The Wolfsberg Group of the International Financial Institutions published its latest guidance on October 14, 2011 on money laundering risks and mitigants of prepaid and stored value cards. The guidance highlights key prepaid program characteristics that can increase money laundering risks such as prepaid programs that have:
- no geographical restrictions or limitations – which, in turn, allow for any type of use in any jurisdiction (including jurisdictions considered to be a higher risk for money laundering or terrorist financing)
- limited or no ability to restrict or control multiple users
- a lack of relevant information about the cardholder (e.g., name, address, DOB, unique government-issued identification number)
- no restrictions on the nature and/or place of use or transaction/velocity limits on card use
- unknown sources of funding of the prepaid card – such as with cash (without other controls that may limit the anonymous nature of the cash) or other monetary instruments that provide anonymity as to the source or owner of the funds
- either a high maximum load value or unrestricted reloading capabilities, or both
- the ability to add value to a prepaid card using cash or cash vouchers sold by retailers
- the ability to transfer value between unrelated cardholders or involving value transfers with other prepaid card programs
- cash access from a prepaid card (via ATM withdrawals or other access points)no expiration date
- no limitation on the number of cards that can be held by one individual (i.e., allowing one person to hold multiple cards)
Although the guidance aims to raise awareness of these potential money laundering vulnerabilities and risks in connection with the design and operation of prepaid programs, it also emphasizes that these risks can be managed and mitigated by implementing a number of the AML controls suggested in the guidance with the understanding that the appropriate number of controls for a specific prepaid program will vary depending on its inherent limitations and risk mitigants. And while the focus of this guidance is on physical prepaid and stored value cards, it stands to reason that many of the suggested risk mitigants could be tailored to virtual prepaid and stored value cards as well.
The Wolfsberg Group is an association of eleven global banks - Banco Santander, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale, and UBS - which aims to develop financial services industry standards, and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies.