Anti-Money Laundering Red Flags for Prepaid Cards

Posted  by  & filed under AML General.

The AML risks associated with prepaid cards have been known for some time, and with more than $623 billion loaded on gift cards and other types of prepaid cards in the United States in 2015 there continues to be a challenge for AML professionals to identify illicit activity in this sector.

Below are three separate lists of AML red flags related to the use of prepaid cards from the Network Branded Prepaid Card Association (NBPCA), the Financial Actions Task Force (FATF), and the Wolfsberg Group.  As highlighed in the below FATF paper,


“Red flags will be indicators of suspicious activity where a product’s actual use deviates from its intended use or does not make economic sense.  For example, cash withdrawals in foreign jurisdictions will be expected where the product is a prepaid traveller card, but unusual where the product is marketed to minors.  Red flags should therefore not be applied unthinkingly, but tailored to the product’s characteristics.”

Similar to most types of AML red flags, the majority of issues can either be grouped under transactions that do not make sense or fit the account profile, and red flags that involve discrepancies with the KYC of the customers.



Prepaid Red Flags the Network Branded Prepaid Card Association (NBPCA)

  1. A customer with an excessive number of cards (based on program parameters)
  2. A customer who is unwilling to provide information required by the CIP
  3. A customer who presents unusual or suspicious identification documents that the financial institution cannot readily verify
  4. A customer who requests a shipment of cards outside of the United States
  5. A customer uses different tax identification numbers with variations of his or her name
  6. A customer who is reluctant to provide the information needed for a mandatory report, to have the report filed, or to proceed with a transaction after being informed that the report must be filed
  7. A Cardholder that coerces or attempts to coerce a bank employee to not file any required record keeping or reporting forms
  8. High dollar deposits followed by numerous small withdrawals
  9. A Cardholder who makes multiple value loads on the same day at different load locations
  10. Large number of failed authorizations
  11. Transactions posted to the card account without corresponding authorizations
  12. Transactions occurring in more than one state or country on the same day
  13. Repetitive transactions occurring at the same time for the same amount each day or each week
  14. Transactions consistently occurring outside of the Cardholder’s residential area
  15. Unexplainable transactions with no logical purpose
  16. Repeated transactions outside of the Cardholder’s normal activity
  17. Multiple transactions slightly below reportable thresholds

 Source: Recommended Practices for AML Compliance for U.S.-Based Prepaid Card Programs


Prepaid Red Flags from the Financial Actions Task Force (FATF)

  1. Discrepancies between the information submitted by the customer and information detected by monitoring systems
  2. Individuals who hold an unusual volume of NPM (“New Payment Method” e.g. prepaid cards) accounts with the same provider
  3. A large and diverse source of funds (i.e., bank transfers, credit card and cash funding from different locations) used to fund the same NPM account(s)
  4. Multiple reference bank accounts from banks located in various cities used to fund the same NPM account
  5. Loading or funding of account always done by third parties
  6. Numerous cash loading, just under the reporting threshold of USD 10 000 (i.e., structured loading of prepaid cards), of the same prepaid card(s), conducted by the same individual(s) on a number of occasions
  7. Multiple third party funding activities of a NPM account, followed by the immediate transfer of funds to unrelated bank account(s)
  8. Multiple loading or funding of the same accounts, followed by ATM withdrawals shortly afterwards, over a short period of time
  9. Multiple withdrawals conducted at different ATMs (sometimes located in various countries different from jurisdiction where NPM account was funded)
  10. NPM account only used for withdrawals, and not for POS or online purchases
  11. Atypical use of the payment product (including unexpected and frequent cross-border access or transactions)
  12. Large  number  of  bank  accounts  held  by  the  same  prepaid  card  company  (sometimes  in different countries) apparently used as flow-through accounts (may be indicative of layering activity)
  13. Prepaid  card  company  located  in  one  country  but  holding  accounts  in  other  countries
  14. (unexplained business rationale which could be suspicious)
  15. Back and forth movement of funds between bank accounts held by different prepaid cards companies located in different countries  (may be indicative of layering activity as it does not fit the business model)
  16. The  volume  and  frequency  of  cash  transactions  (sometimes  structured  below  reporting threshold) conducted by the owner of a prepaid card company do not make economic sense

Source: Money Laundering Using New Payment Methods


Prepaid Red Flags from the Wolfsberg Group

  1. Information mismatch from application
  2. Application information/address/customer differs from pre-screened applicant
  3. Inability to verify card holder identity information
  4. Inability to provide government issued identification details
  5. Primary/secondary user name appearing on applicable government watch/sanctions lists
  6. Change of address to high-fraud area or to problematic jurisdiction, shortly after the card issuance or credit line increase
  7. Frequent and unusual use of the card for withdrawing cash at ATMs
  8. Structuring payments/Overpayments: balances on cards may move into regular credit where card holders pay too much or where merchants give credits to an account. Money laundering may be facilitated via refunds of the credit balance
  9. Unusual cash advance activity and large cash payments: the monitoring of incoming cash is critical, as excessive cash payments are often an attribute of money laundering. Credit balance accumulation resulting in refunds (CBRs) should be monitored as they can be used
    as part of a scheme to launder funds
  10. Cross Border: cash withdrawn via cards in another jurisdiction permits easy (and potentially high-value) cross-border movement of funds with a limited audit trail
  11. Unusual purchase of goods or services in countries regarded by an institution as posing a heightened risk for money laundering;
  12. Excessive payments on private label credit cards via gift card from the merchant
  13. Purchases at merchant on personal cards which are significantly out of pattern with historical spending behavior;
  14. Merchant credits without offsetting merchant transactions
  15. Excessive customer service calls
  16. Abnormal customer contact behavior (e.g., frequent changes of address)
  17. Multiple and frequent cash payment or money orders; large, cross-border wire transfer payments
  18. Where Issuers have access to this information, Settlements/partial settlements from unrelated third parties
  19. Where Issues have access to this information, unrelated checking/current account paying multiple credit card accounts
  20. Excessive/ongoing large credit refunds

Source: Wolfsberg AML Guidance on Credit/Charge Card Issuing and Merchant Acquiring Activities

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