Prepaid cards, a danger to national security?
For years prepaid cards were a small grass roots method to help (profit from) the low income unbanked population by providing them with some semblance of basic banking services… but now the prepaid industry is a $417 billion a year industry WITHOUT compliance to any US Treasury guidelines the banks are mandated to follow to protect consumers, to protect the country from terrorists and criminals laundering money.
- Why don’t US Treasury banking rules such as BSA/AML apply to prepaid cards?
- Are they out of control?
- Are prepaid cards a threat to National Security?
- How many more incidents will force the prepaid card industry into compliance?
Why should we wait? Deposit & GO InstaDebit® Terminal (s) is The Solution!
FBI Related Articles
FBI Calls Prepaid Cards the Shadow Banking System
By Kelly Holt, NewAmerican, Sep. 8 2011
FBI Director Robert Mueller even called the use of prepaid cards a shadow banking system. The Treasury Department's assessment urged action to crack down on misuse of prepaid access cards, saying it was convinced that the shuttling of criminal proceeds across the border, "whether in the form of bulk cash or stored value" (on prepaid cards), poses "a significant threat to national security."
No ID Required to Purchase Prepaid Cards to Launder Money
By Justin Fenton, Ian Duncan and Kevin Rector, The Baltimore Sun, Jun. 5 2013
Green Dot Corp. is just one of many providers of this type of card, and there is no allegation that the company has done anything illegal.
The California-based company declined to comment for this article. It says on its website that it has millions of customers who can use its products to access banking services such as ATMs and online bill payment. The company collects identifying information about account holders, which according to court documents helped the FBI locate a suspect's home in the BGF case.
[But wait! Here are the actual FACTS about retail prepaid card sales in the same article!]
At a 7-Eleven on Charles Street in Mount Vernon, a rack of Green Dot cards stands by the door, and manager Hirsh Choksi said they are popular. A MoneyPak card costs $4.95 and can be loaded with an amount ranging from $20 to $500. Choksi said $200 is a typical amount.
"It's easily accessible," he said. "Anybody can walk in, we don't have to check ID or anything."
FBI Warns of Risks Using Prepaid Cards
By Mitch Lipka, WisePiggy, Sep. 2 2014
Warnings have been flying about the dangers of prepaid cards. The FBI, state attorneys general, the Better Business Bureau, National Consumers League, and the prepaid card companies themselves have been telling consumers of risks involving the cards and how they are becoming tools for those running scams.
The National Consumers League's Fraud.org site, which processes consumer complaints, has reported a surge in scams involving payments using prepaid cards. Scams asking for prepaid card information run the gamut, but can include items listed in online classifieds, demands for payment from scammers posing as being from utility companies or the government, and fees for supposed winnings (whether a lottery or trip).
Why crooks like prepaid cards
Why prepaid cards? Even more than the money transfer services, prepaid cards offer anonymity. Once a card is loaded, its value is with whomever possesses it. And if you transfer the value of your card to another card, there's virtually no way to trace the card number to a person. Since transfers from card to card can be done online without any identifying information, that means the thief who received the money could be on the other side of the world. And they have your cash, which usually means it's gone for good.
Gangs Use Prepaid Cards
By Justin Fenton, Ian Duncan and Kevin Rector, The Baltimore Sun, May 11 2013
U.S. Attorney Rod Rosenstein said Green Dot cards have become the primary source of payment among gang members and other inmates in the city jail. Using a simple code number to make transactions makes the cards hard for authorities to detect, he said.
"Once a person has a Green Dot account number, people can add money to the account in many ways without anyone being able to trace it," he said.
Green Dot Corp. is just one of many providers of this type of card, and there is no allegation that the company has done anything illegal.
Victims Extorted with Anonymous Prepaid Cards
U.S. Attorney's Office, District of New Jersey, Oct. 28 2014
NEWARK, NJ—Two Philadelphia men were arrested this morning for allegedly conspiring to extort victims to load prepaid debit cards with funds that were stolen as part of the scheme, U.S. Attorney Paul J. Fishman announced.
