Payment Facilitation (PF) is one of the fastest growing segments in the payments industry and 2018 is poised to be another year of exponential growth. Due to the nature of the PF model where transactions are processed and funds disbursed, PF’s are subject to are subject to a number of government regulations that are intended to detect and prevent money laundering. Here are basics you need to know:
Know Your Customer(KYC)
As part of the banking industry, PF’s are subject to a number of government regulations that are intended to prevent the illegal transfer of funds, money laundering and the funding of terrorist organizations (Electronic Fund Transfer Act, Bank Secrecy Act, USA Patriot Act). PF’s must have a process for obtaining and verifying information about the entities they are doing business with.
Office of Foreign Assets Control(OFAC)
OFAC is a department of the U.S. Treasury that enforces economic and trade sanctions. They publish a list of Specially Designated Nationals (SDNs), which lists people, organizations, and vessels with whom U.S. citizens are prohibited from doing business. PF’s must have a process in place to ensure their services are not being used by any people on the OFAC list.
Form 1099-K is used to report payments settled through a third-party network. The IRS requires PF’s to issue and file a corresponding 1099-K to every merchant that processes over $20,000 and 200 payments in a calendar year. PF’s must have the ability to collect tax information and monitor transaction activity.
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