Increased risk of money laundering using pre-paid cards

There could be a high risk of increased fraud during the 2012 Olympic Games as a result of pre-paid cards, which could also potentially be used to launder money.

Dr Tony Wicks, director, AML solutions, NICE Actimize, sounded the warning last week, having walked into a shop in a UK high street, asking if he could buy an unlimited number of pre-paid cards which contain a stored value. According to Wicks, the shopkeeper responded by saying he could buy as many pre-paid cards as he liked.

Unlike credit cards, pre-paid cards are not linked to a bank account and no ID is required to buy them over the counter. Wicks says outside of a closed loop environment where the amount that can be spent on pre-paid cards or what they can be used for is controlled, anyone can buy a pre-paid card. He says most cards have an annual spending limit of £25,000, but there are no obvious restrictions he says on someone being able to buy multiple cards, top them up and use them to potentially launder money. "There is an increased risk of fraud with pre-paid cards as you can buy them anywhere and there are no credit checks or ID required," says Wicks.

Pre-paid or stored value cards are a relatively new phenomenon in Europe. They are also being promoted as a form of payment during the 2012 Olympics by Visa. There are different pre-paid card systems throughout Europe. In Italy most pre-paid cards are "open loop" whereas in other European markets, including the UK, they are typically part of "close-looped gift card schemes." Wicks makes the distinction between closed loop and open loop debit cards schemes, saying the greatest threat in terms of fraudulent use lies in "open loop" schemes.

Laundering money using pre-paid cards? According to AML experts, as banks deploy more sophisticated technologies to detect money laundering, fraudsters are turning to other means, such as cards, as a means of laundering money. While credit cards can be traced back to a user, pre-paid cards have no user ID or credentials.