A Mastercard executive allegedly was involved in a money-laundering operation at a bank accused of terrorist financing and organised crime that had links to Wirecard, the disgraced German payments group.
A report commissioned by the owners of FBME Bank in Cyprus uncovered evidence of apparent criminal activity, including an alleged operation designed to trick the international card payments system into processing high-risk and potentially illegal transactions.
Private investigators found the “apparent involvement of a senior Mastercard employee in criminal activities” and recommended that the bank’s shareholders tell prosecutors in the United States that a source of the problem “may be with Mastercard”.
The investigation, called Project Waxwing, was commissioned after the US Treasury’s Financial Crimes Enforcement Network froze FBME out of the American banking system in 2014. It accused FBME of being used by customers to “facilitate money laundering, terrorist financing, transnational organised crime, fraud, sanctions evasion and other illicit activity”. Money processed by FBME was said to have links to internet child sex abuse and the Syria’s chemical weapons programme.
Project Waxwing, along with two reports from Kroll, the corporate investigations firm, found problems with FBME’s card services division, which was linked to Wirecard via a key client, who was accused of helping to facilitate the alleged payments fraud.
The investigation by Nigel Brown and Alec Leighton, two former British police officers, found an operation allegedly involving hundreds of thousands of phantom transactions created to “circumvent or outmanoeuvre” anti-fraud and money-laundering systems within Visa and Mastercard.
The alleged intention was to “dilute” the high level of “chargebacks”, or returned transactions, being generated by illicit activity to avoid scrutiny from Visa and Mastercard. A chargeback occurs when a customer complains about a good or service. Their credit card company will refund them pending an investigation. High chargeback rates are a red flag for fraud. An unnamed Mastercard executive was alleged to have helped to facilitate the operation.
Pinging “phantom” transactions back and forth via UK and Cyprus shell companies added apparently innocuous payments that diluted the fraud ratio, allowing illicit activity to continue, the investigators concluded.
Last year Mr Brown and Mr Leighton and Dangate and Barrington, their investigations firms, were sued successfully by Ayoub-Farid Michel Saab and Fadi Michel Saab, the brothers who owned FBME, for breach of confidentiality. This was after the Waxwing findings were reported to law enforcement and regulatory authorities. Fadi Michel Saab died this year.
A Kroll report commissioned in the wake of the disclosures, seen by The Times, found that the bank’s senior management had “collaborated with a third-party group to launder the proceeds of potentially illegal activity” between 2010 and 2014.
A spokesman for FBME’s shareholders said that the Mastercard allegations were a “fantasy”, that the Financial Crimes Enforcement Network’s allegations had not been proven and that the court had found that the private investigators’ findings were not “supported by any evidence base”. They claimed that Kroll’s 2015 report had been “written from the investigators’ fake affidavits”. An earlier one commissioned by Visa, which also found serious problems, had resulted in action, including the resignation of a card services boss, they said.
Fraser Perring, a short-seller who raised concerns with Mastercard and Visa about Wirecard, said the emergence of the alleged operation would increase scrutiny over card companies’ efforts to tackle payments fraud.
Mr Leighton said that he and Mr Brown could not comment on the investigations, but added: “I am encouraged that our vindication may be on the horizon.” Wirecard and Visa declined to comment on the case. A spokeswoman for Mastercard also would not comment on the case but said it “maintains a rigorous enforcement process”, with responses including fines or the suspension or termination of a licence.