By Geoffrey Ramsey
The U.S. Treasury aims to crack down on the use of prepaid cards to launder money, a tactic which officials fear could be gaining popularity among criminal groups.
Prepaid cards, a popular gift choice during the holiday season, are increasingly being used to launder illicit funds. The cards, which are available at drug stores and retail outlets across the United States, can be used almost anywhere in the world, and in some cases allow their holders to withdraw cash from ATMs.
In most cases, authorities have to obtain warrants before they can gain access to prepaid card information, making it difficult to launch investigations into the accounts. As the Drug Enforcement Administration’s 2010 National Drug Threat Assessment notes, this results in a situation where “law enforcement agents cannot efficiently determine whether the total value associated with a card is suspicious.”
This also means that the extent of the use of prepaid cards to launder money is unknown. As a U.S. Government Accountability Office report noted in 2010, “The nature and extent of the use of stored value for cross-border currency smuggling and other illegal activities remains unknown, but federal law enforcement agencies are concerned about its use."
To make matters worse, U.S. Customs guidelines do not currently require travelers to include the value of these cards when declaring the total amount of money they bring in to the country. Because of this, and because of the relative ease with which they are obtained, prepaid cards have become a popular alternative to smuggling bulk cash for Mexico-based money launderers in recent years.
This was recently confirmed by an anonymous U.S. drug enforcement official, who told Reuters last month that he was familiar with instances where drug traffickers bought prepaid cards with their profits in the U.S. and then moved overseas, where they were then exchanged for money that was not linked to the drug trade.
One known instance of this, as reported by the Associated Press, occurred in 2006 when a Dallas-based firm known as Virtual Money Inc. provided stored value cards to individuals who then assisted a Colombian drug trafficking organization in moving more than $7 million to Medellin over a period of three months. According to a defense attorney in the case, the accused used about 400-500 cards with maximum load limits of $1,000, which they emptied and refilled repeatedly.
John Tobon, a senior U.S. Immigration and Customs Enforcement agent, told the AP in May of this year that prepaid cards have become the “the preferred means of paying couriers who transport illicit drugs across the U.S.,” adding that "Law enforcement loses lives all over the world trying to keep [major criminals] unbanked, and these prepaid cards are offering them a great alternative to sneak into our financial system.”
All of this is set to change in the near future, however, in response to a new regulation proposed by the U.S. Treasury Department. Under the new rules, travelers would have to include prepaid cards, gift cards, and potentially even cell phones to the list of “monetary instruments” whose value must be declared upon entering or leaving the country. When the total exceeds $10,000, the individual would have to file a special report with customs officialsl.
In most cases, authorities have to obtain warrants before they can gain access to prepaid card information, making it difficult to launch investigations into the accounts. As the Drug Enforcement Administration’s 2010 National Drug Threat Assessment notes, this results in a situation where “law enforcement agents cannot efficiently determine whether the total value associated with a card is suspicious.”
This also means that the extent of the use of prepaid cards to launder money is unknown. As a U.S. Government Accountability Office report noted in 2010, “The nature and extent of the use of stored value for cross-border currency smuggling and other illegal activities remains unknown, but federal law enforcement agencies are concerned about its use."
To make matters worse, U.S. Customs guidelines do not currently require travelers to include the value of these cards when declaring the total amount of money they bring in to the country. Because of this, and because of the relative ease with which they are obtained, prepaid cards have become a popular alternative to smuggling bulk cash for Mexico-based money launderers in recent years.
This was recently confirmed by an anonymous U.S. drug enforcement official, who told Reuters last month that he was familiar with instances where drug traffickers bought prepaid cards with their profits in the U.S. and then moved overseas, where they were then exchanged for money that was not linked to the drug trade.
One known instance of this, as reported by the Associated Press, occurred in 2006 when a Dallas-based firm known as Virtual Money Inc. provided stored value cards to individuals who then assisted a Colombian drug trafficking organization in moving more than $7 million to Medellin over a period of three months. According to a defense attorney in the case, the accused used about 400-500 cards with maximum load limits of $1,000, which they emptied and refilled repeatedly.
John Tobon, a senior U.S. Immigration and Customs Enforcement agent, told the AP in May of this year that prepaid cards have become the “the preferred means of paying couriers who transport illicit drugs across the U.S.,” adding that "Law enforcement loses lives all over the world trying to keep [major criminals] unbanked, and these prepaid cards are offering them a great alternative to sneak into our financial system.”
All of this is set to change in the near future, however, in response to a new regulation proposed by the U.S. Treasury Department. Under the new rules, travelers would have to include prepaid cards, gift cards, and potentially even cell phones to the list of “monetary instruments” whose value must be declared upon entering or leaving the country. When the total exceeds $10,000, the individual would have to file a special report with customs officialsl.
Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at www.launderingmoney.com and on twitter at : http://twitter.com/#!/LaunderingMoney
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