New rules for cash cards that aid prison-gang activity may not fix the problem
Published: August 11, 2010
When federal agents searched apartment H at 20 Stockmill Road in Pikesville on July 6, they were looking for evidence that a prison guard named Alicia Simmons was a member of the Black Guerrilla Family (BGF), the feared and storied prison gang that federal prosecutors have been trying to dismantle for the past two years.
Agents found what they were looking for, and among the documents and other evidence seized were 12 Green Dot cards in the name of other people, including a former correctional officer and an inmate named Jeffrey Fowlkes. According to the search warrant return, one card was embossed with the name “Valued Customer.”
Green Dot cards are reloadable, pre-paid cards that look and work like credit or debit cards. Green Dot Corporation invented the concept about 11 years ago, and the company still dominates the now-crowded field that includes companies such as GoUrban, NetSpend, and Capital One, which offer the convenience of a credit card, in NetSpend’s words, “without the need for a bank account or credit history.” While most of the cards offer a direct-deposit option from a card-user’s employer, they can also be reloaded using other cards purchased for cash at a mall or pharmacy. Green Dot debit cards, for instance, can be reloaded with Green Dot “MoneyPak” cards, available for purchase at more than 50,000 stores nationwide. At Walmart, it costs less than $5 to place up to $1,100 on a MoneyPak card, and the transaction is anonymous. Once the cash is placed on the card, the number on the card can be used to transfer that money into a Green Dot (or other) account using a telephone.
Members of the BGF used the MoneyPak card numbers as virtual currency inside Maryland prisons, according to law enforcement affidavits. The money was used to buy heroin and otherwise further the gang’s and gangmembers’ interests, according to court documents.
Federal cases have linked BGF members to Green Dot cards is several recent cases. Aside from Simmons, BGF member and former bar impresario Tomeka Harris used Green Dots and other stored value cards both to facilitate gang-related prison activity and as part of a separate bank fraud scheme (“The 410 Factor,” Mobtown Beat, April 22, 2009 ; “Black Booked,” Feature, Aug. 5, 2009). Harris pleaded guilty in the scheme.
Alicia Simmons was arrested on July 6 (“Working Overtime,” Mobtown Beat, July 14) as part of a drug trafficking and extortion case against the gang. But while alleged gang members face criminal prosecution and long prison sentences, Green Dot is experiencing a lighter hand from the federal government.
New rules proposed by the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, fail to close a key loophole in the laws governing MoneyPak and other “stored value” cards, according to a July 28 letter from U.S. senators Joseph Lieberman (I-Conn.) and Susan Collins (R-Maine), the chairman and ranking member, respectively, of the Senate Committee on Homeland Security and Government Affairs, to Treasury Secretary Timothy Geithner.
“[W]e have learned that law enforcement agencies throughout our government have become increasingly concerned that stored value devices are being exploited by the [drug] cartels and other smuggling networks to launder their proceeds,” the senators wrote. “One of the key reasons behind this is the loophole that exists . . . that allows criminals to brazenly avoid detection at the border.”
Under current law, anyone carrying $10,000 or more in cash or “cash instruments”—travelers’ checks, say—must declare it to Customs officials. But Green Dot MoneyPak cards and other similar devices are “not considered monetary instruments under the law,” the senators’ letter, which is part of the public comments on the proposed rules, says.
Lieberman and Collins tried to insert a provision into the law that would have closed the “stored value devices” loophole, but the provision did not make it into the proposed rules, which the Treasury Department promulgates with input from the affected industry. The Network Branded Prepaid Card Association, an industry group, has been trying to forestall stricter regulation for the past five years. Terrence Maher, the general counsel for the association, said he has no comment on the senators’ letter.
“Given that the Treasury Department has been considering how to regulate stored value devices for more than a decade, and that cross-border transportation of the devices is a major concern for a broad spectrum of law enforcement agencies, the omission of an actual proposal for regulating the international transportation of stored value devices is troubling,” the senators wrote. “We believe that the Treasury Department needs to act quickly to put in place reporting requirements at the border for stored value devices similar to those requiring the declaration of bulk cash totaling more than $10,000.”
FinCEN is taking the senators’ letter under advisement. “It’s not a final rule yet,” FinCEN spokesman Steve Hudak says. “We will evaluate the comment letters.” The comment period ends Aug. 27; the rule will be finalized in the next several months, Hudak says.
But the rules may revoke some of the anonymity stored value users now enjoy, because providers and sellers of prepaid access (the proposed new name for stored value) cards that can be loaded with more than $1,000—and all cards that can be used internationally to transfer any amount of money—may have to comply with money laundering rules, including confirming the name of their customers and filing suspicious activity reports with FinCEN the same way banks are required to do.
Green Dot is pleased with the proposed rules, according to its Chief Compliance Officer Lee Jeffrey Ross, who Green Dot hired two years ago from the Treasury Department, where he was the senior advisor on law enforcement in the Office for Terrorist Financing and Financial Crimes. “As a program manager I read nothing in the rules that we’re not complying with,” he said in a late July phone interview.
Green Dot has been cooperating with law enforcement since the company learned of the BGF indictments two years ago and has had a robust anti-money laundering program in place for years before that, Ross said. “We have a customer identification program, where we have to confirm the identity of the card holders” much like a bank or credit card company does, John Ricci, Green Dot’s general counsel, added.
Ross says cards in the name of “Valued Customer” are temporary, limited to a one-time $500 value until the buyer passes the company’s “customer identification program.” Then Green Dot would send him or her a card with his or her name on it, and while he or she was waiting for that, the “Valued Customer” card would work like a regular Green Dot with a $2,500 per day spending limit, Ross says—but with no ATM withdrawals allowed. “We get law enforcement questions about that all the time,’ Ross says. “If they give me the card number I can link it with the real person.”
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