MilesBuzz! - is it legal to run credit card charges thru my friend's business?

I have a friend who owns a store and would be willing to let me run some charges through my Amex card. I would pay off the balance every month, he would receive money from Amex, and then he'd reimburse me less the fees Amex charges him. This could be a great way for me to get a lot of miles but is it legal? ethical? can Amex (or even Citi AA for that matter) find out what's going on and cancel my account? if anyone has done this and would like to share some experiences or advice, I'd appreciate it!

"Legal" is different than a violation of the terms of the vendor contract. As far as the contract, he'd have to read it.

Ignoring the legal/ethical issues for the moment....

I'd be curious to hear what the Amex fees would be, and whether that would make this sort of "mileage run" worthwhile. I would be surprised if the merchant costs of charging on Amex were under 2 or 2.5%, maybe more, which would make these miles not terribly cheap.

"Legal" is different than a violation of the terms of the vendor contract. As far as the contract, he'd have to read it.


I am not responding with legal advise, but you would be "gaming the system" with unseen circumstances. # 1, this is what credit card theives used to do...get a stolen card or [steal one], run up hundreds of $$ in less than 30 minutes with someone they know that has a merchant account. The time limit is so too many flags to do not pop up on that credit card account. #2, your friend will now have those extra $$ posted as a sale or, an income and subject to taxes if he could not write it off! More falgs will go up from the cc company. Is it worth it for a few thousand miles....I doubt it very much...

Listen to KXM

If I were to do this through my merchant account, I'd lose my account.

It's not illegal, but it's probably against the merchant agreement and will probably get your and his account flagged for possible money laundering, and all kinds of other things.

He could also get nailed for the sales taxes on the charges you process through, and any other tax issues from the income.

You could do it, though I doubt for very long. It's not worth his merchant account so you can get a few miles, if you have your heart set on doing this, open your own account to launder the money.

Taxes would probably kill the rate for the MR, each percentage of tax or sales tax that the merchant needs to "collect", that would be almost the same amount of additional cpm (ie 7% tax = 107 miles for $107 swiped or $7 paid in taxes, about 7cpm this way).

I don't think your friend has thought this through very will in terms of the impact on his bottom line. In addition to the issues mentioned above, the charges will show up as income for your friend, with no business expenses to offset that income. Depending on how his business is set up, he will have to pay income taxes or corporate taxes or both on the money you launder through his account.

Credit in, no services rendered nor products supplied, cash back? I'm no lawyer but I think this might actually comprise illegal money laundering.

Credit in, no services rendered nor products supplied, cash back? I'm no lawyer but I think this might actually comprise illegal money laundering.

"Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of the underground economy."

This is not money laundering but also not really worthwhile, a MR would be cheaper.

all legal and ethical and tax issues aside, not effective for miles. AMEX charges up to 4.5% for transactions, typically higher than 3%, which makes those miles expensive. Other cards charge qround 2.5%, unless u have high volume and a good contract withthem, so still, expensive for miles.

looked into this exact @:-) years ago. I never did it, for 1 simple reason , it was NOT worth it. By the time the CCs fees are deducted and who ever runs it thru their machine will have to keep extremely good records and explain to the IRS why they had all these transactions for 10s if not 100s of thousands of $$ and never made 1 cent. It simply didnt pay.

"Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of the underground economy."I believe this would be a financial transaction intended to conceal the destination of the money - back to the OP. The "main operation" stuff is irrelevant to the actual act.

if your friend is willing to do it that's fine but there are some things to consider on both sides asside from any legality issues that I am not aware of.

It should be legal but I would suggest you actually DO some business with his company to at least show on paper that this is part of your intent (that would probably help you on the ethics side too, I think).

If you and he just spin funds and essentially churn but nothing else comes of it, then he could run into problems later on. Even if it's not technically illegal, you may have people prying into his affairs and this will cost him much more than he saves you (by your getting miles to fly free in return). Big companies like Citi have lawyers and staff to handle this sort of thing but he may not and may not want to anyway. You will obviously help him out thru any grueling process should this result in say, an audit or something.

Although I can't comment on the merchant agreement that your friend signed, I am certain I would never do this with my business. According to my merchant agreement, if I did such a transaction and got caught, I'd be cancelled. Without the ability to process credit cards, my business would fold.

Consider this: Processing a transaction for a purchase has a VERY different interest rate than processing a cash advance. In effect, the bank probably wouldn't care much about the miles. Instead, they would go after your friend for offering a cash advance without be approved to process those transactions.

Ever wonder why when you return merchandise that was paid on a credit card, the money has to go back to the card? That's why.

I had a boss who did it to his own business years ago. Our average ticket at the store was around $50, he charged $10k in one transaction. I was the manager at the time and didn't know he did it, and the credit card company called and asked for copies of the receipt. I told them it was a mistake, and told him about it later in the day. He said the transaction was for points for an upcoming vacation, but I thought at the time it was a "cash advance" to cover bills - I quit as soon as I could find another job. In retrospect, he probably really did need the points, but I had bills of my own to cover and I couldn't risk my income if he really was out of dough.

Just a possible unintended consequence...

This could cause major IRS problems, your friend may be investigated for fraudulent bookkeeping, he needs a plausible explanation for where all the money went.

sorry for not posting... been away for vacation and never go online...

anyway, based on your posts, this seems like a bad idea all around... the "cons" far outweigh the "pros"... thanks for the feedback!