According to the most recent information available, stored value cards (or prepaid access) are often used for money laundering and terrorist financing activities. Stored value cards can be used like currency except that they have certain characteristics that make them attractive to criminals – they are:
- accepted worldwide;
- reusable and re-loadable;
- essentially anonymous;
- instantly settled; and
- do not require an intermediary for the user.
There are two types of prepaid access (a) closed loop cards and (b) open loop cards. Closed loop cards are those issued by certain merchants that are limited to their services and products (e.g. Gap or Starbucks gift card).
Open loop cards tend to be branded and linked to credit card issuers (e.g. Visa or MasterCard) or charge card issuers (e.g. American Express). Open loop cards can be used wherever credit cards are used, including for ATM withdrawals anywhere in the world.
Drug traffickers tend to use open loop cards to launder funds by acquiring the cards and adding value in one jurisdiction, and handing them over to their colleagues in another jurisdiction where the cards can be used to withdraw funds at ATMs. Some online gambling sites also encourage the use of prepaid access to circumvent the Unlawful Internet Gambling Enforcement Act which prohibits the processing of online gambling-related financial transactions by U.S. financial institutions and intermediaries (see details of indictment against PokerStars, Full Tilt Poker and Absolute Poker here).
Prepaid access is an area that is currently unregulated. However, the U.S. Financial Crimes Enforcement Network is seeking to implement regulations that would regulate prepaid access products including plastic cards, mobile phones, electronic serial numbers and key fobs. The proposed regulations are available here.