Tag Archives: Banks

Size matters. Big U.S. farms get even bigger amid China trade war

By Mark Weinraub

HAZELTON, N.D. (Reuters) – As the 2018 harvest approached, North Dakota farmer Mike Appert had a problem – too many soybeans and nowhere to put them. Selling was a bad option. Prices were near-decade lows as U.S. President Donald Trump’s trade war with China weighed heavily on the market. Temporary storage would only buy him a little bit of time, particularly in an area where cold weather can damage crops stored in plastic bags.

So Appert, who farms 48,000 acres (19,425 hectares), cut a check for $800,000 to build eight new permanent steel bins. That allowed him to hold onto his bumper crop and wait for prices to recover.

He sold half of the 456,000 bushels stored on his farm throughout the following summer, earning about $1 more per bushel and avoiding storage at nearby CHS elevators or an Archer Daniels Midland Co. processor in the area.

But most farmers do not have $800,000 to spend on steel bins, and many are going under. The number of U.S. farms fell by 12,800 to 2.029 million in 2018, the smallest ever, as the trade war pushes more farmers into retirement or bankruptcy.

Roger Hadley, who farms 1,000 acres in Indiana, was unable to plant any corn and soybeans this year after heavy rains added to farmers’ woes.

He spent most of the summer trying to plant a combination of grasses, a so-called cover crop, so he could apply for government aid and try again next year.

“The guys that got rich are getting richer,” Hadley said. “It has frustrated a lot of guys.”

In farming, size does matter. The farms left standing after the trade war will likely be some of the biggest in the business. Appert’s operations are more than 100 times bigger than the average American farm and the advantages provided by that magnitude are becoming even more critical as the trade war stretches into a second year.

The declining number of U.S. farmers could hurt the world’s top grain merchants such as ADM and Bunge, who will have fewer suppliers. Additionally, farmers will have less need to rent space in the merchants’ grain silos as big farmers like Appert have plentiful storage on their own farms.

ADM said it would continue changing to meet the needs of its customers. Bunge did not respond to an email seeking comment.

By the end of 2018, the average U.S. farm size rose to 443 acres, a 12-year high and up from 441 million in 2017, according to the latest U.S. Department of Agriculture data.

And the biggest farmers are growing their operations even more as retiring farmers choose to lease their land rather than selling it.

When land becomes available for lease, only the biggest farmers can readily shoulder the costs needed to expand.

The size of the loans smaller farmers would need to buy equipment, for example, are too big for applicants with little collateral, said Dave Kusler, president of the Bank of Hazelton in Hazelton, North Dakota.

“It is almost impossible with what the costs are,” Kuslersaid. “In this area, you can’t make a living on 1,000 acres.”

Critics say the Trump administration’s policy of compensating growers for lost sales due to the trade war pays the bigger farm operations more since payments are calculated by acres farmed.

The Environmental Working Group, a conservation organization, said in a recent study the top 1% of aid recipients received an average of more than $180,000 while the bottom 80% were paid less than $5,000 in aid.

Appert said that big farmers receive bigger outright payments but less per acre than small farms because of a $500,000 cap per farm.

‘BOOM, BOOM, BOOM’

Big farms can reap the full benefits of new high-tech equipment that boosts farm yields.

Doug Zink, who farms 35,000 acres near Carrington, North Dakota, said he likes to trade in his fleet of four combines and planters nearly every year to ensure that his equipment is under warranty, which saves thousands of dollars in maintenance costs and helps avoid breakdowns during key seeding and planting periods.

They also receive deep discounts – as much as $40,000 for some combine harvesters that can cost as much as $400,000 – allowing them to upgrade more often.

Manufacturers are increasingly willing to cut such deals to keep clients as the number of customers falls. Deere & Co <DE.N> said that it will reduce production by 20% at its facilities in Illinois and Iowa in the second of half of the year. Rival agricultural machine makers AGCO Corp <AGCO.N> and CNH Industrial <CNHI.N> have also slashed production to keep inventory in line with retail demand.

Large farms also have the easiest access to capital, with bankers still eager to provide loans to growers with plenty of collateral. “The ag trend is going to larger farms,” Kusler, the bank president in Hazelton, North Dakota, said, “The loans get much larger.”

