We frequently hear about the “long arm of the law,” but, in the case of the Federal Trade Commission, just how far does that arm actually reach? The FTC recently filed an amended complaint in the U.S. District Court for the Central District of California adding SIA Transact Pro, a Latvian payment processor, and its CEO as additional defendants in its case against Apex Capital Group, LLC and other parties. The amended complaint alleges that Apex Capital defrauded consumers, and that the newly added foreign-based payment processor helped its merchant, Apex Capital, avoid detection by consumers and law enforcement.
Specifically, according to the FTC, Apex Capital offered “free” trials of personal care products and dietary supplements for just the cost of shipping and handling—$4.95. However, approximately two weeks after a consumer ordered a “free” trial, the FTC alleges that Apex Capital would charge that consumer’s credit or debit card the full price of the product ($90) and enroll the consumer in an automatic renewal option—all without that consumer’s knowledge or consent.
The FTC alleges that SIA Transact Pro—the Latvian processor—assisted Apex Capital by circumventing credit card associations’ monitoring programs and making it difficult for FTC investigators to uncover the allegedly fraudulent transactions. Specifically, the FTC alleges that SIA Transact Pro used shell companies and straw men in the United States and the United Kingdom to open merchant accounts for Apex Capital and manipulated chargeback levels to hide evidence of fraud.
In response to the FTC’s efforts against payment processors in the United States, more and more merchants, especially those in “high risk” categories, have sought payment processing services overseas. The FTC has observed this. As noted in our December 5, 2018 blog, last year the FTC sued a foreign bank for the first time for its involvement in providing payment processing to an alleged fraudster. This case follows that model. What enables the FTC to pursue foreign banks? Under the U.S. Safe Web Act, which amended the FTC Act, the FTC can sue foreign entities that cause injury to consumers in the United States. In addition, although the FTC does not have jurisdiction over U.S. banks, that exemption does not apply to foreign banks. In the case of SIA Transact Pro, the FTC argues it is entitled to go after SIA Transact Pro in a U.S. court for alleged violations of U.S. law because the foreign-based payment processor worked with U.S.-based merchants and set up numerous merchant accounts to process payments in U.S. dollars.
The FTC’s pursuit of companies involved in providing payment processing services to alleged bad actors appears unrelenting and the death of Operation Chokepoint greatly exaggerated. The FTC continues to “follow the money” and that trail now leads overseas. Anchors aweigh!