Since prepaid cards have issued in 1990, there have been incidences frauds and money laundering activities. But with the introduction of prepaid cards, these fraudulent activities and terrorist financing have been increased. Hackers have started exploiting the weaknesses in the prepaid card system and their back offices who are providing services. The ways to compromise the prepaid card systems have been innovating accordingly. After the solution of covering system vulnerability, fraudsters come up with a new trick. This is a never-ending race, although, at an individual and industrial level, steps should be taken to combat prepaid card frauds. Bank accounts are compromised and fraudsters take advantage of it, steal prepaid cards, fill credit in it to transfer embezzle funds and illegal money across the world. In that case, a naive entity gets into the trap to be accused of money laundering.
Risks of Prepaid Cards
There are two basic types of prepaid cards. One is reloadable and other nonreloadable. In nonreloadable frauds, there have been seen a large number of money laundering cases as compared to reloadable cards. These cards are used until the credit is depleted. These are gift cards with small denominations. There is no need to perform customer due diligence on these cards due to small transactions. They are purchased with cash and are kind of anonymous which are perfect for bad actors. The second type, reloadable cards are the ones in which balance could be drawn down. Here there is a requirement to perform Know Your Customer and Customer Due Diligence process where the user registers the id. Similar to opening a bank account or credit card, they can be reloaded from banks or ATMs. You can check the Latest Bitcoin News.
Money mules who are hired for money laundering do not actually know the intention of their job. They are mostly asked to do work from home but are actually transferring illicit money across the world. This is replaced by prepaid cards now. Banks lack monitoring and identity screening systems that could analyze the money flow and track the entities that are involved in money laundering activities, the ways adopted by fraudsters are transparent enough to figure out the anomaly happening in the system. The cards are associated with banking accounts that are tampered previously and hence are useful for criminals to perform malevolent activities.
AMLD5 and Prepaid Cards
According to an amendment in European Commission Fifth money laundering directive, the transaction threshold has been reduced from EUR 250 to EUR 150. Not only this, but the credit to be placed on prepaid cards is also not more than EUR 150. The e-money transaction has limited to a maximum amount of EUR 50. Additionally, according to AMLD5, Customer Due Diligence has become mandatory over the owners of prepaid cardholders. This amendment is going to be official in January 2020. The sole purpose of this amendment is to prevent the nation from terrorist financing and money laundering. For all the related sectors, it is necessary to perform due diligence processes and identity verification while providing the services of prepaid cards.