Appert had no problem getting a loan to finance expansion.

“If you want to get a mortgage and buy a piece of land it is just boom, boom, boom,” he said.

(Reporting by Mark Weinraub; Editing by Caroline Stauffer and Marguerita Choy)

North Korea denies it amassed $2 billion through cyberattacks on banks

SEOUL (Reuters) – North Korea denied on Sunday allegations that it had obtained $2 billion through cyberattacks on banks and cryptocurrency exchanges, and accused the United States for spreading rumors.

A United Nations report seen by Reuters last month said North Korea had used “widespread and increasingly sophisticated” cyberattacks to steal from banks and cryptocurrency exchanges, amassing $2 billion which it used to fund weapons of mass destruction programs.

“The United States and other hostile forces are now spreading ill-hearted rumors,” North Korea’s state-run KCNA news agency reported, citing a statement from the spokesperson for the National Coordination Committee of the DPRK for Anti-Money Laundering and Countering the Financing of Terrorism.

“Such a fabrication by the hostile forces is nothing but a sort of a nasty game aimed at tarnishing the image of our Republic and finding justification for sanctions and pressure campaign against the DPRK,” the statement said.

Washington has made scant progress toward its goal of getting North Korea to give up its nuclear weapons program, despite three meetings between U.S. President Donald Trump and North Korean leader Kim Jong Un.

North Korea’s vice foreign minister said on Saturday that hopes for talks with Washington were fading, and criticized Mike Pompeo’s recent comments about “North Korea’s rogue behavior”.

Pyongyang has been blamed in recent years for a series of online attacks, mostly on financial networks, in the United States, South Korea and over a dozen other countries, as experts say such cyber activities generate hard currency for the regime.

The crux of the allegations against North Korea is its connection to a hacking group called Lazarus that is linked to $81 million cyber heist at the Bangladesh central bank in 2016 and a 2014 attack on Sony’s Hollywood studio.

(Reporting by Ju-min Park; Editing by Raissa Kasolowsky)

North Korea took $2 billion in cyber attacks to fund weapons program: U.N. report

FILE PHOTO: A man holds a laptop computer as cyber code is projected on him in this illustration picture taken on May 13, 2017. REUTERS/Kacper Pempel/Illustration/File Photo

By Michelle Nichols

UNITED NATIONS (Reuters) – North Korea has generated an estimated $2 billion for its weapons of mass destruction programs using “widespread and increasingly sophisticated” cyberattacks to steal from banks and cryptocurrency exchanges, according to a confidential U.N. report seen by Reuters on Monday.

Pyongyang also “continued to enhance its nuclear and missile programs although it did not conduct a nuclear test or ICBM (Intercontinental Ballistic Missile) launch,” said the report to the U.N. Security Council North Korea sanctions committee by independent experts monitoring compliance over six months.

The North Korean mission to the United Nations did not respond to a request for comment on the report, which was submitted to the Security Council committee last week.

The experts said North Korea “used cyberspace to launch increasingly sophisticated attacks to steal funds from financial institutions and cryptocurrency exchanges to generate income.” They also used cyberspace to launder the stolen money, the report said.

“Democratic People’s Republic of Korea cyber actors, many operating under the direction of the Reconnaissance General Bureau, raise money for its WMD (weapons of mass destruction) programs, with total proceeds to date estimated at up to two billion US dollars,” the report said.

North Korea is formally known as the Democratic People’s Republic of Korea (DPRK). The Reconnaissance General Bureau is a top North Korean military intelligence agency.

The U.N. experts said North Korea’s attacks against cryptocurrency exchanges allowed it “to generate income in ways that are harder to trace and subject to less government oversight and regulation than the traditional banking sector.”

The Security Council has unanimously imposed sanctions on North Korea since 2006 in a bid to choke off funding for Pyongyang’s nuclear and ballistic missile programs. The Council has banned exports including coal, iron, lead, textiles and seafood, and capped imports of crude oil and refined petroleum products.

