New Gift Card Laws Also Benefit Terrorists

December 9, 2009 by ADMIN

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By Professor Jenni Hesterman, Counterterrorism Expert

In case you missed this news in November, laws regarding gift cards will change in favor of consumers:

Just in time for the holiday shopping season, the U.S. Federal Reserve on Monday moved to implement legislation aimed at limiting fees and expiration dates associated with retail gift cards.

The rules the Fed is proposing would prohibit retailers and issuers, such as MasterCard and Visa, from charging fees to consumers who have used their cards in the previous year.

Some issuers currently penalize consumers for not using their gift cards for extended periods, charging them fees that are deducted from their available funds.

The proposed Fed rules also would limit card issuers to charging no more than one inactivity, dormancy or service fee a month, and require funds linked to cards be usable for at least five years after a card is issued or last funded. ~ WSJ

Why do I mention the new law in my counter-terrorism forum?

This is a good departure point to discuss how terrorist and criminal organizations use prepaid cards to launder, store and move money.

Let’s say you are a bad guy and have some “dirty” money to launder. Cards might be a good idea. First of all, there is no limit to how many cards you can buy.

You can buy them with cash.

You can sell them on an online auction site, transfer the value to a “nonbank”, and liquidate it by asking for a debit card you can use anonymously at an ATM.

Or you can use pre-paid Visa cards to purchase items which you can then sell.

And the law change makes this method even more lucrative.

Here are examples of prepaid card abuses by terrorists and criminals to consider:

In 2001 a suspicious activity report (SAR) filed in the US detailed the acquisition of more than 300 prepaid cards by a single individual who used them to transfer almost $2 million to Colombia.

In 2004, German tax investigators discovered a case of money laundering through prepaid cards. Two participants of a criminal fund embezzlement scheme transferred parts of their shares of their criminal proceeds onto several prepaid cards. In this case more than 350,000 Euros were hidden and laundered.

A Mexican criminal caught in at the US border in 2005 was using stolen credit cards to transfer value to prepaid cards.In 2008, Indonesian police reported that radical Islamic terrorists were observed selling phone cards, generating $500 per day to fund operations.

You can read more about this in my article from CT and a blog I wrote for the AMU Homeland Security site:

http://www.thecounterterroristmag.com/pdf/Issue3.Exploit.e-Commerce.HestermanLo.pdf

http://inhomelandsecurity.com/2008/08/mobile_payments_a_new_way_for.html

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Jenni Hesterman is a Professor, author, lecturer, nd analyst who boasts 21 years of distinguished military service, retiring as a colonel in Aug 20007. Jenni served 3 Pentagon tours and multiple command assignments that included think tank work and Capitol Hill experience. Jenni is a full professor, teaching counter terrorism courses for American Military University. Jenni also writes for The Counter Terrorist Magazine.

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