Regulating the cross‐border movement of prepaid cards

Date09 May 2008
Published date09 May 2008
AuthorCourtney J. Linn
Subject MatterAccounting & finance
Regulating the cross-border
movement of prepaid cards
Courtney J. Linn
US Department of Justice, Sacramento, California, USA
Purpose – The term “prepaid card” refers to the pre-payment of value process, i.e. pay now and
extract value later, and describes most of the prepaid/stored value products available today. These
cards have largely supplanted paper gift certificates and travelers checks, and are used as alternatives
for traditional paper-based transactions such as payroll payments, cross-border remittances, and
government assistance or welfare benefit programs. However, the same attributes that make
open-system prepaid cards attractive to legitimate customers make them attractive to money
launderers. The purpose of this paper is to make the case for subjecting certain prepaid card products
(but not all) to Report of International Transportation of Currency or Monetary Instruments (CMIR)
Design/methodology/appr oach Addresses how the US law-enforcement agencies might
reconstruct the CMIR enforcement regime to address the unique challenges that prepaid card
products present.
Findings – The money laundering threat posed by these products is not immediate, but it is not
conjectural either. US law-enforcement agencies (and perhaps ultimately the courts) will be required to
address the fourth amendment and privacy issues that may arise when a customs officer “searches” a
prepaid card by swiping it and ascertaining the value of the funds associated with that card.
Originality/value – The paper is of value by showing that problem issues can be surmounted,
provided the enforcement regime is narrowly targeted to include only those prepaid card products that
bear the closest resemblance to currency, and provided the funds associated with those products are
maintained in pooled accounts.
Keywords Money laundering,United States of America, Electronicfunds transfer systems,
Data handling
Paper type Research paper
1. Introduction
Prepaid cards (sometimes referred to as stored value cards) have emerged as an
alternative means of exchange, rapidly supplanting travelers checks, money orders,
and even currency. For the estimated 40 million unbanked or underbanked households
in the USA, prepaid cards provide an attractive way to pay for goods and services
without resort to traditional depository institutions. Indeed, in a sign that prepaid
cards may even supplant traditional demand deposit accounts, Wal-Mart announced
The current issue and full text archive of this journal is available at
The author is an Assistant US Attorney in the Eastern District of California and formerly served
on detail to the Legal Policy Unit of the Asset Forfeiture and Money Laundering Section of the
Criminal Division, US Department of Justice. The author’s views do not necessarily reflect those
of the US Department of Justice or its agencies. Thanks also to Ivy Nowinski for her help in
researching the paper, and David Muradyan for his help in editing it. Thanks also to
Lesley Kinsely at the National Drug Intelligence Center and Lori A. Cole at US Customs and
Border Protection for their helpful comments. And, special thanks to Patrice Motz who provided
insightful comments on several drafts of this paper.
Journal of Money Laundering Control
Vol. 11 No. 2, 2008
pp. 146-171
qEmerald Group Publishing Limited
DOI 10.1108/13685200810867474
this past June, three months after it abandoned its bid to offer traditional banking
services in the USA, that it would begin selling prepaid VISA cards to its customers
who are unbanked or underbanked.
A prepaid card is an attractive product because it provides a degree of fungibility
comparable to currency. The most fungible “open-system” prepaid card products
so-called general spend prepaid cards can be loaded, reloaded, and used to access
currency from virtually any automated teller machine (ATM) in the world[1]. Another
attraction is the relative degree of anonymity a prepaid card affords the person
who acquires it and uses it. Certain prepaid card products, particularly gift cards, can
be acquired with cash or other anonymous funding sources, and without verification of
the purchaser’s identity. Once funded, the prepaid gift cards can be used to conduct a
debit transaction without a record specifically linking any known person to the
The same attributes that make open-system prepaid cards attractive to legitima te
customers make them attractive to money launderers. In the Western Hemisphere,
Mexican and Colombian drug trafficking organizations (DTOs) generate, remove and
launder between $8.3 billion and 24.9 billion in wholesale drug proceeds annually from
the USA, including through transnational bulk shipments of currency[2]. The
US-Canadian border is similarly vulnerable to drug-related money laundering. An
estimated $5.2 billion to 21.2 billion is generated through the wholesale distribution of
marijuana and methylenedioxy-N-methyl amphetamine (MDMA) by Canada-based
DTOs, and much of those illicit drug proceeds are transported in bulk across the
roughly 4,000-mile US-Canada border[3]. While bulk cash will likely remain a principal
means of moving drug proceeds from the USA to either Mexico or Canada,
law-enforcement agencies recognize that the more effective they are at interdicting
these bulk cash shipments the more likely it is that bulk cash smugglers will resort to
other means[4]. Indeed, a case can be made that certain prepaid card products have
advantages that cash does not. Not only are prepaid cards products potentially as
anonymous and fungible as cash, they are less bulky[5]. And, where bulk cash is
subject to reporting requirements under the Bank Secrecy Act (31 U.S.C. Sections 5316,
et sequation) and may be seized and forfeited for violations of those requirem ents,
prepaid cards are not subject to these reporting requirements[6].
Recognizing the potential for money launderers to exploit prepaid card products, the
Department of Justice transmitted to Congress, in June 2007, a legislative package
the Violent Crime and Anti-Terrorism Act of 2007 that includes a provision relating
to prepaid (stored value) cards (US Department of Justice, 2007). That provision would
require the Secretary of Treasury to promulgate regulations treating “stored value
cards or other similar devices” as a form of monetary instrument subject to currency
and monetary instrument reporting (CMIR) laws[7].
If enacted, and given effect by implementing regulations with the same focus as the
current rules for cross border movement of currency and monetary instruments, the
law would require each person to file a report (similar to a CMIR) each time such person
transports, mails or ships prepaid cards at one time into or out of the USA having an
aggregate value of more than $10,000[8].
In this paper, I maintain that Congress should enact this legislation and that
regulators should begin to treat certain prepaid cards as a form of “monetary
instrument” subject to CMIR laws. Regulators should subject to CMIR-type reporting
movement of
prepaid cards

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