U.S. President Donald Trump has met with North Korea leader Kim Jong Un three times, most recently in June when he became the first sitting U.S. president to set foot in North Korea at the Demilitarized Zone (DMZ) between the two Koreas.

They agreed to resume stalled talks aimed at getting Pyongyang to give up its nuclear weapons program. The talks have yet to resume and in July and early August, North Korea carried out three short-range missiles tests in eight days.

The U.N. report was completed before last week’s missile launches by North Korea, but noted that “missile launches in May and July enhanced its overall ballistic missile capabilities.”

The U.N. experts said that despite the diplomatic efforts, their “investigations show continued violations” of U.N. sanctions.

“For example, the DPRK continued to violate sanctions through ongoing illicit ship-to-ship transfers and procurement of WMD-related items and luxury goods,” the U.N. report said.

(Reporting by Michelle Nichols; editing by Grant McCool)

Fed raises interest rates, signals more hikes ahead

A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

U.S. stocks and bond yields fell hard. With the Fed signaling “some further gradual” rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

“Maybe they have already committed their policy error,” said Fritz Folts, chief investment strategist at 3Edge Asset Management. “We would be in the camp that they have already raised rates too much.”

Interest rate futures show traders are currently betting the Fed won’t raise rates at all next year.

Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25 percent to 2.50 percent.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Powell did bow to what he called recent “softening” in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed’s 2 percent target next year, policymakers can be “patient.”

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed’s last policy meeting of the year as well as in Powell’s comments: The U.S. economy continues to perform well and no longer needs the Fed’s support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

“Policy does not need to be accommodative,” he said.

In its statement, the Fed said risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed also made a widely expected technical adjustment, raising the rate it pays on banks’ excess reserves by just 20 basis points to give it better control over the policy rate and keep it within the targeted range.

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

CHOPPY WATERS

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank’s tightening this year as damaging to the economy.

The Fed has been raising rates to reduce the boost that monetary policy gives to the economy, which is growing faster than what central bank policymakers view as a sustainable rate.

There are worries, however, that the economy could enter choppy waters next year as the fiscal boost from the Trump administration’s spending and $1.5 trillion tax cut package fades and the global economy slows.

“I think that markets were looking for more in terms of the pause,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

“It’s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year.”

The benchmark S&amp;P 500 index &lt;.SPX&gt; tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September. The index is down nearly 15 percent from its record high.

Benchmark 10-year Treasury yields fell as low as 2.75 percent, the lowest since April 4.

ECONOMIC PROJECTIONS

Fed policymakers’ median forecast puts the federal funds rate at 3.1 percent at the end of 2020 and 2021, according to the projections.

That would leave borrowing costs just above policymakers’ newly downgraded median view of a 2.8 percent neutral rate that neither brakes nor boosts a healthy economy, but still within the 2.5 percent to 3.5 percent range of Fed estimates for that rate.

Powell parried three questions about whether the Fed intended to restrict the economy with its rate policy, but gave little away.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so.”

Gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated. The unemployment rate, currently at a 49-year low of 3.7 percent, is expected to fall to 3.5 percent next year and rise slightly in 2020 and 2021.

Inflation, which hit the central bank’s 2 percent target this year, is expected to be 1.9 percent next year, a bit lower than the 2.0 percent forecast three months ago.

There were no dissents in the Fed’s policy decision.

(Reporting by Ann Saphir and Howard Schneider; Additional reporting by Lewis Krauskopf in New York; Editing by Paul Simao and Dan Burns)

Israel braces for general strike on Wednesday, government says may be averted

Cranes are seen at a construction site in the new neighbourhood of Carmei Gat in the southern Israeli city of Kiryat Gat November 1, 2016. REUTERS/Amir Cohen/File Photo

By Steven Scheer

JERUSALEM (Reuters) -Israel’s main public sector union said it would go ahead with a planned general strike on Wednesday that would shut down airports, banks and all government offices, in protest over what it says is state inaction over construction site deaths.

The strike, due to start at 6 a.m. (0400 GMT), is meant to be indefinite, but it is likely to last no more than a day since the courts typically order workers back to work and both sides back to the negotiation table.

