Criminals increasingly are using prepaid cards to replace cash, and payment organizations should understand the risks associated with the trend, Susan Smith, senior trial attorney with the U.S. Department of Justice, told attendees last week at the Electronic Transactions Association Annual Meeting and Expo in Las Vegas.
Drug peddlers want to eliminate the burden of moving tens of thousands of dollars in paper currency, says Smith, who handles anti-money laundering cases. “Currency is a problem because it takes up space and weighs a lot,” Smith says. Criminals “are looking for products that can imitate cash but don’t have the problems of cash,” she says.
Prepaid and stored-value cards are their answer, Smith says.
Many times criminals buy hundreds of open-loop prepaid cards and resell them anonymously online at a discount, which makes it easy for them to launder their money, Smith says.
Even if a criminal loses $100 for every $500 in prepaid cards sold online, he considers that loss “a cost of doing business,” she says.
Crooks often put proceeds from the online card sales into PayPal accounts or another bank account, which they then use to withdraw the money, Smith says. “Nobody questions that because they made a legitimate sale on eBay or Craigslist,” Smith says, referring to entities such as banks that must report certain suspicious financial activities.
Payment organizations, such as acquirers and processors, should be aware of criminal use of prepaid cards because often they may be the first to notice suspicious transaction activity, Smith says. Law-enforcement authorities also are monitoring development of mobile payments, she says.
But as stored-value products evolve so value is held in a chip within mobile phones, law-enforcement authorities could face another challenge, Smith says. Prepaid phones are anonymous. That makes them difficult to track, let alone attempt to track what transactions may take place with the mobile phones, she says.
“We have to get court orders to monitor phone conversations,” Smith says. “Do we have to get a court order to monitor financial transactions made with that phone?”
Payment technology will continue to evolve and will benefit society at large, Smith says. But the lack of a paper trail and regulation of mobile and other emerging payments will continue to pose challenges, she says.