Terrorist Financing and Prepaid Cards; Ban Them!

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The hysteria has started, the knee jerk reactions can be seen. The terrorists in France used prepaid cards so all prepaid cards should be banned or at the very minimum KYC done on people who get them. Of course we have not been told if these cards were even issued in the EU, or if they were full KYC or SDD cards.

France, has already stated that it will target prepaid cards which it said were used in the recent Paris attacks. 'We will regulate more strictly the use of prepaid cards which were used in the November 13 attacks, in order to make it harder to remain anonymous,' Finance Minister Michel Sapin told a news conference.

There seems to be a lack of understanding as well that anonymous cards as in those without the name on the front do not have KYC, or known source of funds. We need to be careful and deal with these issues separately in that you can have anonymous (that is no name on the front of the card) full KYC products. In addition just because you have not done full KYC also does not mean you do know the full source of funds.

Bruno Dalles, head of the ministry's Tracfin financing intelligence unit has added 'There are new means of payment which have been created which should be on our radar, I am thinking particularly of prepaid cards, especially if they are delivered in nearby foreign countries and used in France, for example to book hotel rooms,'.

One has to ask what is meant by 'nearby foreign countries', are they talking about EU nearby countries that would fall under any new regulations or nearby countries that no matter what EU regulations are brought in will not fall under it. Finally, and maybe a small point is that anyone who issues prepaid cards always advises against using them to book hotel rooms due to the nature of most hotels doing pre-auths and locking cardholder funds.

French newspapers according to Reuters have been equally vocal in their support: "E-money and, particularly, prepaid cards'¦could be very widely used by organised crime, migrant traffickers and terrorists, criminal investigation department officers have already found prepaid cards during searches of the homes of individuals belonging to such networks" .

So the facts, yes you can get an anonymous prepaid card, with Simplified Due Diligence, i.e. name and address only captured not checked with a limit of €2,500. Funds can be loaded on and then spent as if it is cash.

When the terrorist or organised crime member is tracked down and the prepaid cards found law enforcement agencies can see exactly when and where the funds were spent, at least where the funds were loaded from. If the funds were loaded electronically they can back track to the source of the funds and then further back to where those funds came from. The spent and source of funds is often traceable.

So what are the alternatives, well the obvious one would be 'Cash'. When a terrorist spends this there is no trace, there is no history of where it came from, where it was spent, how it was spent.

I am slightly confused therefore why prepaid cards are so bad given the relatively low limits on SDD products in Europe. There is an argument to say these could be lowered to further inhibit the attractiveness of them to terrorists, but let's remember we are talking about the same European Governments that agreed to produce a €500 CASH note, worth seven times more than any UK sterling note and over five times more than the favourite currency of the international black market the US$100 note!. So currently just five of these lovely €500 notes in my wallet is equal to one prepaid card; is that any harder to carry around?

Reuters recently reported that French customs recently seized a Panamanian prepaid card with €250,000 stored on it; issued we assume by a Panamanian bank. How is reducing or eliminating SDD in Europe going to assist, if other global markets are happy to issue ultra-high value Prepaid Cards from markets where there may be less efficient KYC procedures and policies.

So to really hit terrorists hard maybe what we should do is ban all SDD prepaid cards and at the same time create a law that every time anyone goes to obtain cash from a bank or receives it from any source they must complete full KYC and attach this to the bank note. That way it can be traced the same way as a prepaid card and we can check that anyone receiving it is a proper person and legitimate.

I really think the real issue is ensuring that E-money regulated companies are better trained on AML and better regulated. This is not about having a name or having documentation it is about answering the question should this person have that money or does it make sense for this individual to have this money. The really difficult issue do the people handling these products and issuing them truly understand what it means to regulated and are they living up to the stands they claimed when regulated.