‘El Chapo’ renews U.S. law enforcement concerns about money laundering via prepaid cards

By Brett Wolf

NEW YORK (Thomson Reuters Regulatory Intelligence) – The recent trial of Mexican drug lord Joaquin “El Chapo” Guzman has reignited U.S. law enforcement officials’ concerns about the use of prepaid cards to launder proceeds of crime.

The purported abuse of prepaid cards by Guzman’s organization to move drug proceeds out of the United States, as depicted in the trial, was “definitely not shocking,” John Tobon, a senior official with Homeland Security Investigations (HSI), told Regulatory Intelligence.

While prepaid card providers are required to have anti-money laundering programs{here} and must report suspicious activity, there remains no requirement that individuals moving cards loaded with cash report the funds when crossing U.S. borders.

In 2011, the U.S. Treasury Department proposed a rule{here.pdf} aimed at forcing those moving prepaid cards loaded with more than $10,000 in or out of the country to declare the funds – just as a similar amount of cash or traveler’s checks would have to be disclosed under existing rules.

But Treasury’s Financial Crimes Enforcement Network (FinCEN), facing industry pushback, has not finalized the rule{here}.

During Guzman’s trial last month, the jury heard testimony that the Sinaloa Cartel led by Guzman used prepaid cards to move drug proceeds from New York to South America to pay for cocaine. The cards, loaded with proceeds of narcotics sales in the United States were transported overseas and the cash was withdrawn at ATMs, the jury heard.

The jury convicted Guzman of money laundering conspiracy and other crimes, and the money laundering witness testimony served as a reminder to law enforcement that FinCEN has not issued a reporting requirement.

U.S. law enforcement officials with Homeland Security Investigations (HSI), which probes cross-border money laundering schemes, consider FinCEN’s failure to enact a prepaid card cross-border reporting requirement problematic.

“I’ve been really fighting, getting into shouting matches with FinCEN personnel because it’s one of those things where the industry has really gone out of their way to thwart these rules,” HSI’s Tobon said.

FinCEN, which in 2016 told Regulatory Intelligence that the effort to develop a cross-border reporting rule for prepaid cards was “not dead,” did not respond to a request for comment for this story.

HSI continues to see prepaid cards used to launder money and the lack of a FinCEN rule on cross-border transport of the cards is “a significant vulnerability,” Kevin Tyrell, assistant special agent in charge with HSI in Miami, told Regulatory Intelligence.

While HSI officials are concerned about transnational organized crime rings smuggling cards loaded with dirty cash out of the country, such schemes do not always involve “mules” who carry the cards. In some cases, criminals simply mail prepaid cards with impunity, Tyrell said.

If U.S. authorities conduct an “outbound inspection” of packages at a mail facility and discover a package full of traveler’s checks, they can seize the instruments and investigate whether required reporting occurred, Tyrell said.

“But if they find a package full of prepaid cards, they still can’t do anything, they just have to let them go,” Tyrell said.