In Depth April 1, 2010, 5:00PM EST

MasterCard, Visa, and the Card Sharks

There are some things money can buy, and one of them is a license to issue credit cards from MasterCard and Visa. Some questionable banks do just that, gaining credibility from the brands

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Illustration by Eddie Guy

By Jessica Silver-Greenberg

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Rowe's Florida clients say they were impressed by the MasterCard brand Jeffery Salter/Redux

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Hallmark Bank & Trust, headquartered in the Turks and Caicos islands, enjoys a valuable relationship with one of the best-known brands in consumer finance: the credit-card giant MasterCard (MC). Hallmark, like other banks, pays MasterCard for the right to use its name on the cards Hallmark issues to customers. MasterCard also receives a percentage of sales made with those cards.

Hallmark, despite its homespun name, has a checkered reputation. (It has no connection to the greeting card company.) In a civil lawsuit filed in 2007 in federal court in Hawaii, the U.S. Internal Revenue Service alleged that two American accounting firms advised scores of clients to evade taxes by moving money out of the country by means of Hallmark-issued MasterCards. The bank isn't named as a defendant in that case. Brian F.J. Trowbridge, Hallmark's president, formerly served as a director of Lake Shore Alternative Financial Asset, also based in the Turks and Caicos. In February 2009, a federal grand jury in Chicago accused the president of Lake Shore affiliate Lake Shore Asset Management, Philip J. Baker, of tricking U.S. currency investors out of a total of $300 million. Trowbridge isn't accused of criminal conduct in the case. Until recently, another Hallmark executive, Greg Hurd, secured banking services for Lake Shore Asset Management, according to a document filed in a 2007 civil fraud suit brought against Lake Shore Asset Management by the U.S. Commodity Futures Trading Commission in federal court in Chicago. Baker and Lake Shore have denied wrongdoing in the Chicago cases, which are pending.

All of this raises a question: How many red flags does MasterCard need before severing ties with Hallmark Bank and its president?

MasterCard and its main rival, Visa—each a publicly traded company—say they monitor individual cards for misuse and avoid associating with questionable banks. The vast majority of banks that have alliances with Visa (V) and MasterCard boast solid reputations. But the card companies also do business with financial executives and institutions that have murky profiles.

Visa has sold a debit-card license to Global Bank of Commerce in Antigua. On its Web site, Global markets an "unembossed" Visa card on which the customer does not have to place her name. Other financial companies make similar anonymous card offers. A. Jack Fishman, a former IRS criminal investigator, says the come-ons appeal to people who use cards to evade taxes or transfer dirty money: "Why else on earth would you need an anonymous credit or debit card, unless you were trying to move illicit funds?" Global's president, Brian Stuart-Young, says the no-name cards aren't likely to be used illegally because the bank "holds detailed financial information for anyone who might get an unembossed card." The cards typically have low limits, he adds.

"REPUTATIONAL CONCERNS"

The card networks stress that they take special care when dealing with banks outside of the U.S. In an e-mailed statement, Visa, based in San Francisco, said it "reviews the owners and directors of each non-U.S. applicant [bank] against applicable government lists and commercial databases to ensure that there are no restrictions or reputational concerns associated with the applicant." A Visa spokesman declined to address the company's relationship with Global or to make Visa executives available for interviews.

Jodi Golinsky, MasterCard's vice-president for U.S. regulatory and public policy, says her company combs through banks' public records and conducts independent investigations. The roughly 23,000 banks currently approved by MasterCard are also subjected to ongoing monitoring, she adds. MasterCard requires each to have an active program to fight fraud and money-laundering. Banks based in countries or regions known to be tax havens receive extra attention.