Money laundering rule on prepaid cards stalled after industry pushback

Wed Aug 10, 2016 1:27am EDT
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By Mica Rosenberg and Brett Wolf

NEW YORK/ST. LOUIS, AUGUST 10 (Reuters) - In 2011, amid a crackdown on international money laundering, the U.S. Treasury Department tried to close a loophole that authorities said allows drug cartels to move bulk cash across borders on gift and other prepaid cards.

The department's Financial Crimes Enforcement Network (FinCEN) proposed that money stored on these cards count toward a U.S. requirement to report cross-border movement of cash of $10,000 or more.

But FinCEN later withdrew its proposed rule after pushback from the prepaid card industry, according to law enforcement sources. The move has not been previously reported.

In response to questions from Reuters, FinCEN spokesman Stephen Hudak said the rule was being reworked and would be resubmitted, possibly by 2017.

"It's not dead," Hudak said.

The lack of a rule has stymied efforts to crack down on cross-border crime, including drug trafficking and money laundering, law enforcement officials said. The U.S. Department of Justice estimated in 2009 that up to $24 billion in cash is smuggled into Mexico each year, some of it on prepaid cards.

The use of the cards has grown steadily in recent years. More than $623 billion was loaded on gift cards and other types of prepaid cards in the United States in 2015, according to data from the Massachusetts-based Mercator Advisory Group.

For a graphic on prepaid cards:   Continued...

Boxes containing U.S. currency seized during a raid in the Los Angeles Fashion District are seen in an undated handout photo released by the U.S. Department of Justice September 10, 2014.  REUTERS/U.S. Department of Justice/Handout