Understanding The Risk of Money Laundering on a Prepaid Card

Blog / Understanding The Risk of Money Laundering on a Prepaid Card

The truth is that one of the new targets of money launderers lately is prepaid cards. Prepaid cards, which provide access to accounts worth tens of thousands of dollars, transfer this money quickly, causing money laundering activities. The reasons for the increase in popularity of prepaid cards and how money laundering activities are achieved through prepaid cards are interesting. So there are some points you should know if you own or intend to hold a prepaid card.

How Do Prepaid Card Work?

The advancing technology has brought many new alternatives for people. Paying bills or shopping is now much more comfortable. Prepaid cards are one of these alternatives that are included in our lives. Prepaid cards; It is a payment card used for paying bills, making payments at stores, or for all transactions you perform online. There are some essential features to know about prepaid cards, such as not being tied to a bank account, no credit limit, and you or anyone else can easily upload money.

On a prepaid card is spent as much as the amount loaded on the card. When it starts to run out, you can top up your card in various ways by going to a refilling shop or at the Post Office or a Payment Point. Also, it is the best way to make an accurate and easy budget planning to spend the amount loaded on the card in prepaid cards. Gift cards, cards used by students on campus, and transportation cards can be considered prepaid cards. Prepaid cards are categorized into two mains as a closed and open prepaid card.

Closed roop or non-reloadable prepaid card

They are cards used only for purchases made with a single vendor network. The fact that they do not provide access to the global ATM network is one factor that reduces the AML risk ratio of these cards.

Open roop prepaid card

It is also known as reloadable prepaid cards. It is a type of card that can be used wherever that brand of card is accepted. Prepaid cards feature the brand's logo and can be used for transactions with any vendor or provider connected to payment networks.

Why Prepaid Cards are Popular?

On the other hand, Choosing where to put your money is as difficult as deciding how to spend it. Developing technology offers us many options in this regard. One of the most preferred options is prepaid cards. the advantages of prepaid cards, which are increasing day by day, are as follows:

  • It is the best way for managing money and to do budget planning
  • Does not require carrying cash you can easily top up your card by going to a refilling shop or at the Post Office or a Payment Point.
  • Providing easily perform your online transactions. 

The Relationship Between Money Laundering and Prepaid Card?

Besides the advantages of prepaid cards, many negative features lead to money laundering activities. For instance, the cards' purchasing accessibility causes the money in the accounts to be transferred within seconds. Criminals buy these cards from various outlets and use them to move illegal funds. Some of the money laundering factors associated with prepaid cards are as follows;

Financing methods: Because of anonymous funding methods, criminals change and transfer funds by obscuring the source of the funds.

Access to cash: The international ATM network allows cash withdrawals in another country.

Segmentation of services: Prepaid cards can involve several parties to handle payments. When these executing parties spread to several countries, it can cause potential segmentation and loss of potential customer and transaction information, increasing the risk of money laundering.

AML Red Flag and Prepaid Cards

Organizations like FATF, Wolfsberg Group, and Network Branded Prepaid Card Association (NBPCA) that red flags are indicators of questionable activity that the actual use of a product differs from its intended use or does not make economic sense. Therefore, financial institutions should draw attention to specific red-flag indicators and take necessary precautions without wasting time against money laundering risks.

Some specific AML red flag indicators following; continuous transactions outside the cardholder's residential area, unexplained transactions outside of the cardholder's normal activities, repeating transactions during the day, a customer presenting questionable identification documents, transactions occurring outside the cardholder's current location, simultaneous withdrawals performed from different ATMs.

What Are Some Measures Against Money Laundering Activities?

Some precautions that banks and financial institutions should take against prepaid card business activities are as follows: know about money laundering activities caused by prepaid cards, to learn about money laundering techniques performed on prepaid cards, be on the lookout for red-flag indicators, providing tighter controls on cash access, tightening prepaid card business regulations and enabling prosecution.

Companies have to comply with the appropriate AML regulations and laws in order to cope with the risks posed by the prepaid card. As specified in these laws, risks can be minimized by taking measures such as Know Your Customer, Customer Due Diligence, Transaction Monitoring, etc. All AML solutions Sanction Scanner has are compatible with global and local regulations. By discovering Sanction Scanner solutions, you can minimize your risks and protect yourself. For detailed information, you can contact us or request a demo.

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