Special agents of the FBI and U.S. Immigration and Customs Enforcement, Homeland Security Investigations (HSI) arrested Alpeshkumar Patel, 30, and Vijaykumar Patel, 39, of Philadelphia at Vijaykumar Patel’s home on a complaint charging them with conspiracy to commit wire fraud. The pair, who are not related, are expected to appear this afternoon before U.S. Magistrate Judge Mark Falk in Newark federal court.
From September 2013 through March 2014, Alpeshkumar Patel and Vijaykumar Patel were part of a conspiracy to steal money using reloadable debit cards. First, the conspirators would purchase reloadable Green Dot Cards, and register them in names other than their own.
[AGAIN. anyone can purchase a prepaid card with anyone's name or stolen utility bill.
How do they get your utility bill information? Your garbage or just make a call!]
FBI Warns Not To Fall Victim of Prepaid Card Scams
By Chad Brooks, Business News Daily, Mar. 7 2014
The FBI is warning businesses not to fall victim to two new scams involving reloadable prepaid debit cards.
One scenario making the rounds involves scammers calling businesses and fraudulently representing themselves as a utility company employee. The caller tells the business that its utility bill is past due and service will be terminated unless a payment is made immediately.
Prepaid cards a national and international security risk?
Prepaid from the Perspective of Law
Enforcement: Do the Feds Have a Point?
By Don Semesky, President, Financial Operations Consultants, LLC, Spring 2010
(Don Semesky spent 35 years in federal law enforcement: 30 years in various positions with IRS-Criminal Investigation (IRS-CI), including three years as the Anti-Money Laundering Policy Advisor to the Office of National Drug Control Policy (ONDCP), and five years with the United States Drug Enforcement Administration (DEA) as chief of the Office of Financial Operations, where he oversaw DEA’s global AML efforts.)
“I’ve already had a million dollars on this card.” Sounds incredible, but, believe it or not, these words were spoken by a prepaid card company owner to an undercover agent. Whether the owner was stating a fact, or just puffing, given the context of the conversation, it was certainly clear that he was using this as a selling point in offering the prepaid card as a money laundering instrument. Read More
Untraceable Prepaid Cards
By Alex Johnson, Msnbc.com, Sep. 1 2011
Msnbc.com's Alex Johnson explains why pre-paid cash cards make tracing terrorists' money trails extremely difficult and how it could have hindered 9/11 investigations.
As the federal government tells it, the money men behind the Sept. 11, 2001, hijackers would never have been identified had they not been lousy bankers:
"The 9/11 hijackers opened U.S. bank accounts, had face-to-face dealings with bank employees, signed signature cards and received wire transfers, all of which left financial footprints. Law enforcement was able to follow the trail, identify the hijackers and trace them back to their terror cells and confederates abroad."
That's from a Treasury Department assessment of financial security threats in 2005. It went on to warn that the terrorists could have quietly moved large sums of money into or out of the U.S.:
"Had the 9/11 terrorists used prepaid ... cards to cover their expenses, none of these financial footprints would have been available."
A problem that's hard to quantify
When the government refers to "prepaid debit cards," it's not talking about the standard bank debit card you probably have in your purse or wallet. Because such cards are attached to bank accounts, they're already closely monitored my numerous federal agencies. If you gave a bank debit card to someone to do something bad with, it and you would be easily traceable.
One of the new rules, in fact, is to rename prepaid debit cards, which also used to be known as "stored-value cards," to avoid confusion.
They're now called "prepaid access cards" because they're not tied to a bank account. They're just pointers to a sum of money you've already paid up (or been given) in advance. The money itself can be anywhere, including accounts outside the reach of government monitoring.
"The distinction actually makes good sense," said James Angel, a business professor at the McDonough School of Business at Georgetown University.
"You don't have that much risk of terrorism through a (bank) debit card," he said in an interview. "There's a problem with a prepaid card because it can begin with cash — the trail is broken, and you can't track where the money came from."
Criminals Use Prepaid Cards to Launder Money
By Jeff Gray, The Globe and Mail, Dec. 23 2014
To most, gift cards are an increasingly common stocking stuffer, on which Canadians spend an estimated $6-billion a year. But to organized crime, they are also an inviting loophole to launder money.
Police and money-laundering experts believe organized crime is using gift cards, along with prepaid credit cards, to launder at least some of their profits from drugs, fraud or other illegal activities in Canada, which various estimates peg at somewhere between $5-billion and $55-billion a year.
The aims of money launderers are simple: to pay suppliers for drugs or other illicit goods without being detected, and to get “dirty” cash gained from criminal activity into the financial system so it can be used in legitimate transactions.
The main attraction of gift cards for money launderers is their anonymity: Cash transactions to load up gift cards or prepaid credit cards do not need to be reported or logged, and the identity of someone stashing money on a gift card does not need to be recorded.
Business Model for a Terrorist Organization
By Dennis Lormel, Chartwell Compass, Aug. 2011
Dennis Lormel retired from the Federal Bureau of Investigation (FBI) following over 30 years of government service, almost 28 years as a Special Agent. As the former Chief of the FBIs Financial Crimes Program, Dennis is a recognized subject matter expert in financial crimes; enhanced due diligence; FCPA; corporate and mortgage fraud; forensic accounting; AMl; BSA; terrorist financing; asset recovery; and Sarbanes Oxly.
A successful business would have a business plan. In order to succeed, a business must have adequate funding to sustain its operations. Since a jihadist organization, as a business, must have the ability to raise, move, store and spend money, it must have access to the formal and/or informal [prepaid cards] financial system. Therefore, establishing a customer relationship with financial institutions is critically important. From a business perspective, financial institutions should look at terrorist organizations and terrorist operatives as possible customers.
Taking a step back and adopting a proactive mindset, financial institution anti-money laundering (AML) compliance departments should compile a list of known terrorist organizations, especially groups who could be using that financial institution to facilitate the movement of funds. [SWORD Mini Bank Branch Terminal is "proactive" and DOES contain an International Watch list of known terrorists and organizations.] The list should be prioritized by the level of threat the group presents to national security and the potential risk the institution has facilitating transactional activity for the terrorist group. To the extent practicable, financial institutions should then build a generalized organizational business model for terrorist groups. This exercise would result in identifying red flags for financial institutions to focus on to monitor for terrorist financing. Read More
By Blake Ellis, CNN Money, May 8 2012
Prepaid cards give consumers an alternative to traditional bank accounts by letting them load their own money onto what is essentially a debit card. They typically target consumers who have few other banking options because they have limited or poor credit.
Credit building confusion: A common misconception among consumers is that prepaid cards will help them improve their credit, said Ulzheimer of SmartCredit.com.
"A prepaid debit card is not a credit product -- it's basically a gift card with fees," he said. "There's no extension of credit, no underwriting, no statements, no interest, no due date, no late fees -- there's nothing similar to managing a real credit card."
But some consumers still think the prepaid card will help their credit -- something that is evident from numerous messages posted on online forums and credit card comparison websites.
Even if TransUnion agreed to include prepaid data on its reports, and lenders decided to look at it when making lending decisions, TransUnion is only one of three credit bureaus. Should a lender pull a report from one of the two other credit bureaus, they would see no improvement in an Approved Card holder's credit, said Suzanne Martindale, a staff attorney at Consumers Union.
TransUnion said "it is too soon to offer up any insights" about its review of the Approved Card's anonymous data.
Both Experian and Equifax said they don't include prepaid card information on consumer reports because it isn't related to a debt obligation, like a credit card balance or a mortgage. However, Experian "expects to collect prepaid data for study purposes," according to Steven Wagner, president of consumer information services.
