly. For example, an authorization request involving Internet gambling transactions must contain the proper codes indicating that the transaction is a gaming transaction and is being conducted by the cardholder via the Internet. Members can reject a transaction if they have any doubts about its legality.

  • Comply with All Applicable Laws - MasterCard standards require all members to comply with all applicable laws and not engage in illegal behavior or in behavior that would cause MasterCard to violate any laws.

The press release also contains language that could be a red flag for Internet gaming operators who still allow customers to fund their accounts through MasterCard.

The association said it continues to work in conjunction with U.S. federal and state law enforcement groups in efforts to combat illegal activity. It added that it's working alongside the Drug Enforcement Administration, the Food and Drug Administration, the U.S. Secret Service, the Department of Justice and the Federal Bureau of Investigation.

MasterCard Tells Merchants to Halt Illegal Activity is republished from
Kevin Smith
Kevin Smith