“We are witnessing more and more casualties every day, new casualties and serious safety incidents that could have been prevented,” Histadrut chief Avi Nissenkorn said on Tuesday.

“If no solution is found in the coming hours, the economy will be hit by a general strike tomorrow.”

A Histadrut spokesman said its representatives were meeting officials from the Finance Ministry and other ministries in a last-ditch effort to avert a strike.

Asked about the situation, a Finance Ministry spokeswoman said: “We are in negotiations. We believe it will be resolved tonight.”

The Histadrut labor federation has demanded the government adopt European construction standards, beef up safety measures and enforce a law on wearing safety harnesses.

It wants the government to spend an additional 20 million shekels ($5.4 million) on hiring more safety inspectors.

The Finance Ministry says it places a high importance on improving work safety at construction sites and says it is working with the Labour Ministry to implement measures.

Last week the federation threatened strike action if its demands were not met. It said Israeli polling firm Smith had found 66 percent of Israelis supported any strike action.

Among those that would be affected are Tel Aviv’s Ben Gurion Airport and Ovda Airport near Eilat, as well as the Tel Aviv Stock Exchange, Bank of Israel, commercial banks and trains.

The Histadrut says about 40 workers have died on building sites so far in 2018 and 200 others have been seriously injured.

Labour activists say 35 people died in 2017 and the Haaretz newspaper said the number of such deaths in previous years had averaged around 30.

On Tuesday the Histadrut held demonstrations at some 20 main intersections across Israel.

(Reporting by Steven Scheer; Editing by Gareth Jones)

Exclusive: Ukraine says Russia hackers laying groundwork for massive strike

A message demanding money is seen on a monitor of a payment terminal at a branch of Ukraine's state-owned bank Oschadbank after Ukrainian institutions were hit by cyber attacks, in Kiev, Ukraine June 27, 2017. Picture taken June 27, 2017. REUTERS/Valentyn Ogirenko

By Pavel Polityuk

KIEV (Reuters) – Hackers from Russia are infecting Ukrainian companies with malware to create so-called ‘back doors’ for a large coordinated attack, Ukraine’s cyber police chief told Reuters on Tuesday, almost a year after a strike on Ukraine spread around the world.

Affected companies range across various industries, such as banks or energy infrastructure. The pattern of the malware being rolled out suggests the people behind it want to activate it on a particular day, Serhiy Demedyuk said.

Demedyuk said his staff were cooperating with foreign agencies to track the hackers, without naming the agencies.

Police had identified viruses designed to hit Ukraine since the start of the year, including phishing emails sent from legitimate domains of state institutions whose systems were hacked, or a fake webpage mimicking that of a real state body.

They had intercepted hackers sending malware from different sources and broken into various components so as to remain undetected by antivirus software until activated as a single unit, Demedyuk said.

“Analysis of the malicious software that has already been identified and the targeting of attacks on Ukraine suggest that this is all being done for a specific day,” he said.

Relations between Ukraine and Russia plunged following Russia’s annexation of Crimea in 2014, and Kiev has accused Russia of orchestrating large-scale cyber attacks as part of a “hybrid war” against Ukraine, which Moscow repeatedly denies.

Some attacks coincided with major Ukrainian holidays and Demedyuk said another strike could be launched on Thursday — Constitution Day — or on Independence Day in August.

On June 27 last year, the country was hit by a massive strike known as “NotPetya”, which knocked out Ukrainian IT systems before spreading around the world. The United States and Britain joined Ukraine in blaming Russia for the attack.

Demedyuk said the scale of the latest detected preparations was the same as NotPetya.

“This is support on a government level – very expensive and very synchronized. Without the help of government bodies it would not be possible. We’re talking now about the Russian Federation,” he said.

“Everything we’re seeing, everything we’ve intercepted in this period: 99 percent of the traces come from Russia.”

The Kremlin did not immediately respond to a request for comment.

Ukraine is better prepared to withstand such attacks thanks to cooperation with foreign allies since the NotPetya strike, Demedyuk said. Ukraine has received support from the U.S., Britain and NATO among others to beef up its cyber defenses.