Meanwhile, Equifax spokesman Tim Klein said that even if it did include prepaid card spending on its reports, it most likely wouldn't help a consumer obtain credit. The algorithms used to calculate credit scores don't include prepaid card data and most creditors use these scores instead of the content of credit reports to make lending decisions.
As Prepaid Cards Surge, Consumers Urged to be Cautious
CU Today, Aug. 1 2016
WASHINGTON—More consumers are using prepaid cards to replace traditional banking services, such as checking, and Mercator Advisory Group projects that $343 billion will be loaded to prepaid by 2018.
But a new study reveals that consumers should choose prepaid cards wisely when doing so, as the wrong choices can lead to annual fees of more than $300.
“Each type of prepaid card user has at least one free option available, and finding it is crucial considering the wrong card can cost consumers up to $311 per year,” stated CardHub in its 2016 Prepaid Card Report.
- Up to 48% of prepaid cards may not be suitable for common consumer needs, due to a lack of necessary features.
- Prepaid cards from large banks are up to 82% less expensive than their small-bank counterparts.
Examples of Money Laundering in America
December 2011 – Tulsa, Oklahoma
The U.S. Drug Enforcement Administration (DEA) arrested Lebanese Shias who were part of a money making and money laundering scheme for Hezbollah. These Hezbollah members/supporters were working at a used car lot in Tulsa that was receiving up to $20 million in wire transfers from Lebanon. This used car lot was part of a network of 30 separate businesses in the U.S. that were supporting Hezbollah and were the focus of the DEA investigation. The Hezbollah members/supporters at the used car lot would purchase used cars in the U.S. and then ship these used cars to Hezbollah controlled networks in West Africa. These cars would then be sold by Hezbollah networks in West Africa for 15 to 20 percent more than they were purchased for in the U.S. Part of the profits from these sales were sent to Hezbollah in Lebanon, and part of the profits were sent back to the used car lot to purchase additional used cars in the U.S.
December 2010 – 2012 – U.S./Lebanon/West Africa
Kassim, Ali and Husayn Tajideen, designated terrorist entities by the U.S. Treasury Department, were conducting fundraising and other logistical activities in support of Hezbollah through their network of legitimate commercial companies, supermarkets and real estate dealings. The Tajideen brothers utilized the U.S. financial system in support of Hezbollah to launder money and wire transfer money between entities. Many of these transactions, totaling millions of dollars, were routed through legitimate U.S. banks including HSBC Bank. The various wire filter systems and anti-money laundering mechanisms and protocols set up to prevent this type of activity were either side-stepped by the Tajideen brothers utilizing technical loopholes, or were simply ignored by witting and unwitting U.S. bank officials. An Ali Tajeddine (variant Tajiddine, Tajideen and Tajeddin) with a birthdate of April 1971, and living in Clearwater, Florida as of December 2013 MAY BE a U.S. based link and/or associate of the Tajideen brothers and may be conducting fundraising and logistical activities for Hezbollah in the Homeland. This Ali Tajeddine is associated with businesses in Clearwater, Florida that carry the same names as the designated terrorist entity businesses of the Tajideen brothers (ie., – Tajco Minimart Inc", "Tajco Asset and Management Inc", and "Tajco Food Mart Inc".
July 2000 – Charlotte, North Carolina
Federal authorities indicted 26 individuals associated with a Hezbollah cell in North Carolina that was engaged in fundraising and logistical activities on behalf of Hezbollah (Operation "Smokescreen"). The cell members were smuggling cigarettes from North Carolina in large volumes to Michigan in order to sell them at a profit by avoiding tax payments. This cell made approximately $8 million before being arrested. The profits from this illegal smuggling operation were then used by the cell to purchase paramilitary type items in the U.S. that were then transported to Lebanon for use by Hezbollah military elements. These items included night vision googles and scopes, metal detection equipment, global positioning systems, military compasses, binoculars, laser range finders, computer equipment, cameras, high speed modems, radios, and mining, drilling and blasting equipment.
