AUSTRAC ML/TF risk assessment of stored value cards

Austrac has published Stored value cards: money laundering and terrorism financing risk assessment report, Australia’s first risk assessment of stored value cards (SVCs), (or pre-paid cards) such as travel and retail gift cards.

Austrac assessed the overall ML/TF risk associated with the use of SVCs to be medium, and their vulnerability to criminal misuse to be high. The report found that the risk level of individual SVCs varies significantly depending on the features of the specific product. Travel cards that can be reloaded and redeemed offshore in cash carry significantly higher levels of risk than low value retail gift cards. The most common crime-types in which SVCs are implicated are money laundering and cyber-enabled fraud. Of particular concern is the use of SVCs for terrorism financing purposes.

Austrac analysed in detail two years of suspicious matter reports submitted in relation to SVCs between 2014 and 2016.

It compared “Above the threshold” SVC’s, “Below the threshold” SVCs, “Closed loop” SVCs and “Open loop SVCs” which are defined as follows:
Above the threshold SVC: An SVC that carries AML/CTF obligations. The applicable thresholds are:
• if the card can hold $1,000 or more at any one time and cash can be withdrawn from the card, or
• if the card can hold $5,000 or more at any one time and cash cannot be withdrawn from the card.
Below the threshold SVC: An SVC that is not regulated under the AML/CTF Act because it does not meet the relevant thresholds, as set out above.
Closed loop SVCs: SVCs that can only be redeemed at specific retailers (for example, gift cards). Cash cannot be withdrawn from closed loop SVCs.
Open loop SVCs: SVCs that operate on the Visa, MasterCard or EFTPOS networks. Cash can usually be withdrawn from open loop SVCs.

The most frequently reported offence indicated in the SMR dataset was money laundering. Various money laundering typologies were observed in relation to above the threshold SVCs, notably loading large volumes of cash and movement of large volumes of funds offshore. Proceeds of crime also appear to have been used to bulk purchase below the threshold SVCs in an attempt to launder funds.

The key features that make an SVC product particularly vulnerable to financial crimes are:
• reloadability
• ability to use cash to load/reload the SVC
• ability to redeem SVC value in cash
• ability to redeem at a wide range of merchants (‘acceptability’)
• ability to redeem internationally
• high storage limits.

The more of these features that apply to a single SVC, the higher the product’s vulnerability to criminal misuse. Many of these vulnerabilities can apply to both above and below the threshold cards.

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