ICC-Cal Fined 9M Euros; May End High-Risk CC Processing

GIV'ATAYIM, Israel—In a development that could significantly impact the ability of many porn sites to transact credit card payments, Israel Credit Cards-Cal Ltd. (ICC-Cal) reportedly is closing Cal Assets Ltd., aka ICC Assets, the subsidiary that handled—or some would say, mishandled—international clearing activity for gambling, pornography, and until recently, nutritional-supplements sites.

According to news reports, ICC-Cal took over Cal Assets' risk management activity several months ago, and is now taking over money management duties as well. Cal Assets will continue to handle sales and marketing, and business development.

The move comes on the heels of the imposition of a 9-million-euro fine Visa levied against ICC-Cal over the latter's failure to control chargebacks. According to Globes, ICC had reached a 7-percent chargeback rate, which is precipitously higher than the 2 percent mandated by Visa International. The discrepancy led to the massive penalty, with Visa fining ICC $100 for every charge back.

ICC is 71.2 percent owned by Israel Discount Bank and 28.8 percent owned by First International Bank of Israel, and is the only credit card company in Israel active in high-risk processing for gambling, adult websites and nutritional supplements. Together, those market segments reportedly account for 16 percent of ICC-Cal's total revenue and 26 percent of its net profit.

Visa International has given ICC until February 2010 to get its house in order, and has warned that if ICC continues to breach the rules of the organization, the revocation of its international clearing license will be considered. Cancellation of the company's membership in the Visa network also is on the table. While it is unclear exactly what Visa wants to see other than lower chargebacks, ICC executives have stressed it is unlikely Visa will kick out the company.

"This is a serious and exceptional incident, and it's a pity that it happened, but such things do happen,” ICC Chief Executive Officer Boaz Chechik said in November, adding that he takes personal responsibility for the situation. "I have responsibility for problems at the subsidiary arising from my position as CEO of the parent company. Therefore, I managed the crisis personally and took action to avoid further risks and apply the lessons.

“We knew two and a half months ago, even before there was a general picture, that it was a serious incident and we began to fix things with determination and uncompromisingly,” he added. “Today I can say that we have identified all the businesses that caused the problem and have ejected them from the system; we have stopped working with them. I believe that we will be able to show the people at Visa Europe that we are abiding by the rules and that we will meet the timetable set down for us."

In September, Visa International also reportedly imposed on ICC a prohibition against accepting new businesses for internet clearing until Visa completed an investigation into ICC's practices. ICC said the prohibition, which is highly unusual, would end unconditionally Dec. 15.

“The fine that ICC reported today was imposed because of the activity of several clearing companies and not just one," Globes reported in November. "The company said this morning that a substantial part of the clearing problems for which the fine was imposed was related to transactions connected with internet clearing companies owned by Nathan Jacobson, who owns PayGea, sponsor of Maccabi Tel Aviv football club."

The fallout from the announcement of the Visa fine also has claimed other victims. In October, Cal Assets’ CEO, Steve Greenspan, resigned because of the pressure of his job, the company said at the time. Since then Cal Assets has admitted Greenspan left because of his responsibility for the failures in clearing of nutritional-supplement transactions. The company also said Greenspan would have been fired had he not handed in his resignation.

Shlomo Zohar, former chairman of both Israel Discount Bank and ICC, also was removed in November by controlling shareholder Edgar Bronfman, after it became public there were irregularities with the management of credit card transaction-clearing at ICC.

While the unraveling at ICC and related entities has been suspected in adult circles for several months, the full realization of its potential impact is being realized (and expressed) only now.

“I just amazes me that more people don't realize how huge this is,” CCBill founder Ron Cadwell wrote late Thursday on adult Board JBM. “You have the largest high-risk bank in the WORLD. Saying goodbye to 500+ million per month in processing. THIS IS HUGE!!!! You also have every other high-risk bank in the world on NOTICE to not accept or be very careful who they take in as a new/existing client. Make no mistake: ICC did not just wake up and decide they would stop making a TON of Money in high-risk processing. They WERE FORCED to stop.

“The one question nobody has brought up is will merchants get their last week+ of transactions wired to them. Will the bank hold them and their reserves for years to protect against losses? Will ISO just pocket the money and never pay the merchants? Time will tell, but I think we will start hearing stories shortly just like the iBill days just a lot more and Larger.

“…Rest assured that CCbill checks will continue to go out ON TIME just like they have for the last 10+ years.”