According to the Reserve Bank of Australia (RBA), there are over 9.4 million prepaid cards in Australia. They are commonly used for international transactions, which account for almost half of the transactions on the cards.
The fact is that the growing popularity of prepaid cards made them popular with money launderers and criminals. Prepaid scheme cards offer access to accounts with tens of thousands of dollars, and this money can be transferred in a matter of seconds. Criminals take advantage of this convenience to move their money across the world.
As such, it’s crucial to understand how criminals use prepaid cards in money laundering and possibly know how to stay safe.
Understanding the Loophole
Prepaid cards, such as gift cards, are pretty easy to purchase. Customers don’t need a bank account to acquire them, and they can easily apply for them online, where face-to-face verification of cardholder identity is not possible.
Some cards, particularly semi-closed and closed system cards, are usually anonymous. But the good thing is that they are not reloadable, and their amounts are limited. Still, when used in huge numbers by criminal groups, the overall value is enormous.
Open-loop cards, on the other hand, are not anonymous, but they offer complete freedom than closed-system cards. They can be redeemed for merchandise, which can be shipped overseas or resold to recover the money.
The ease of getting these cards has made it possible for criminals to misuse the service.
How the Cards Are Used
Once the money launderers have the cards, they can send them to their co-conspirators in countries with lax anti-money laundering legislation. Their partners will then withdraw the money at local ATMs, and send it back to them as a disguised payment.
It’s also easy to take the cards across the border because of their size.
In cases where it impossible to withdraw the money, criminals opt to buy goods using the money on the card. They then sell the products to recover the money.
In one example, four Russians were arrested by the US authorities after obtaining money fraudulently. The defendant, Chugaev, used the money to buy computers and other merchandise, which were shipped to his conspirators in the US from Russia. They then repackaged and sent the products back to him in Russia to make it appear legit.
Alternatively, criminals can just use the cards to purchase goods or pay for services when it’s difficult for them to withdraw the money. For example, they can pay for insurance policies or legal services from unsuspecting businesses. Some can also invest the money in assets, such as real estate.
Managing Risk for Prepaid Cards
To prevent the misuse of these cards, authorities require institutions to adhere to anti-money laundering (AML) and know your customer (KYC) requirements. Financial institutions are required to treat prepaid card accounts the same as bank accounts.
Merchants are encouraged to use online identity verification to prevent people from misusing their cards. Maintaining a watchlist is one way of monitoring people who buy prepaid gift cards frequently.
Consumers are also encouraged to keep their credit cards safe and report suspicious cases. Lost or stolen credit cards can be used fraudulently to acquire prepaid cards.
Prepaid cards are increasingly becoming popular, with more consumers looking for affordable and convenient ways of paying online. But criminals have identified them as a way of moving their money across borders, thus circumventing the detection systems.
This misuse is making it possible for criminals to keep and secure the proceeds of crime. Over time, such practices could potentially shift economic power to organized crime organizations, thus eroding the political and social systems in Australia.