Essential Risk & Compliance Resources for E-Commerce Marketplaces

How to Prevent IP Infringement, COVID-19 Fraud, Problematic Products, and Other High-risk Activity on Your Platform

As e-commerce continues to grow and take over a larger portion of total retail sales, so does illicit activity related to online sales. From online fraud and scams alone, consumers reported more than $3.5 billion in losses to the FBI last year. Your e-commerce marketplace needs to be able to assess threats and quickly identify violative content so you can take action before it damages your reputation, draws regulatory scrutiny, or threatens public safety.

LegitScript, a partner of both Amazon and Shopify, provides in-depth content for e-commerce marketplaces, developed by our in-house experts. These resources are intended to provide you with a foundational background regarding key high-risk topics.

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IP Infringement and Organized Crime

The total estimated value of counterfeit and pirated goods, including digital piracy, is projected to reach as much as $2.81 trillion by 2022. Because products being sold online often aren’t obviously violative, e-commerce marketplaces provide cybercriminals key opportunities to drive sales. In fact, these criminals often steal images and language from a brand owner’s website to make their listings look official. Consumers may only realize they’ve been tricked when they receive a substandard product in the mail.

Intellectual property infringement can put consumer safety at risk and facilitate more serious forms of wrongdoing, which is why it is a threat and liability to e-commerce marketplaces. Although some may consider counterfeits and fakes to be a harmless crime, LegitScript has linked IP infringement to organized criminal networks engaged in other serious crimes such as money laundering, human trafficking, and labor exploitation.

Want to learn about the types of red flags you should watch out for? Click the button to download our guide on IP infringement and organized crime.

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Dietary Supplements Essentials

Since Congress passed the Dietary Supplement Health and Education Act (DSHEA) in 1994, the relatively small market has mushroomed into a $40 billion industry comprising 80,000 products or more. And it’s going to keep growing. As this industry becomes increasingly complex, it’s especially important that e-commerce marketplaces hosting supplement merchants are well educated on the types of products they are permitted to sell and the types of marketing they are allowed to use.

The marketing of dietary supplements is an important, but often complex, topic involving strict guidelines — particularly when it comes to what claims supplement merchants can and cannot make. For example, under what circumstances can someone say that their supplements can cure, mitigate, prevent, or treat a disease? Can someone market a supplement as “legal steroids” or “herbal viagra”? The FTC and FDA regularly crack down on supplement sellers making impermissible health claims on their listings. This kind of regulatory scrutiny can harm an e-commerce marketplace’s reputation and threaten consumer safety.

Want to improve your understanding of supplements and the types of claims that can violate federal policies? Click the button to read our full Dietary Supplement FAQ.

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Drop-shipping FAQ

Drop-shipping may not be a practice familiar to many consumers, but this business model is becoming increasingly popular on e-commerce marketplaces because it allows a person to quickly and cheaply launch a business. There are risks involved with drop-shipping, which is why some online platforms discourage these merchants. One risk is that drop-shippers never own or control their inventory. This makes problems with fulfillment and shipping far more common than traditional retailers. Chargebacks are more common and complex because, with more people involved in the sale of an item, it is sometimes difficult to determine who is responsible if something goes wrong. This can lead to negative reviews of the merchant and ultimately damage the reputation of the e-commerce marketplaces for failing to protect consumers.

Furthermore, drop-shipping websites are sometimes used to mask illegal activity through transaction laundering. Criminals will set up drop-shipping websites, seeming to sell innocuous products but actually processing transactions for products such as illicit pharmaceuticals or psychoactive products. This is among one of the greatest threats to card-not-present payment ecosystems, and is the reason why it can lead to regulatory scrutiny and expensive card brand fines.

Want to learn what red flags to watch out for? Click the button to read our Drop-shipping FAQ.

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The State of the Online CBD Industry

Market research indicates that CBD sales, which are largely online, will reach $22 billion or more in the next few years. Despite the flood of CBD brands and sellers that have appeared online in recent years, the FDA still prohibits the sales of the largest CBD segments: dietary supplements and food products. This puts CBD in a complex gray zone in which some products are legal in some jurisdictions, but these rules vary from state to state and are constantly changing. For this reason, many e-commerce companies have been wary to allow CBD sales.

LegitScript conducted an in-depth look at what is really going on in the online CBD market from a consumer safety and compliance perspective. We reviewed hundreds of websites selling CBD to gauge their levels of compliance, had dozens of CBD products tested for potency and safety, and investigated high-risk financial behavior that allows the industry to accept credit cards or other payments even when large swaths of it are violating state and federal laws. For e-commerce marketplaces, our report offers solutions that can help you take advantage of this burgeoning market by confidently accepting CBD merchants operating in compliance with the law.

Want to find out more about our findings and how to accept CBD merchants on your marketplace? Click the button to read our full CBD report.

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An Explanation of BRAM and GBPP

Mastercard’s Business Risk Assessment and Mitigation (BRAM) Program and Visa’s Global Brand Protection Program (GBPP) are designed to protect card brands and consumers from illegal and/or brand-damaging activity. These programs impose fines on acquiring banks and e-commerce marketplaces for any detected processing of fraud, illegal activity, or activity that may pose regulatory or reputational risk. Examples of such damaging activity include the illegal sale of prescription drugs or counterfeit merchandise, illegal or miscoded gambling, and child exploitation or banned pornography.

Web builders and e-commerce marketplaces must ensure that their merchants are not processing illegal or brand-damaging transactions. Failure to do so can result in fines as high as six figures per transaction.

Want to learn more about how BRAM and GBPP guidelines work, and how to adhere to them? Click the button to download our flyer on BRAM/GBPP basics.

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