But Demedyuk said some Ukrainian companies had not bothered to clean their computers after NotPetya struck, leaving machines still infected by the virus and vulnerable to being used for another attack.

“We are sounding the alarm to remind people – come to your senses, check your equipment,” he said. “It’s better to be on the safe side than clean up a mess like last time.”

He also appealed to global companies who were hit by NotPetya, including U.S. and European firms in Ukraine, to share details of their investigations and steps to localize the hack.

“They have a huge amount of very interesting evidence, which they store themselves. We would like it if they weren’t scared and approached us.”

(Additional reporting by Margarita Popova in Moscow; writing by Matthias Williams; editing by Philippa Fletcher)

‘Jackpotting’ hackers steal over $1 million from ATM machines across U.S.: Secret Service

A hooded man holds a laptop computer as blue screen with an exclamation mark is projected on him in this illustration picture taken on May 13, 2017.

By Dustin Volz

WASHINGTON (Reuters) – A coordinated group of hackers likely tied to international criminal syndicates has pilfered more than $1 million by hijacking ATM machines across the United States and forcing them to spit out bills like slot machines dispensing a jackpot, a senior U.S. Secret Service official said on Monday.

Within the past few days there have been about a half-dozen successful “jackpotting” attacks, the official said.

The heists, which involve hacking ATMs to rapidly shoot out torrents of cash, have been observed across the United States spanning from the Gulf Coast in the southern part of the country to the New England region in the northeast, Matthew O’Neill, a special agent in the criminal investigations division, told Reuters in an interview.

The spate of attacks represented the first widespread jackpotting activity in the United States, O’Neill said. Previous campaigns have been spotted in parts of Europe and Latin America in recent years.

“It was just a matter of time until it hit our shores,” O’Neill said.

Diebold Nixdorf Inc and NCR Corp, two of the world’s largest ATM makers, warned last week that cyber criminals are targeting ATMs with tools needed to carry out jackpotting schemes.

The Diebold Nixdorf alert described steps that criminals had used to compromise ATMs. They include gaining physical access, replacing the hard drive and using an industrial endoscope to depress an internal button required to reset the device.

A confidential U.S. Secret Service alert seen by Reuters and sent to banks on Friday said machines running XP were more vulnerable and encouraged ATM operators to update to Windows 7 to protect against the attack, which appeared to be targeting ATMs typically located in pharmacies, big box retailers and drive-thrus.

While initial intelligence suggested only ATMs running on outdated Windows XP software were being targeted, the Secret Service has seen successful attacks within the past 48 hours on machines running updated Windows 7, O’Neil said.

“There isn’t one magic solution to solve the problem,” he said.

A local electronic crimes task force in the Washington, D.C., metropolitan area first reported an unsuccessful jackpotting attempt last week, O’Neill said.

A few days later another local partner witnessed similar activity and “developed intelligence” that indicated a sustained, coordinated attack was likely to occur over the next two weeks, O’Neill said. He declined to say where that partner was located.

Jackpotting has been rising worldwide in recent years, though it is unclear how much cash has been stolen because victims and police often do not disclose details.

(Reporting by Dustin Volz in Washington, D.C.; Editing by David Gregorio)

Global Banks fearing North Korea hacking, prepare defenses

Binary code is seen on a screen against a North Korean flag in this illustration photo November 1, 2017.

By Jim Finkle and Alastair Sharp

WASHINGTON/TORONTO (Reuters) – Global banks are preparing to defend themselves against North Korea potentially intensifying a years-long hacking spree by seeking to cripple financial networks as Pyongyang weighs the threat of U.S. military action over its nuclear program, cyber security experts said.

North Korean hackers have stolen hundreds of millions of dollars from banks during the past three years, including a heist in 2016 at Bangladesh Bank that yielded $81 million, according to Dmitri Alperovitch, chief technology officer at cyber security firm CrowdStrike.

Alperovitch told the Reuters Cyber Security Summit on Tuesday that banks were concerned Pyongyang’s hackers may become more destructive by using the same type of “wiper” viruses they deployed across South Korea and at Sony Corp’s &lt;6758.T&gt; Hollywood studio.

The North Korean government has repeatedly denied accusations by security researchers and the U.S. government that it has carried out cyber attacks.

