- The Washington Times - Wednesday, January 11, 2006


Phone cards and other prepaid cards, as well as gift cards, are emerging as ways for criminals to launder money they have received through illegal activities.

The methods were among the findings in a federal report, released yesterday, examining how criminals conceal and move illicit gains.

Some online payment services are ill-equipped to keep records of transactions and identify their customers, according to the report.

Prepaid cards allow people without bank accounts to gain access to illicit cash through automated teller machines worldwide, said the report compiled by the Treasury Department, the Justice Department, the Department of Homeland Security, the Federal Reserve and the U.S. Postal Service.

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 retrieve 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 ATMs 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 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 IRS 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,” accordng to the federal report.

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 didn’t rank the types of money-laundering methods such as the most used or the most vexing ones to law enforcement.

Instead, the report provided a snapshot on the abuses, which federal officials say will help them better tailor their efforts to fight money laundering while providing useful insight to financial institutions and others that must develop programs 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 undersecretary for terrorism and financial intelligence.

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