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Vancouver – from www.vancouversun.com – Ron Zvi Mendelson, owner and operator of White Rock-based Offshore Processing dot Com, is involved in a very edgy business.

According to its website, Offshore Processing provides credit-card-processing services “for merchants from virtually any type of industry. Adult, dating, pharmacy, replica, forex, gambling, high volume – No Problem. We say Yes! when others say no.”

Aside from the ethical and often legal issues associated with dealing with these sectors, there are all sorts of business risks, mainly the risk of customer disputes and credit-card charge backs.

There is also the risk of regulatory intervention, as Mendelson has discovered.

On two prior occasions, he has been cited by regulators in connection with his payment-processing activities. More on that later.

Mendelson, 42, was born in Vancouver and worked in the carpet-retailing business until the late-1990s, when he moved to Costa Rica and became a principal of an offshore consultancy firm, Offshore Secrets Network. He is now the sole owner of that business.

According to its website, Offshore Secrets specializes in the formation and incorporation of companies in “reputable jurisdictions” such as Belize, Cyprus, Nevis and the Seychelles. In fact, these countries are tax and secrecy havens that have garnered considerable notoriety over the years.

Offshore Secrets also offers offshore-banking services in countries that have “strict privacy-protection laws,” including Switzerland and some Caribbean countries.

These services are offered to people as a “lawful” response to “the increasing abuse of your right to privacy, outrageous taxation, and the omnipresent danger of potentially devastating litigation.”

Of course, offshore banking services can also be used for unlawful purposes, as Mendelson well knows.

In 2000, he established Rishon Bank, which was registered in Montenegro. One of the bank’s clients was Le Club Privée, which ran an investment club using multi-level marketing techniques to sell investments in unregistered mutual funds. Investors were promised returns of six to 40 per cent per month, supposedly with no risk to their principal.

In August 2000, the U.S. Securities and Exchange Commission launched a civil action against the club and its three alleged principals, who were identified as Mendelson and two Russian nationals, Zdenek Kieslich and Eugene Chusid. Rishon Bank was also named as a defendant.

The SEC alleged the club was “a sham, with investor funds being diverted by its three principals.. None of the banking or financial transactions reviewed by the staff reflects any indicia of legitimate business activity.”

Because the SEC acted promptly and provided the receiver with a broad Federal Court order and details of where the money went, the receiver was able to trace the funds and repay investors in full.

In an interview this week, Mendelson denied he was a principal of the club. He said his only involvement was providing bank accounts and debitcard services for club members.

For whatever reason, the SEC did not pursue its case against Chusid and Kieslich, and dismissed its case against Mendelson and his bank. But the question remains: Why did he get involved with the club in the first place?

Even before the club began operation, Chusid had been named in two criminal fraud complaints in New York and New Jersey relating to his operation of the Caribbean Bank of Commerce in Antigua. (He was later sentenced to 37 months in prison, fined $250,000, and ordered to pay $360,000 in restitution.)

Chusid and certain family members had also been named in eight civil cases filed in New York and New Jersey, most involving allegations of dishonesty and fraud. He was also an undischarged bankrupt who had applied for a discharge but was refused on grounds that he had fraudulently concealed assets.

This is hardly the sort of person that a licensed bank should do business with.

Mendelson has a simple but not very comforting response. He says that when he agreed to provide banking services for club members, he was not aware of Chusid’s problems.

This may explain why he did business with Chusid, but in my view, it raises questions about the depth of the due diligence he conducted on his clients, which is an important function of offshore business providers.

In 2007, Mendelson got into more trouble when he established payZilla Technologies Inc., which also offered a variety of payment-processing services. The company was ostensibly located in an office at West 73rd Avenue in Vancouver, but this was simply a mailing address.

Acting on a complaint, the B.C. Financial Institutions Commission (FICOM) began looking into the company and found it was offering to sell prepaid MasterCards, which enabled buyers to load up the cards with cash.

FICOM officials said this amounted to deposit taking, which payZilla was not authorized to do, so they issued a cease-and-desist order.

Mendelson immediately folded the company.

Meanwhile, Mendelson created Offshore Processing as a spinoff of Offshore Secrets. He operated the business from Costa Rica until last year, then brought it “onshore” – that is, to White Rock.

Offshore Processing now operates as a division of Merchantica Ltd., a recently incorporated B.C. company. It ostensibly operates from an office at 202-15388 24th Ave. in White Rock, but this, too, is simply a mailing address.

“Most payment processors and banks turn down high-risk and highvolume merchants that operate nontraditional businesses such as gaming, replica, online dating, online pharmacy or adult,” the company says on its website. “We specialize in providing service to these businesses and offer them the ability to accept creditcard payments at affordable rates.”

Mendelson operates the business with only two employees in Costa Rica. He said he doesn’t need a lot of employees, because he is simply a broker who connects online merchants with financial institutions who provide payment-processing services.

“We have contacts with banks that cater to high-risk industries, like adult entertainment. Most of the traditional banks stay away from it because of perceived ethical issues,” he said.

Aside from the reputational risk, there is the inherent risk of online payment processing: Because the merchant never sees the card, there is an increased likelihood of disputed or fraudulent charges. Industries such as adult entertainment are particularly vulnerable because customers often deny they contracted to buy these services.

Mendelson says he works with a variety of large and reputable banks in Europe and Asia – and one in the Caribbean – that know how to price these risks, but he declined to name any of them.

He said his clients would simply go directly to those banks and cut him out of the mix. Not surprisingly, he declined to identify any of his clients, either.

As mentioned, it’s an edgy business. There’s no suggestion that Mendelson is doing anything wrong, but given the nature of his business, I think it’s useful to shine a little light on it.