[Dave Birch] I've been involved in a few discussions about prepaid cards over the last couple of weeks. One of those discussions was about whether some prepaid products would remain viable under stricter regulatory conditions. Why would regulators want to increase the regulatory burden, and therefore cost, of products aimed at the unbanked? Well, in the US, prepaid cards are the focus on attention because of their supposed criminal use.

The "Stored Value Device Registration and Reporting Act of 2010" will close a loophole that has treated stored value cards differently than cash, money orders and traveler's checks..

  • Money stored in electronic devices would be considered the same as currency for regulatory purposes. Prepaid cards, cell phone chips and other electronic devices would be covered.
  • Stored value devices loaded with more than $10,000 would have to be registered with the Treasury Department.
  • The flow of money via stored value devices would be tracked. "There's no current data on how stored value devices are currently used" to smuggle funds, said Giffords.
[From Bills aims to snip cash-card money smuggling | Border]

Well, I'm sure there's lots of data on how stored-value is used, but it is of course private and the issuing banks would of course need a warrant to give it up. But I'm still curious to know whether criminal masterminds really are using prepaid cards instead of cash. My O2 Money card, for example, has a maximum balance of five hundred pounds unless you go through KYC/AML in which case it goes up to ten grand. So what criminal mastermind would want twenty O2 Money cards rather than a hundred $100 bills or twenty €500 notes? The article specifically mentions drug cartels, but when the police bust the Mr. Bigs, they don't find prepaid cards, they find cash.

"Don't trivialize this by calling these gift cards," Goddard said. "These devices can hold hundreds of thousands, if not millions of dollars."

[From Bills aims to snip cash-card money smuggling | Border]

No, they can't. The maximum you can put on a typical US prepaid card with going through KYC is $500-$1,000. But a drug-running master criminal might decide to get a hundred card and put $1,000 on each of them I suppose. Let's take a look at what we find in their treasure hoards.

The arrest of more than 2,200 persons and seizure of 74 tons of illicit drugs in 18 states in a massive nationwide undercover investigation by federal, state and local authorities has revealed that Mexican drug smuggling organizations are well entrenched in the United States… the operation accounted for $154 million in cash, 1,262 pounds of methamphetamine, 2.5 tons of cocaine, 1,410 pounds of heroin, 69 tons of marijuana, 501 weapons and 527 vehicles.

[From Massive bust nets suspects, drugs in 18 states – Washington Times]

But not, apparently, prepaid cards. Similarly, these ice men clearly prefer greenbacks to Starbucks' cards.

Authorities confiscated more than $200 million in U.S. currency from methamphetamine producers in one of this city's ritziest neighborhoods, they said Friday, calling it the largest drug cash seizure in history… Mexican officials said the cash seized was mostly in U.S. $100 bills and weighed at least 4,500 pounds.

[From Mexico meth raid yields $205 million in U.S. cash – latimes.com]

That's TWO TONS OF CASH. I suggest that the Senate turns its attention to the abolition of the $100 bill rather than imposing cost and inconvenience on my kids US$ "Cash Passport" cards that they have with them on vacation in California. Some more people who don't read my blog about the benefits of electronic payments over cash were uncovered last year.

Federal agents have rounded up more than 750 suspects in a wide-ranging crackdown on Mexican drug cartels operating inside the United States… The DEA seized more than 23 tons of marijuana, cocaine, heroin and methamphetamines; plus dozens of planes, boats and cars; more than $63 million in cash; and scores of weapons in the operation.

[From Feds Bust 750 In Mexico Cartel Crackdown – CBS News]

No mention again of their Sears gift cards or Walmoney. And, as an aside, the guy who owned the house that had the $200m in cash in it? He actually had $340m, most of which he spent in Las Vegas apparently, where the casinos assumed that he was legitimate businessman — his mistress paid a million dollars in cash for an apartment, shouldn't that ring some alarm bells? — unlike those Canadian casinos where the real criminals go to launder money.

Money laundering by organized crime groups is rampant at Canadian casinos but police are essentially doing nothing to combat it… "Since 2003, FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) has sent several disclosure reports to the RCMP on suspicious transactions involving casinos throughout Canada, with amounts totalling over $40 million," the 2009 report states.

[From Money laundering thrives at casinos: Report]

Come on. Prepaid cards don't make the slightest difference to criminals, tax evaders, drug smugglers or executive expense chats. But making them more expensive and more inconvenient does make a difference to people who are excluded from the financial system.

Do I protest too much? A correspondent writes:

For example I came across a number of examples of anonymous prepaid cards being used to buy ad space in autotrader (or similar) so that when the poor purchaser realised they'd been sold a freshly stolen car for cash, the seller was untraceable

[From Comments – Digital Money | TypePad]

But surely this isn't a problem with the payment system, it's a problem with Autotrader's advertising department. You can see what is going on: since there is no infrastructure available to obtain a verifiable, if pseudonymous, identity for the advertiser, so Autotrader are using card system as a proxy (that doesn't work). Loading costs onto a system that was never designed to solve these problems is not the way forward. We should look at the development of digital identity infrastructure as separate from the development of digital money infrastructure and then construct transaction solutions by using these infrastructures in the appropriate manner. In some cases, transactions will depend only one or the other and in other cases some combination of the two.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

3 comments

  1. “… a number of examples of anonymous prepaid cards being used …”
    I don’t get this claim by the correspondent (I can’t view the link, by the way). I can’t find any anonymous prepaid cards that Autotrader will accept – Visa, MasterCard, Maestro.
    There are a few prepaid products that do not have a cardholder name printed on the front, but they are not anonymous in that there is a KYC process to go through (for all the ones I know off). Entering false personal details is one thing, but anonymous they are not.
    Does anyone know of any truly anonymous prepaid Visa, MasterCard, Amex cards?

  2. Open-loop cards sold at malls are anonymous for loads up to a certain amount, generally $500 depending on the issuer.
    The key for online acceptance is card registration via the issuer–which reverses the anonymous nature. Most processors offer this feature now.

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