Why Money Mules and Prepaid Cards Work Well for Criminals

Because they are smaller in size, easy to hide, and widely accessible, prepaid cards combined with money mules make it easier for criminals to hide dirty money from banks and regulators. 

Why are prepaid cards popular with criminals?

Criminals can make whopping sums of money from their illegal activities, including drug trafficking, human trafficking, illegal arms sales, and others. The last thing they want is to draw unwanted attention to their operations from law enforcement. Drug lord Joaquín Guzmán, better known as “El Chapo,” used prepaid cards to launder money to get rid of physical cash notes that were laced with cocaine and detectable to drug-sniffing dogs.

Prepaid cards provide cover for fraudsters and criminals of the El Chapo variety, making criminal activity harder to detect. They’re certainly easier to hide than large stacks of cash, for starters. The major payment processing networks support the cards, meaning they can be used in almost any global market. A user’s specific identity is rarely linked to a card, making it easier for criminals to conceal their money. Finally, anyone can carry a card, making it easy to move across borders.

That’s where money mules come into play.

How do criminals recruit money mules into prepaid card scams?

Millions of people lost their jobs last year because of the pandemic-related recession. Unfortunately, one unemployed person’s financial uncertainty frequently became a fraudster’s opportunity. 

Fraudsters recruit money mules into their schemes through a variety of tricks that prey on the victim’s desperation. One of the most common tactics is employment scams in which fraudsters lure job seekers into their scheme with generous job offers to work from home for an amazing salary. 

Once hired, the victim’s new “employer” then asks them to accept an ACH or wire transfer into their own bank accounts as part of their job responsibilities. Then they ask the victim to move the money to prepaid cards and mail those cards to the fraudsters – after allowing the victim to keep a small share of the money for themselves. 

How prepaid cards enable money laundering

3 Stages of Money Laundering

There are three key stages in which fraudsters use prepaid cards to launder money.

Placement

Money mules play a crucial role in legitimizing the fraudster’s illicit funds. By providing access to the victim’s own bank account, they offer fraudsters access to legitimate financial services.

Layering

Next, criminals work to disguise the source of funds. They do this by:

• Having mules buy expensive products (like computers or jewelry) and reselling or transporting these items.
• Selling the cards to other parties.
• Withdrawing the value of the cards at ATMs as cash.

Integration

The final step is important for criminals to disguise the source of their funds by making legitimate purchases. This can include buying insurance or chemical products needed for a criminal operation.

These activities make prepaid cards a powerful weapon for criminals to fund their operations and a challenge for law enforcement and regulators to monitor and detect. 

Who are the victims of prepaid card fraud?

Like any other type of fraud, prepaid card fraud has real consequences for real people. Victims of prepaid card fraud schemes include:

Unwitting Money Mules

Money mules are most likely to find themselves in legal jeopardy if they participate in a fraudster’s scheme. This is true even if victims are unwitting participants. Last year in the U.S., law enforcement agencies, including the FBI, the Department of Justice, and the U.S. Postal Inspection Services, took action against over 2,300 suspected money mules. 

The U.S. isn’t alone. Europol announced last year that a law enforcement operation in 26 EU nations – supported by the European Banking Federation (EBF), Interpol, and Western Union –  led to 422 arrests and identified over 4,000 money mules and over 200 money mule recruiters. 

Financial Institutions

Banks can also find themselves in legal jeopardy if regulators determine that a bank has facilitated money mule activity connected to money laundering schemes. As a result, banks could face fines and investigations into their anti-money laundering (AML) compliance protocols. 

Victims of Illicit Crimes

Few people are as impacted by this kind of activity as individuals who are directly harmed by criminals’ illegal dealings, including terrorism, illegal arms trades, human trafficking, and illegal drugs. Each category of crime harms real people. 

Tips for Banks

At the end of the day, banks have a moral obligation to do everything possible to stop these financial crimes. Here are some measures banks can take to reduce the influence of prepaid cards and money mules.

Monitor Prepaid Card Usage

Watch the prepaid card’s usage. A prepaid card used to make a series of small value transactions at a variety of businesses outside the bank customer’s normal activities can be indicative of suspicious behavior.

Impose Spending Controls

Limit where a prepaid card can be used. A card that gets topped off at a casino, for example, and then transfers money to another reloadable prepaid card is suspicious because it appears to be an attempt to launder the money. Limiting the types of businesses where a card can be used. This makes it more difficult for criminals to spend the money on the card. 

Set Prepaid Card Limits

Looks closely at bank customers who request a large volume of prepaid cards. Make sure their spending patterns align with their stated business goals. Consider also limiting the number of cards that a customer can access.

Limit ATM Withdrawals

Limit the prepaid card’s cash withdrawal capabilities. Limits can include the value of a single ATM withdrawal, the number of withdrawals, or where withdrawals are allowed.

Impose geographical constraints

Who is funding the prepaid card? Where are they spending money? A prepaid card that receives money from a problematic geographic region – and then later spends money outside the cardholder’s normal geographic location is cause for concern. Banks can impose geographical constraints that prevent cards from receiving funds from certain nations.

Take an omnichannel approach

Prepaid cards and money mules enable criminals to disguise the source of their ill-gotten funds. Banks can monitor where and how cards are used with an omnichannel approach to AML and risk management. This can help banks close loopholes that criminals exploit to fund their operations. This can go a long way to boosting banks’ AML compliance capabilities and meeting regulators’ expectations.

Educate customers

Educate customers to raise awareness of how these schemes operate. Warning customers that fraudsters use social media, dating websites, or unsolicited emails promising work from home opportunities that pay money for unusual levels of work can help customers protect themselves.  

Criminals are leveraging the benefits of prepaid cards and the social uncertainties to expand their mule network and diversify their money laundering activities. Both unwitting individuals looking for opportunities and banks who unwittingly enable this activity can get ensnared in this activity. Banks can stop to this activity with holistic monitoring of their client base and setting limits on prepaid card usage. Taking these steps can help banks protect both their customers and their reputations.