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Senators Feinstein, Grassley, and Whitehouse Urge Secretary Geithner to
Crack Down on Pre-paid Cards Crossing U.S. – Mexico Border
March 16, 2011 

Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.), Chuck Grassley (R-Iowa), and Sheldon Whitehouse (D- R.I.), members of the Senate Caucus on International Narcotics Control, urged Treasury Secretary Tim Geithner to crack down on pre-paid gift and credit cards that are transported across the U.S. – Mexico border. 

“We simply cannot afford to lag behind drug trafficking organizations as they develop new ways to transport illegal proceeds from the United States to Mexico,” said Senator Feinstein, Chairman of the Senate Caucus on International Narcotics Control.  “I am surprised that despite a deadline passed by Congress, the Treasury Department does not have any plan in place to make pre-paid access cards subject to border reporting requirements.  These cards, which look like personal debit or credit cards, freely pass across the border and often land in the pockets of Mexican drug trafficking organizations.”

Millions of dollars are transported each week from U.S. drug markets to Mexican traffickers.  The use of stored value cards – pre-paid gift or credit cards – is an increasingly popular means of money laundering.  Remarkably, stored value is not subject to any cross-border reporting requirements.  This means that an individual crossing from the United States into Mexico with over $10,000 on pre-paid cards is not required to declare these cards at the border. 

“The illicit proceeds that are funneled across the border by drug trafficking organizations fuel organized crime at an unprecedented level.  It’s unacceptable that next to nothing has been done to stop the unfettered movement of these proceeds via pre-paid access cards, which can carry an unlimited value without being declared to Customs officials.   According to federal law enforcement agencies working at the border, getting a handle on these cards is one of the most important things we can do to stop money laundering across the border,” said Senator Grassley, Co-Chairman of the Senate Caucus on International Narcotics Control. “It’s time for the Treasury Department to step up and issue final rules for legislation passed nearly two years ago that will help federal officials stop this practice.” 

“Drug traffickers continue to pose a danger to communities throughout the country,” said Senator Sheldon Whitehouse.  “By better regulating pre-paid cards we can cut off the flow of funds to drug cartels, making our neighborhoods safer in the process.” 

Following is the text of the letter from the Senators to Secretary Geithner:

March 14, 2011

The Honorable Timothy F. Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Geithner:

We write to urge you to immediately propose and finalize a rule to make prepaid access, including stored value cards, subject to cross-border reporting requirements.  Without this rule in place, our laws will continue to lag behind drug trafficking organizations as they develop new ways to transport illegal proceeds from the United States to Mexico. 

On March 9th, the Senate Caucus on International Narcotics Control held a hearing on money laundering and bulk cash smuggling across the Southwest border.  At the hearing, we expressed our deep disappointment that the Department of the Treasury (Department) failed to meet a statutory deadline imposed by Congress in Section 503 the Credit Card Accountability Responsibility and Disclosure Act of 2009 (P.L. 111-24)[1] and “issue regulations in final form implementing the Bank Secrecy Act, regarding the sale, issuance, redemption, or international transport of stored value, including stored value cards.”[2] 

We were further disappointed to hear from a Department official testifying at the hearing that despite the fact that the Department issued a limited Notice of Proposed Rulemaking regarding prepaid access in June 2010, there is no current timeline for making the proposed rule final.  While this proposed rule is far from perfect, including significant problems with overbroad exclusions such as limiting the reach to cards that have a $1000 maximum load limit and exempting closed loop prepaid gift card programs, finalizing an initial rule would be a building block for future efforts.  Unfortunately, it appears that based upon the Department’s testimony, it will not be finalizing any rule regarding prepaid access in the foreseeable future. 

Thus, under current law, a criminal, drug trafficker, or terrorist with hundreds of thousands of dollars on pre-paid cards could literally walk across the U.S. – Mexico border without penalty.  While the Department continues to contemplate a rule, law enforcement’s hands are tied as they observe stored value cards crossing to Mexico and are unable to do anything.

At the hearing, Government Accountability Office Director for Homeland Security and Justice Issues Richard Stana explained to the Caucus that “regulatory exemptions heighten the risk that criminals may use stored value to finance their operations.”  We could not agree more.  We believe that a rule making prepaid access, including stored value cards, subject to cross-border reporting requirements must be expeditiously proposed and finalized. Absent a renewed effort from the Department to propose and finalize a cross-border reporting requirement for prepaid access programs, including stored value, Congress will have to take action via the legislative process.

Sincerely,

Dianne Feinstein           Charles E. Grassley                 Sheldon Whitehouse
Chairman                       Co-Chairman                            U.S. Senator


[1] Codified at 31 U.S.C. § 5311 note (2006). 

[2] Id.

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