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January 28, 2013

Do GPR Prepaid Cards Pose Significant Money Laundering Threats?

When it comes to laundering proceeds from illicit activities, criminals have historically had a number of financial instruments and methodologies at their disposal. These choices have ranged from payment products tied to demand deposit accounts such as checks, wires, and debit/ATM card transactions to money transfers via money transmitters. The birth of general purpose reloadable (GPR) prepaid cards in the early 1990s created yet another payment instrument that could potentially be used to clean dirty money.

Although no payment instrument—GPR prepaid cards included—is completely immune to money laundering, the payments industry can adopt risk measures to mitigate the attractiveness of these cards to criminals. But what makes a payment choice attractive to money launderers? Criminals generally seek the fastest method to move their ill-gotten proceeds the furthest away from their illegal activities. Ultimately, they want to distance themselves and their financial gain from the crime in the quickest way possible. Anonymity, accessibility, immediate liquidity, and transportability of funds are all payment characteristics that a money launderer finds attractive.

The Retail Payments Risk Forum dove into the regulatory environment and risk management practice of the GPR prepaid card industry, and wrote up findings in a paper available on the Atlanta Fed's website. Among the paper's findings is that, as GPR prepaid cards have grown in popularity and come under increased scrutiny by regulators, significant regulatory measures and industry-wide adopted practices have greatly reduced, but not eliminated, their money laundering risks. And while U.S. regulators and the card industry have made great strides with anti-money laundering measures, GPR prepaid cards issued internationally do not necessarily face the same stringent risk environment, so they pose significant money laundering risks.

 

For more details on the money laundering risk environment for GPR prepaid cards, read the paper.

Douglas A. KingBy Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

January 28, 2013 in fraud, money laundering, prepaid | Permalink

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Comments

Interesting paper. The DoJ paper and rebuttal go into greater depth on the actual risks of GPR's in money laundering.

GPR's are not really like any other financial tool. Most are tied to a bank DDA with explicit account opening procedures.

What would be interesting is an analysis of recent GPR innovations which allow individuals "deposit-only" capability. Basically these are simple pieces of plastic that allow ground level drug dealers to deposit cash sales into a master account any where in the country.

Of course, it could be a parent funding a child.

Posted by: CMS | January 28, 2013 at 09:31 AM

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