May 28, 2011

21st-century money laundering: Pre-paid cards anonymous, easy to transport

BOGOTA, Colombia - Forget bulk cash. It's not the most convenient cross-border conveyance for a 21st-century money launderer.

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

U.S. crime fighters 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 more than $20 billion in drug earnings that U.S. authorities estimate crosses from the U.S. to Mexico annually. While anyone crossing that border with $10,000 or more in cash must declare it, prepaid cards are legally exempt.

"These prepaid cards are offering them (criminals) a great alternative to sneak into our financial system," Tobon said.

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.

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. Some cards can process tens of thousands of dollars a month.

"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.

Prepaid cards also are changing the way law-abiding citizens, businesses and governments handle money. Walmart uses them to distribute payrolls, U.S. government agencies to deliver benefits and migrant workers to send money home.

In the U.S. alone, an estimated $107 billion moved on branded prepaid cards last year, according to Aite Group, a financial-research firm. Globally, the Boston Consulting Group forecasts, transactions with reloadable prepaid cards will reach $840 billion a year by 2017.

An October report by the 34-nation Financial Action Task Force cites just a half dozen laundering cases involving prepaid cards in their short history - each involving from $200,000 to $5 million and most in the U.S.

The Treasury wants businesses selling cards that can be used internationally to keep customer identity records and report suspicious transactions. That would affect more than 43,000 U.S. sellers. The prepaid-card industry objects, saying that would hike administrative expenses, with the costs passed on to consumers.

by Frank Bajak Associated Press May. 24, 2011 12:00 AM

21st-century money laundering: Pre-paid cards anonymous, easy to transport

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