North Korean hackers could leverage knowledge about financial networks gathered during cyber heists to disrupt bank operations, according to Alperovitch, who said his firm has conducted “war game” exercises for several banks.

“The difference between theft and destruction is often a few keystrokes,” Alperovitch said.

Security teams at major U.S. banks have shared information on the North Korean cyber threat in recent months, said a second cyber security expert familiar with those talks.

“We know they attacked South Korean banks,” said the source, who added that fears have grown that banks in the United States will be targeted next.

Tensions between Washington and Pyongyang have been building after a series of nuclear and missile tests by North Korea and bellicose verbal exchanges between U.S. President Donald Trump and North Korean leader Kim Jong Un.

John Carlin, a former U.S. assistant attorney general, told the Reuters summit that other firms, among them defense contractors, retailers and social media companies, were also concerned.

“They are thinking ‘Are we going to see an escalation in attacks from North Korea?'” said Carlin, chair of Morrison &amp; Foerster international law firm’s global risk and crisis management team.

Jim Lewis, a cyber expert with Washington’s Center for Strategic and International Studies, said it is unlikely that North Korea would launch destructive attacks on American banks because of concerns about U.S. retaliation.

Representatives of the U.S. Federal Reserve and the Office of the Comptroller of the Currency, the top U.S. banking regulators, declined to comment. Both have ramped up cyber security oversight in recent years.

 

 

(Reporting by Jim Finkle in Washington and Alastair Sharp in Toronto; additional reporting by Dustin Volz in Washington; editing by Grant McCool)

 

Exclusive: Fake online stores reveal gamblers’ shadow banking system

A screen grab of the home page of website www.myfabricfactory.com taken June 20, 2017. www.myfabricfactory.com via Reuters

By Alasdair Pal

LONDON (Reuters) – A network of dummy online stores offering household goods has been used as a front for internet gambling payments, a Reuters examination has found.

The seven sites, operated out of Europe, purport to sell items including fabric, DVD cases, maps, gift wrap, mechanical tape, pin badges and flags. In fact, they are fake outlets, part of a multinational system to disguise payments for the $40 billion global online gambling industry, which is illegal in many countries and some U.S. states.

The findings raise questions about how e-commerce is policed worldwide. They also underline a strategy which fraud specialists say regulators, card issuers and banks have yet to tackle head-on.

That strategy is “transaction laundering” – when one online merchant processes payment card transactions on behalf of another, which can help disguise the true nature of payments.

Credit card companies including Visa and Mastercard require all online purchases to be coded so they can see what type of purchase is being processed and block it if it is illegal in a particular country. The codes are known as Merchant Category Codes. Gambling transactions, for example, are given the code of 7995 and subject to extra scrutiny.

The scheme found by Reuters involved websites which accepted payments for household items from a reporter but did not deliver any products. Instead, staff who answered helpdesk numbers on the sites said the outlets did not sell the product advertised, but that they were used to help process gambling payments, mostly for Americans.

Categorising a gambling transaction as a purchase of something else is against the rules of card issuers including Visa and Mastercard, the card companies said in response to Reuters’ findings.

“Transaction laundering is serious misconduct – often criminal,” said Dan Frechtling, head of product at G2 Web Services, a financial compliance company which works with leading banks and card issuers. “It violates the merchant’s agreement with its acquirer, allows prohibited goods and services to enter the payment system, and may flout anti-money laundering laws.”

Three other fraud experts consulted by Reuters said transaction laundering helps online merchants trade in areas that credit card issuers and banks may otherwise bar as “high risk,” such as gaming, pornography or drugs. Some of them say thousands of online merchants may be using similar techniques to move billions of dollars that card companies would otherwise block.

“It is the digital evolution of money laundering,” said Ron Teicher, CEO of Evercompliant, a cyber-intelligence firm that works with banks to identify suspect sites. “The only thing is it is much easier to do, and much harder to get caught.”

