Technology has changed considerably. At one time we all carried money in our wallet or purse, then we switched to credit and debit cards. Today, there are new devices that allow the transfer of money digitally, such as prepaid cards, gift cards, and potentially cell phones. Travelers crossing U.S. borders in the past only filed a Treasury report if they are carrying more than $10,000 in cash or travelers checks. Now, the U.S. Government is changing the rules. As more and more drug dealers and others have began purchasing prepaid cards that are potentially worth millions. Anyone could carry this card across the border in their wallet and begin withdrawing money from the bank immediately with a simple swipe.
The new proposal would add these prepaid devices — such as prepaid cards, gift cards, and potentially cell phones — to the list of “monetary instruments” whose value must be aggregated. When the total exceeds $10,000, the traveler would have to file a Currency and Monetary Instrument Report (CMIR) under the Bank Secrecy Act, a U.S. law aimed at combating money laundering and tax evasion.
The rule, unveiled on Wednesday, is not expected to have a substantial impact on ordinary travelers, many of whom use debit or credit cards when overseas, but there are questions about how it can be enforced.
The rule represents an effort to get ahead of what law enforcement officials and others fear could be significant new digital tactics in international money laundering by drug dealers, militant groups and others.
“The proposal is intended to address certain devices that can be used as a substitute for currency, as they provide access to funds by any bearer of the device. This product attribute … may enable the anonymous transfer or concealed transport of illicit funds across the U.S. border,” the Treasury department’s Financial Crimes Enforcement Network, or FinCEN, said in issuing the proposed rule.
Credit cards and debit cards, which are considered more visible to law enforcement, are exempt from the rule.
Authorities have been unable to estimate how extensively prepaid access devices are used for money smuggling. The Government Accountability Office last year said, “The nature and extent of the use of stored value for cross-border currency smuggling and other illegal activities remains unknown, but federal law enforcement agencies are concerned about its use.”
A U.S. Drug Enforcement Administration official, who spoke on condition of anonymity, said he has seen examples of drug traffickers loading funds onto prepaid cards in the United States and withdrawing the funds in Colombia, or buying gift cards in bulk and shipping them overseas where they can be sold for “clean” money. However, he said such documented instances were rare.
Treasury has been under pressure to make prepaid devices subject to reporting requirements. Three members of the Senate Caucus on International Narcotics Control, Dianne Feinstein of California, Charles Grassley of Iowa Island and Sheldon Whitehouse of Rhode Island, demanded such a move in a sharply worded letter sent in March to Treasury Secretary Tim Geithner.
FinCEN has struggled with drafting regulations to bring the prepaid access industry into the anti-money laundering (AML) fold, as required by 2009 legislation. In July, it issued a long-overdue rule forcing providers and retailers of prepaid access to enact anti money-laundering programs.
It is unclear how U.S. Customs and Border Protection would enforce the new reporting requirement since technology capable of “reading” all prepaid access devices to determine how much money is on them does not yet exist, said a former Treasury and Justice Department official, also speaking on condition of anonymity.
Others have said the rule is a wasted effort, since industry-imposed limits on the amount of cash that can be “loaded” onto prepaid devices and withdrawn overseas make widespread abuses by drug traffickers and others unlikely.