Potential Laundering

Prepaid Stored Value: Potential for Money Laundering

The U.S. Department of Justice, National Drug Intelligence Center, released an assessment paper on October 31, 2006 titled “Prepaid Stored Value Cards: A Potential Alternative to Traditional Money Laundering Methods.”

The report notes that prepaid stored value cards are experiencing explosive growth.

Unfortunately, the product category also provides an ideal money laundering instrument allowing persons to anonymously move monies associated with all types of illicit activity… without fear of documentation, identification, law enforcement suspicion, or seizure.
The assessment indicates it is very likely that drug traffickers and criminals are exploiting and will increasingly exploit the convenience and anonymity of prepaid stored value cards to launder and move funds associated with their illicit enterprises.

Issues identified in the assessment include:

  • Prepaid stored value cards cannot be seized for CMIR (Report of International Transportation of Currency or Monetary Instrument) violations.
  • Stored Value is loosely regulated; function as remittance cards; frequently provide cardholder anonymity upon acquisition of cards and during value loading.
  • Stored value often has liberal daily limits on total card value, reloading, withdrawal, and spending of funds.
  • Fees for stored value are similar to the costs of other methods of laundering money.
  • Stored Value will likely replace bulk cash smuggling under many conditions.
  • Criminals are likely to begin using stored value to replace the movement of currency via electronic money transfers.

While U.S. regulatory action alone will not be sufficient to suppress the money laundering threat posted by this growing payments mechanism, additional regulatory action to help minimize the threat is likely.