Money Laundering Risks of Prepaid Stored Value Cards

Written by gilbert manda
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Money Laundering Risks of Prepaid Stored Value Cards
Stored Value Cards are Now Widely Used Across the Globe (credit card image by NatUlrich from

Prepaid Stored Value Cards (SVCs) are becoming increasingly popular. SVCs can simply be defined as cards with data on the magnet strip or a computer chip preloaded with cash. They look similar to regular debit or credit cards. The only difference is no bank account is required to obtain prepaid debit card. There were about 49 million in the United States in 2008, according to the New York Federal Reserve. The only danger is that, because the user leaves no personal information trail behind, the cards can easily be used for criminal activities such as money laundering.

Money Laundering Risks

The SVCs, coupled with the advent of financial services and electronic payment technologies, offer a new opportunity for money laundering. Corporate purchases dominates the purchases of SVCs in form of gift cards currently. But even ordinary people can purchase as many prepaid cards as possible without the fear of documentation, identification, seizure or law enforcement suspicion. To that end, it is possible to purchase them in bulk, especially those that can be reloaded, in an effort to mask the criminal origin of the money. In Australia, travelex cash passport card, for instance, has a maximum balance of the equivalent of US£4,301, according to a study by the Australian Institute of Criminology.

Types of Prepaid Stored Value Cards

There are three types of SVCs--open, semi-open and closed cards. Open cards are usable anywhere without restrictions. They are connected to the global automated teller machine networks (ATM), which makes them easy to use across the world. Semi-open cards have the same features as the open ones, except for the fact that you have no access to the ATM. The closed card restricts the user to purchasing goods and services from any merchant accepting electronic form of payment. So, by purchasing SVCs, if the money used has criminal origins, illegal money is being introduced into the main stream financial system.

Legal Dilemma

The card cannot be seized by authorities when you land with a bulk of prepaid cards in the US, for instance. They are not subject to the Report of International Transportation of Currency of Monetary Instrument violations. You can purchase tens of cards in Australia, each with a value of $6,618 and enter the US with them without the fear of being arrested. The cards can then be used to perform a series of business transactions that might include the transferring of currency and purchasing of goods for resale. By so doing, the dirty money is integrated into the mainstream.

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