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AML Compliance to Prevent Money Laundering Using Prepaid Cards



As the world continues to advance technologically, the economy has also been catching up with these advances, and the cashless economy continues to grow. In a recent study conducted by Mastercard, the results showed a 40% growth in contactless transactions.


Last February 2021, statistics stated that 2.8 billion people worldwide have been using cards. As a result, the global digital payments industry had a market value of USD 5.4 trillion last 2020 and is expected to hit USD6.6 trillion in 2021, which is a 40% increase according to a study conducted by Finaria.it.



What are Prepaid Cards?


Given these facts, however, more and more people have instead been turning to prepaid cards to keep up with the cashless economy. Prepaid cards started being available during the 1990s, but their popularity grew from the late 2000s until the present.


What are prepaid cards? Prepaid cards work like credit and debit cards, but the difference is that, aside from the feature that they can be pre-loaded and reloaded with money, you can also purchase them on behalf of others. As mentioned earlier, prepaid cards continue to gain popularity. When you search for “prepaid cards” on the internet, there is a big list of prepaid cards available.


There are many reasons why people opt to choose prepaid cards over credit or debit cards. One of which is that they offer the utility of credit and debit cards without the commitment of setting up an account with a bank. Moreover, they are also easier to set up because prepaid cards do not require documents. Lastly, you can also utilize prepaid cards for other things like paying bills, and you become more conscious of how you spend because the card is pre-loaded with money.




Prepaid Cards as Tools For Money Laundering



While the convenience and accessibility of prepaid cards have made them popular with consumers, these very same benefits attracted criminals. They see this as an opportunity to exploit you for malicious intent, specifically fraud and money laundering.


Why are prepaid cards more susceptible to money laundering? Firstly, since prepaid cards are more accessible and available, criminals can easily access and purchase them from different outlets.


Next, the criminals can break down and pre-load their illegal funds into numerous prepaid cards so that they can transfer these cards overseas, avoiding the scrutiny of authorities. Some criminals hire money mules to purchase and transport the cards for them. It is called “smurfing” by financial crime experts.


Another way criminals use the illegal funds pre-loaded into the prepaid cards is by using them as a form of payment for buying other merchandise to be used for malicious activities, like computers or expensive electronics, and then they resell it to beneficiaries. There have been cases where these cards are used to buy materials for drug manufacturing or finance the activities of drug cartels.




Anti-Money Laundering’s (AML) Strategies for Money Laundering Prevention



Due to the alarming growth of money laundering cases, especially now during the pandemic, financial institutions have become more cautious in protecting themselves by keeping an eye on red flag indicators to spot potential criminal activities. Some of these red-flag indicators include:


  • Clients who are asking suspicious questions about their prepaid cards.

  • Clients who make purchases of prepaid cards in large quantities or clients who make huge prepaid transactions.

  • There is a frequent activity of reloading on the prepaid card but from a third party.

  • Funds are immediately transferred after reloading.

  • Prepaid cards are only used for transfers and not purchases.


Many jurisdictions have also been tightening their AML regulations in response to the money laundering risks. The EU has recently implemented the 6th Anti-Money Laundering Directive (AMLD), which expands the current AML legislation scope, clarifies regulatory details, and makes the existing criminal punishments more severe.


To summarize, here are the important details in the 6th AMLD that help fight against money laundering crimes:

  • It indicates a more specific and harmonized definition of what money laundering is and lists 22 predicate offences. It includes cyber-crime, which currently has become a major issue and venue for money laundering.

  • It has expanded the number of offences that fall under the definition of money laundering. One important detail to note is the inclusion of “aiding and abetting,” meaning that anyone who aids money launderers will be considered a criminal.

  • Unlike the previous directives, the 6th AMLD also expands the criminal liability to companies or partnerships that only held individuals criminally liable.

  • The directive mandates a minimum prison sentence of 4 years for money laundering offenses. Aside from that, judges now have the authority to fine individuals and exclude individuals from accessing public funding.



How can you protect your company against money laundering?

After finding out how the different jurisdictions have been fighting against money laundering, the important question remains: how can your company be protected against money laundering? One key element that will help protect your company is to train your employees on AML/CFT topics to raise awareness and give them an idea of what to do. COMPLOK increases compliance awareness through professional training, consultancy, risk assessments, and analysis of your company’s AML programs, among other services.


The continuous rise of money laundering cases is alarming, but it doesn’t mean you have to suffer an attack. As long as you remain vigilant and ensure that you do everything you can to protect your company against money laundering, you will remain safe.