Visa U.S.A. and MasterCard International have filed suit in California against four companies accused of laundering millions of dollars in bogus credit card charges through foreign banks.
In a civil suit filed in United States District Court in Los Angeles, Visa and MasterCard asked for a restraining order to shut down the credit card operations of two Los Angeles-based firms, National Approval Center and Blue Rose Merchandising Corp., and their respective principals, Sheldon J. Katz and Paul Dalton.
Also named is Gary R. Greenwood, principal of two Vero Beach, Fla., firms: Fidelity Business Services Inc. and Horizon Marketing Systems.
The credit card firms said the accused coordinated the laundering of some $2 million of fraudulent charges through merchant accounts at a handful of financial institutions, including Lloyds Bank of London, Bank of Oman, and HSBC Holdings' Hongkong and Shanghai Banking Corp. subsidiary.
While the alleged laundering ring would account for only a fraction of the estimated $200 million lost annually in telemarketing credit-card fraud, Visa officials claimed the three men broke new ground by executing their scheme overseas, where con artists are increasingly trying to exploit weaker controls.
"This is far and away the largest and most far-reaching international fraud we've ever uncovered," said Daniel H. Bookin, an attorney with Farella, Braun & Martel, which is handling the civil suit for Visa and MasterCard.
In court documents scheduled to be made public today, Visa and MasterCard said the scheme is under criminal investigation in Austria and Singapore. Officials declined to say whether a criminal investigation is under way in the United States.
The bank card associations claimed the accused laundered fraudulent charges from the summer of 1991 through early this year. The four firms allegedly acted as "brokers" that persuaded legitimate merchants to deposit charges obtained from U.S.-based telemarketers into the foreign merchants' bank accounts.
Visa officials said the telemarketers ran telephone "boiler rooms" where service representatives would use a variety of means to pressure consumers into disclosing card numbers. They said the telemarketers made $3 million of charges passed by the brokers through foreign banks.
Once the charges were deposited, the merchants could withdraw them as cash. The merchants and brokers could then each take a cut, before passing funds back to the telemarketers.
However, about $2 million of charges were later disputed by consumers as fraudulent. Normally, less than 1% of credit card charges is rejected, Visa officials said.
Dennis Fiene, Visa's director of fraud control, estimated that the banks involved would have to cover 80% to 90% of the chargebacks, with the merchants who accepted the bogus transactions covering the remainder.