Prepaid cards attract money launderers

A safer and increasingly attractive alternative for today’s
criminal is electronic cash loaded on what are called stored-value or prepaid
cards. Getting them doesn’t require a bank account, and many types can be used
anonymously.

U.S. crimefighters consider the cards a burgeoning threat
that regulators haven’t adequately addressed.

In the past year, said John Tobon, a senior U.S. Immigration
and Customs Enforcement agent, the cards have become the preferred means of
paying couriers who transport illicit drugs across the U.S.

No one knows how big a role the cards play in moving the
more than $20 billion in drug earnings that U.S. authorities estimate crosses
from the U.S. to Mexico annually. Yet while anyone crossing that border with
$10,000 or more in cash must declare it, prepaid cards are legally exempt.

“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,” said Tobon.

It was bank and wire-transfer records that enabled law
enforcement to identify the 9/11 hijackers and their overseas cells. “Had
the 9/11 terrorists used prepaid (stored-value) cards to cover their expenses,
none of these financial footprints would have been available,” a U.S.
Treasury Department report observed.

Visually, the cards are barely distinguishable from credit
or debit cards and the most versatile let users reload them remotely without
having to reveal their identity, using cash, moneygrams, PayPal and other
online payment services.

Some cards can process tens of thousands of dollars a month.
Just load them up in Connecticut or Texas with, say, the proceeds of cocaine
sales and collect the cash in local currency from an ATM in Medellin, Colombia
or elsewhere in Latin America.

“I’m not so sure we have a sophisticated understanding
of how to deal with this,” said Richard Stana, who oversaw a report on
prepaid access for the General Accounting Office, the U.S. Congress’ research
arm. “It’s just a whole new way of doing business.”

In one of the first cases to clue law enforcement to the
threat, a Dallas-based company called Virtual Money Inc. provided the cards to
crews who helped Colombian drug traffickers move at least $7 million to
Medellin during three months in 2006, prosecutors say.

The money moved digitally, as most legitimate capital
travels these days, but bypassed bank accounts, making its digital footprint
harder to detect. Virtual Money allegedly violated U.S. banking law by not
reporting transfers of above $10,000 or other activity suggesting illegal money
movement.

David Zapp, a New York attorney for a defendant sentenced to
45 months in prison in the case, said his client was a small player in a scheme
in which cards he was aware of had relatively low load limits of $1,000.

 

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