Authorities are pushing to regulate what they say is a common method drug cartels use to move money across the border: stored-value cards.
A loophole in federal law lets people take the cards - which look like debit or credit cards - across the border freely.
The cards aren't classified under federal law as a "monetary instrument," which means holders don't have to declare them. By contrast, anyone carrying more than $10,000 in cash across the border must declare it to customs officers.
Unlimited amounts of money can be put into accounts linked to the cards, making them attractive to smugglers looking to avoid increased scrutiny at ports of entry, authorities say.
Federal officials have no way of knowing how much money travels in and out of the United States on the cards because they have no way to track them. But Arizona Attorney General Terry Goddard believes it's millions, based on conversations with law-enforcement officials.
"I can declare that I have $100,000 on the card, and they still can't do anything about it," Goddard said.
A threat assessment by the U.S. Department of Justice National Drug Intelligence Center in 2006 dubbed the cards "an ideal money-laundering instrument," citing loose regulation; cardholder anonymity; and liberal limits on value, reloading, withdrawal and spending on some types of the cards.
The first step in closing the loopholes is making the cards a federally designated monetary instrument, Goddard said. Other steps would be making them readable by law enforcement and distinguishable from debit and credit cards, he said.
However, the trade group that represents the prepaid- card business argues that the cards don't fit under the definition of a monetary instrument, and that requiring users to remember how much money is on their cards is burdensome.
The U.S.-made cards that the group represents have a low potential to be used in money laundering because they're regulated by banking institutions and are subject to review by state and federal banking regulators, the Internal Revenue Service and other agencies, said Terry Maher, counsel for the Network Branded Prepaid Card Association.
The problem is with foreign cards that aren't regulated as closely, he said. But even with the foreign cards, Maher said, it's unlikely that people are putting millions of dollars on the cards.
"If you walk in and say, 'I want to put $500,000 on my prepaid card from the Dominican Republic,' the person working there will look at you and say, 'What?' " Maher said.
That the industry would balk at more regulation isn't a surprise, said Charles Intriago, president of the International Association for Asset Recovery and a former federal prosecutor.
"There will always be resistance to regulation - sometimes society has to balance public interest and the interests of business," Intriago said. "The concern of dirty-money flow is so high that we ought to have some reasonable compromise."
A recently announced $94 million settlement between Western Union and the state of Arizona shows that pressure can produce results. After a four-year effort by the state Attorney General's Office, Western Union agreed to pay millions to end a lawsuit filed by the state over wire transfers of money.
The company agreed to pay $50 million in grants to law-enforcement agencies in the four border states to combat human trafficking, drug smuggling and money laundering. It also agreed to give the state information on future wire transfers of more than $500 made within 200 miles of the Mexican border, without the state first having to obtain a warrant.
A loophole in federal law lets people take the cards - which look like debit or credit cards - across the border freely.
The cards aren't classified under federal law as a "monetary instrument," which means holders don't have to declare them. By contrast, anyone carrying more than $10,000 in cash across the border must declare it to customs officers.
Unlimited amounts of money can be put into accounts linked to the cards, making them attractive to smugglers looking to avoid increased scrutiny at ports of entry, authorities say.
Federal officials have no way of knowing how much money travels in and out of the United States on the cards because they have no way to track them. But Arizona Attorney General Terry Goddard believes it's millions, based on conversations with law-enforcement officials.
"I can declare that I have $100,000 on the card, and they still can't do anything about it," Goddard said.
A threat assessment by the U.S. Department of Justice National Drug Intelligence Center in 2006 dubbed the cards "an ideal money-laundering instrument," citing loose regulation; cardholder anonymity; and liberal limits on value, reloading, withdrawal and spending on some types of the cards.
The first step in closing the loopholes is making the cards a federally designated monetary instrument, Goddard said. Other steps would be making them readable by law enforcement and distinguishable from debit and credit cards, he said.
However, the trade group that represents the prepaid- card business argues that the cards don't fit under the definition of a monetary instrument, and that requiring users to remember how much money is on their cards is burdensome.
The U.S.-made cards that the group represents have a low potential to be used in money laundering because they're regulated by banking institutions and are subject to review by state and federal banking regulators, the Internal Revenue Service and other agencies, said Terry Maher, counsel for the Network Branded Prepaid Card Association.
The problem is with foreign cards that aren't regulated as closely, he said. But even with the foreign cards, Maher said, it's unlikely that people are putting millions of dollars on the cards.
"If you walk in and say, 'I want to put $500,000 on my prepaid card from the Dominican Republic,' the person working there will look at you and say, 'What?' " Maher said.
That the industry would balk at more regulation isn't a surprise, said Charles Intriago, president of the International Association for Asset Recovery and a former federal prosecutor.
"There will always be resistance to regulation - sometimes society has to balance public interest and the interests of business," Intriago said. "The concern of dirty-money flow is so high that we ought to have some reasonable compromise."
A recently announced $94 million settlement between Western Union and the state of Arizona shows that pressure can produce results. After a four-year effort by the state Attorney General's Office, Western Union agreed to pay millions to end a lawsuit filed by the state over wire transfers of money.
The company agreed to pay $50 million in grants to law-enforcement agencies in the four border states to combat human trafficking, drug smuggling and money laundering. It also agreed to give the state information on future wire transfers of more than $500 made within 200 miles of the Mexican border, without the state first having to obtain a warrant.
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