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Money launderers get creative, use cards

Monday, January 16, 2006

Prepaid cards are a compact, easily transportable way to store and access cash.

WASHINGTON -- Gift cards from stores and malls, phone cards and other prepaid cards are emerging as ways for criminals to launder money they have gotten through illegal activities.

That was among the findings in a federal report, released last week, examining different methods criminals use to conceal and move dirty lucre.

As drug lords, terrorist financiers and other money launderers have found it increasing difficult to move money through the United States' traditional banking system, they are on the lookout for alternative means to move money, federal officials said.

Prepaid cards -- which law enforcement officials call "stored value" cards -- "are an emerging cash alternative for both legitimate consumers and money launderers alike," the report noted. The cards "provide a compact, easily transportable and potentially anonymous way" to store and access cash, the report said.

The universe of prepaid cards is diverse. Some are referred to as "open system" cards because they can be used to connect to ATM machines or for debit purposes.

Prepaid cards can be set up in various ways. They can be paid for by one person and used by another. Criminals can use cash -- from their illegal activities -- to pay for the cards or they can use stolen credit cards to pay for the cards, the report said.

The Drug Enforcement Administration, Immigration and Customs Enforcement and the Internal Revenue Service's Criminal Investigation unit have all found prepaid cards used in conjunction with bulk-cash smuggling, the report said.

"Drug dealers load cash onto prepaid cards and send the cards to their drug suppliers outside the country. The suppliers then use the cards to withdraw money from a local ATM," the report said.

In addition, law enforcement agents on the El Dorado Task Force in New York -- set up in 1992 to target money laundering -- found they could use false identification to obtain prepaid cards and even have the cards sent to a U.S. post office box, the report said.

Providers of prepaid cards are subject to some federal anti-money laundering regulations.

The report was put together by a group of federal agencies -- including the departments of Treasury, Justice and Homeland Security -- that are responsible for law enforcement and combating financial crimes.

The report didn't rank the different types of money-laundering methods such as the most used or the most vexing to law enforcement.

Instead, the report provided a snapshot on the different abuses, something federal officials believe will help them better tailor their efforts to fight money laundering while providing useful insight to financial institutions and others that must have programs in place to prevent and detect money laundering and to report suspicious financial transactions.

Neither the report nor federal officials estimated how much money is laundered annually in the United States.

"Because of the success we had in driving some of this ... out of the traditional banking sector, criminals are looking for alternative ways. They are intelligent people and they are going to be innovative," said Stuart Levey, Treasury's under secretary for terrorism and financial intelligence. "But it requires us to be innovative as well because we now have to adjust our actions on all levels -- law enforcement, regulation and education in the private sector -- to stay one step ahead."

The report also found that:

--Some online payment systems are "ill-equipped to verify customer identification and some openly promote anonymous payments."

--Money-services businesses -- such as check cashers, firms that wire money, and currency exchangers -- in New York, California, Arizona and Texas were the top filers of suspicious financial activity reports to the government between 2002 and 2004.

"These numbers indicate a concentration of illicit financial activity in major, densely populated cities and along the Southwest border," the report said. Mexico was identified as the primary destination for suspicious funds sent through money-services businesses.

--Bulk-cash smuggling is another alternative money-laundering method that is on the rise. Smugglers hide currency in clothing, cars, luggage and in other things. "Bulk-cash smugglers are well aware of law enforcement's resource constraints at the border and usually cross at busy sites, carefully timing and coordinating crossings," the report said.

On the Net:

Treasury Department: http://www.treasury.gov/

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