GATEWAY FOR GAMBLERS

The dummy stores came to Reuters’ attention in late 2016, when an anonymous document posted on the internet pointed to three online outlets that advertised products but did not actually deliver any. In December, a reporter placed an order for a yard of burlap cloth on one of the sites, myfabricfactory.com, a website run by a UK company called Sarphone Ltd. The fabric, advertised in U.S. dollars at $6.48 per yard, has “many uses including lightweight drapes,” the website says. Sarphone did not respond to requests for comment.

This order went unmet. After a few weeks an email from My Fabric Factory arrived saying the product was out of stock. The payment was refunded.

When a reporter called the helpline number given on the site, the call was answered by someone who gave her name as Anna Richardson. She said she was employed by Agora Online Services, a payment services provider. Payment services providers (PSPs) verify, process and code card transactions.

Richardson said Agora processes payments for poker and works with “hundreds” of online gambling sites. Asked which references on the reporter’s card statement would be for online gambling, Richardson said, “If you have been using a betting site of any sort … they are normally processed by us.”

It was not possible to verify Richardson’s identity. The My Fabric Factory email came from Agora’s email address, info@agrsupport.net. Agora, headquartered in Iceland and linked to companies from the UK to Germany, is owned by a Mauritius-based company, DueXX Ltd, according to Orbis, a company database. Andrej Brandt, one of two directors of Agora and listed as the sole point of contact on DueXX’s website, declined to comment.

“Thank you very much for your interest but I don’t like to share my views and insights,” he said via text message after Reuters presented its findings. “I presume you understand.”

The other director of Agora, Joerg Henning, could not be reached.

Reuters placed orders for household products on six other websites, all owned by companies in the UK. All the orders went unfilled and payment was refunded without comment. The sites used the same mail server as one of Agora’s web addresses, agrsupport.net, according to domain name records.

The site helplines were answered by three individuals who all said they worked for Agora, a company that specialized in processing gambling payments. One was the woman who identified herself as Anna Richardson. Another gave her name as Lucy, and the third, who did not give his name, told the reporter, “Most of the people who gamble and end up having our charges on their accounts are Americans. Gambling is illegal in America.” The staff said they were based in Germany.

When Reuters made payments on the seven sites, in each case the reporter’s credit details were processed by Deutsche Payment, a payment processor headquartered in Berlin. Its website says it is certified by the PCI Security Standards Council, a global payment card security body. It was included in Visa Europe’s May 2017 list of approved agents. Deutsche Payment did not respond to requests for comment.

The PCI Security Standards Council said it was up to the card companies to regulate payment processors.

Presented with Reuters’ findings, a spokesperson for Visa said, “We require all gaming sites to be processed under the relevant Merchant Category Code. Our rules are always subject to local law and we do not tolerate criminal activity.”

A spokesperson for Mastercard said: “When we are alerted to activities that may be against our rules or against the law, we work with the merchant’s bank to confirm or investigate the allegation.”

After Reuters approached the payment processing companies, all seven online stores stopped accepting payments, although they remain visible online.

ECOSYSTEM

Illicit gaming is hard to detect, partly because those involved cooperate to hide what they are doing, said Scott Talbot, head of government relations at the ‎Electronic Transactions Association, a trade organization for the payment processing industry that counts some of the world’s largest banks as members.

Also, sites like those found by Reuters are small cogs in a complex global infrastructure.

“Illicit finance is incredibly creative,” said Gregory Lisa, a partner at law firm Hogan Lovells who has worked for the U.S. Treasury Department’s Financial Crimes Enforcement Network and as a trial attorney for the U.S. Department of Justice prosecuting money-laundering and fraud cases. “It is a very difficult arms race between the government and illicit actors and their financiers.”

Fraud specialists say dummy stores like those found by Reuters are not meant to be visited by the normal public. They are designed to be hard to spot, and their role is simply as a shop front to back up the bogus description.

Gambling sites that operate in countries where online gaming is illegal will take payment through their own sites, but then simply program the sites to give a reference to sites like the dummy stores in payment records, the consultancy Evercompliant says.

As far as the gambler is concerned, their payment has gone to the gambling site. Only when they see their card statement do they find a reference to the bogus store. If they visit the store and call the helpline number, the people who answer explain that the transaction actually corresponds to gambling – as Agora staff told the Reuters reporter.