RushCard Collapses (Issued by MetaBank)
Problems persist for RushCard users
Friday Oct 23, 2015
The pre-paid debit card company that cut off thousands of its customers from their money for more than a week says the problems are now mostly fixed.
RushCard, a pre-paid card backed by hip-hop mogul Russell Simmons, said Thursday the "vast majority" of customer problems were resolved. Still, a "handful" are still unable to access funds.
"We are working to contact them individually to assist them with their needs," the company said in a statement.
October 20 at 5:47pm
We know some of you are still experiencing difficulties fully accessing your account. We're working 24/7 to continue to restore full service and apologize for the hardship we might be causing you.
October 19 at 6:42am
We understand that some of you are having difficulty activating replacement cards. If you are having a problem activating your replacement card, please send an email to Community@RushCard.com with your full name as used to register the card, your address, the last 4 numbers of the card and a telephone number at which we may reach you. We will call you back and assist you in activating the card.
Federal Consumer Watchdog Investigating Russell Simmons
By Mandi Woodruff, Yahoo Finance, Oct. 23 2015
The Consumer Financial Protection Bureau said in a statement Friday it will use "all appropriate tools at our disposal" to get to the bottom of the snafu that left thousands of RushCard customers without access to their funds for nearly two weeks in October.
In the statement, CFPB Director Richard Cordray said he has personally spoken with executives at RushCard parent company UniRush, a privately-held financial services company founded by music mogul Russell Simmons in 2003.
The agency "will make sure that action is being taken to address harm that has occurred, the harm that may still be occurring, and the cascading financial effects of consumers not having access to their funds for more than a week," Cordray said. The CFPB is working with fellow consumer watchdogs the Office of the Comptroller of the Currency and the Federal Trade Commission to "hold accountable all parties involved and to make consumers whole."
Government Watchdog to Monitor RushCard Fiasco
By Thad Moore, The Washington Journal, Oct. 23 2015
Federal regulators on Friday said they will help make whole the thousands of customers who were kept from their money for more than a week after the pre-paid card provider RushCard battled technical problems.
The head of the Consumer Financial Protection Bureau said his agency would use "all appropriate tools" to help consumers after nearly two weeks of trouble at RushCard, which largely targets low-income consumers who may not have access to traditional bank accounts.
"The CFPB is taking direct action to get to the bottom of this situation that may have harmed thousands of innocent consumers already," Director Richard Cordray said in a statement.
It is unclear what specific actions the CFPB is considering.
The Federal Trade Commission and the Treasury Department's Office of the Comptroller of the Currency are also looking into the matter, Cordray said.
The situation highlights the legal grey area pre-paid cards occupy. They work like debit cards, but consumers who use them don't have some of the same protections as someone with a traditional bank account. Regulators have expressed concern over the high fees associated with the cards, and have proposed to increase oversight. But those rules are not yet in place.
Prepaid Cards 101
Prepaid cards can be terrific tools, as they allow you to shop without cash in hand. You just load the card up with available funds, then use it as you would a credit card. However, there is no borrowing involved. You’re just tapping into the money you have deposited. Think of it as you would a debit card that is linked to a checking or savings account, BUT it’s NOT linked to a bank account. Your spending is limited to what you have loaded on the card.
Because the issuer isn’t lending you anything and no payments are involved, there is nothing for the issuer to report to TransUnion, Experian and Equifax, the three credit reporting agencies.
Prepaid cards are basically open loop gift cards that may be branded VISA or MasterCard allowing you to purchase anything on the market vs a closed loop gift card, not VISA or MasterCard branded, that only allows you to purchase items at that retailer found on the face of the card (hence the term closed loop). For example a prepaid VISA card branded face vs a Bass Outlet gift card.
So why are prepaid cards allowed to be sold to anyone without any ID when the US Treasury and FinCEN require full "Know Your Customer" (KYC) disclosure when opening a bank account or wiring money?
Why would any retailer or the USPS consider selling prepaid cards?
Isn't National Security more important than profits?
These are good questions and now they are obsolete problems...