The Cornerstone Report: Volume 3, Issue 2

Prepaid Cards an Emerging Threat

"Prepaid" or "stored value" cards are becoming a preferred method by criminal organizations to move illicit funds out of the country.

Recent ICE investigations have uncovered an emerging trend in the use of prepaid or stored value cards to smuggle illicit proceeds out of the U.S. Where criminal organizations previously employing bulk cash smuggling or the use of money launderers to wire proceeds out of the U.S. they are now often turning to prepaid cards.

Prepaid cards are issued to customers in two categories, closed system cards and open system cards. The use of both types involves numerous money laundering vulnerabilities.

Closed System Cards

• Gift cards, phone cards, etc.
• Usually sold in preset denominations.
• Cannot have additional value added.
• Cannot be used at ATMs.
• Limits on the use of closed system cards make them a lesser, but still significant, money laundering threat than open system cards.

Open System Cards

• Most significant money laundering threat.
• Branded by American Express, MasterCard, or Visa operate like traditional credit or debit cards.
• Any prepaid card with ATM access can be a remittance card.
• An estimated $30 billion in remittance payments go to Latin America from the U.S. each year, with $10 billion to Mexico alone.
• Remittance cards allow cardholders to use a bank payment network, through ATMs, without requiring a bank account.
• Remittance cards facilitate the cross border movement of funds without a declaration requirement.

Money Laundering Vulnerabilities

• Funds can be loaded anywhere in the world.
• Often no maximum load limit.
• Used at ATMs or as credit cards.
• No bank account needed.
• Can be activated online.
• The Bank Secrecy Act (BSA) Know Your Customer (KYC) policy and other BSA regulations often don’t apply.
• Perfect platform for bulk cash smuggling operations.

Recent Scheme

A scheme recently identified through an ICE/IRS investigation involved a criminal organization providing stolen credit card numbers to a co-conspirator operating in Mexico. The co-conspirator used commercially available magnetic encoding devices to encode dummy credit cards.

The co-conspirator was paid by criminal organizations with gift cards issued by U.S. retailers. The gift cards were then used to purchase mobile phone cards, which were smuggled into Mexico and sold at a profit. The investigation resulted in the arrest, indictment and conviction of one foreign national, the seizure of one vehicle and a court ordered $50,000 fine.

The Official Newsletter of Cornerstone

U.S. Immigration and Customs Enforcement (ICE) is the largest investigative arm of the Department of Homeland Security (DHS).

ICE’s mission is to secure the homeland by enforcing immigration and customs laws and by protecting U.S. commercial aviation and federal facilities. Cornerstone, ICE’s comprehensive enforcement initiative focusing on financial and trade fraud investigations, is a key component of that mission.

In addition to financial and money laundering investigations, Cornerstone targets commercial fraud, smuggling and trafficking, export and trade violations and intellectual property crimes. ICE’s global reach allows the agency to investigate these crimes around the world.

The Secretary of Homeland Security has determined that the publication of this newsletter is necessary in the transaction of business required by law of U.S. Immigration and Customs Enforcement (ICE).

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Prepaid Cards an Emerging Threat

Cornerstone is U.S. Immigration and Customs Enforcement's (ICE) comprehensive investigative initiative for fighting financial crime, trade fraud and intellectual property crime.

The Cornerstone Report is a quarterly bulletin highlighting key issues related to ICE financial and trade investigations.

The Cornerstone Report covers a broad range of topics related to financial investigations and potential vulnerabilities in the financial and trade sectors.

We strive to present clear thinking by knowledgeable observers that can be read with ease and pleasure by both professionals and a general audience, and we’re happy to review unsolicited submissions for potential publication in the newsletter.

If you would like to submit an article for publication or simply find out more about how you can participate in the Cornerstone initiative, drop us an e-mail at cornerstone@dhs.gov.