Evercompliant, which has developed proprietary technology to help large banks and finance firms check sites they deal with, analyzed the seven dummy stores at Reuters’ request.

It found they were part of what it called an “ecosystem” of nearly 50 interlinked websites, owned by companies in countries ranging from Georgia to Latvia. It analyzed these sites and said if it had found such a network in a bank’s portfolio of customers, it would suspect transaction laundering, CEO Teicher said.

LOOPHOLES

Such sites get around checks by credit card companies by using loopholes in the system, according to Frechtling at G2.

Some banks rely on payment processors to vet online merchants. While most PSP firms are legitimate, their due diligence can be perfunctory, he said.

“Some PSPs will make a basic anti-money laundering check – for example, using sanctions lists,” he said. “But they may not do a full vetting of you until you start transacting. That is a weak link.

“Transaction laundering directly through a bank doing thorough due diligence would be relatively difficult, but at a PSP that is sponsored by a bank it is often easier.”

It was not possible for Reuters to determine which bank or banks work with Deutsche Payment or Agora.

The UK firms that own the seven dummy online stores were set up by Simon Dowson, whose company formation agency closed down in 2015 after businesses it set up were involved in global scams including money-laundering. Reuters revealed last year how Dowson used residents of the English town of Consett as part of the scheme.

Dowson’s wife, Tanaporn Thompson, also known as Tanaporn Dowson, was named as director of Sarphone Ltd, the owner of My Fabric Factory, for a week in January 2017. She could not be reached.

The person named in the UK company register as having ultimate control of Sarphone is another Consett resident, Emma Chambers. Chambers and Dowson did not respond to requests for comment for this story.

(Additional reporting by Lauren Young in New York and Ragnhildur Sigurdardottir in Reyjkjavik; Edited by Sara Ledwith)

U.S. banks, corporations establish principles for cyber risk ratings firms

A view of the exterior of the JP Morgan Chase & Co. corporate headquarters in New York City May 20, 2015. REUTERS/Mike Segar/Files

By Anna Irrera and Olivia Oran

(Reuters) – More than two dozen U.S. companies, including several big banks, have teamed up to establish shared principles that would allow them to better understand their cyber security ratings and to challenge them if necessary, the U.S. Chamber of Commerce said on Tuesday. Large corporations often use the ratings, the cyber equivalent of a FICO credit score, to assess how prepared the companies they work with are to withstand cyber attacks. Insurers also look at the ratings when they make underwriting decisions on cyber liability.

The group includes big banks like JPMorgan Chase & Co <JPM.N>, Goldman Sachs Group Inc <GS.N> and Morgan Stanley <MS.N>, as well as non-financial companies like coffee retailer Starbucks Corp <SBUX.O>, health insurer Aetna Inc <AET.N> and home improvement chain Home Depot Inc <HD.N>. They are organizing the effort through the Chamber of Commerce, a broad trade group for corporate America.

The move comes in response to the emergence of such startups as BitSight Technologies, RiskRecon and SecurityScorecard that collect and analyze large swaths of data to rate companies on cyber security.

As these startups have gained prominence and venture capital funding, the companies they rate have complained of a lack of transparency.

“The challenge is that their (startups’) methodologies are proprietary and there hasn’t been transparency on how they go about creating the ratings,” JPMorgan Global Chief Information Security Officer Rohan Amin said in an interview.

The financial services industry is among the most vulnerable to cyber crime because of the massive amount of money and valuable data that banks, brokerages and investment firms process each day. Several technology companies, including Microsoft Corp <MSFT.O> and Verizon Communications Inc <VZ.N>, also support the principles being developed, as do the cyber ratings firms, the Chamber of Commerce said.

Ratings issued by those companies could help guide the standards being set by U.S. corporations. BitSight, for example, rates companies on a scale of 250 to 900 with a higher rating indicating better security performance.

“For organizations to use your platform you have to demonstrate trustworthiness and reliability,” said Jake Olcott, BitSight’s vice president of strategic partnerships.

(Reporting by Anna Irrera and Olivia Oran in New York; Editing by Lauren Tara LaCapra and Lisa Von Ahn)