By Tim Sloane, Director,Mercator’s Prepaid Advisory Service
A Baltimore City Paper(http://www.citypaper.com/news/story.asp?id=20498) reports on how the activitiesof the Black Guerrilla Family (BGF) prison gang used open-loopprepaid cards (Green Dot was the most maligned) using informationderived from search warrants, court documents, and othersources.Regrettably, it embellishes the story by linking togetherunrelated and often uninformed additional opinions, such as thoseproffered by legislators who know less about open-loop prepaidcards and Know Your Customer regulatory constructs than they doabout genomic research.
Rather than dissecting thismisleading article, let me identify where the article has madeprepaid a scapegoat; and why the position is misguided or howexisting regulatory constructs could be applied to eliminate reducethese supposed transgressions:
- “….Stored value devices are being exploited by the [drug]cartels and other smuggling networks to launder theirproceeds…”
Drug cartels, money launderers, andsecret agents would be well advised to steer clear of prepaidproducts as a tool if they don’t want their payment activitiestracked by both geography and time.Unlike other money launderinginstruments (such as diamonds, US dollars, and gold), prepaid cardsleave a detailed money trail.Ask the secret agents that wererecently tracked because they used a prepaid card for payments.Lawenforcements best possible forensics come from electronic financialtransactions.The real crime would be to push that activity backonto instruments that lack any tracking capability.If criminals areidiots, let’s use that to our advantage; not make it illegal!
- Prepaid enabled illegal activity within the prison because”card numbers [were used] as virtual currency inside Marylandprisons.”
So prisoners have moved fromcigarettes to cash, to card numbers – this simply is notpreventable.When people have a burning need to trade & barter,they will create a currency.It might be sea shells, tulips, orIOUs.I would bet that the total elimination of all prepaid productswould not reduce this illegal activity at all.
- Prepaid “….may have to comply with money laundering rules,including confirming the name of their customers and filingsuspicious activity reports with FinCEN the same way banks arerequired to do.”
This mistake is repeated by thepopular press, legislators, and law enforcement agencies so oftenthat I have lost faith that these organizations have any realconcern for the truth; they just can’t resist a great story line nomatter how untrue it is.
All open-loop cards are backed by abank.All banks must comply with all appropriate banking constructswhich include Know Your Customer and Anti-Money Launderingrequirements.
- The article is, in essence, an indictment against Green Dot andyet the Green Dot statements that refute all of this are buried atthe end of the story as if irrelevant.The overall tone of thisarticle is that known criminals can get open-loop prepaid cards anduse then at will for illegal activity.
Beyond that fact that using anopen-loop prepaid card provides a perfect trail of criminalactivity, let’s review the controls already in place to preventcriminals from getting a prepaid card.All prepaid card issuingbanks must comply with Know Your Customer regulations.To do this,every General Purpose Reloadable prepaid card application isresearched to determine if the recipient is in a database of knowncriminals.Law enforcement agencies and our legislative bodies havealready established the process designed to make sure thatcriminals do not receive a general purpose reloadable product.Iflaw enforcement fails to keep these databases upto date, then it isunreasonable to indict the prepaid card supplier.I recognize thatthis is no easy problem to solve for law enforcement, in that asuspected criminal is not the same as a known criminal, andfiguring out where that gray zone begins and ends is a legislativequagmire.However, in my opinion, it is reckless to make prepaidcard suppliers the scapegoat for this constitutional no man’s land- especially when open-loop general purpose reloadable productsimplement one of law enforcement’s best forensic tool’s fortracking the bad guys activities.
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