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U.S. card network a laundering pipeline for crooks
Updated: Thu, Aug 09 12:01 PM EDT
By Mary Kelleher
NEW YORK (Reuters) - Credit and debit cards can be used to buy groceries, stereos and fur coats -- or to purchase guns, help evade taxes, and shift illegal profits from offshore bank accounts into the United States.
Crooks and tax fraudsters increasingly are tapping into their accounts in Caribbean tax havens like the Bahamas using credit, debit and charge cards. These cards bear the Visa, MasterCard and American Express Co. logos, and enable money launderers to move drug, gambling and gun money around as well as access unreported taxable income, experts say.
"It's a lucrative business all around -- the bank gets a fee, the credit card company gets a fee, the bill gets paid, and you get access to your money," said Thomas Cash, managing director at investigative firm Kroll Associates and former head of the U.S. Drug Enforcement Agency in Florida and the Caribbean.
"Your biggest mission in life, if you're involved in money laundering or hiding income, is being able to use your ill-gotten gains," Cash said.
Money laundering refers to the way criminals push illegal profits through a chain of bank accounts and businesses to make the funds look clean, or legitimate.
U.S. regulators are ramping up efforts to root out debit and credit card abuse, training hundreds of staff to identify criminal overseas transactions and hunt down tax evaders.
At stake in the effort to weed out offshore tax evaders is an estimated $9 billion to $23 billion in lost tax revenues, said John Buchanan, who heads the abusive tax schemes program at the IRS. The IRS estimates that roughly between 100,000 and 250,000 people use offshore credit cards, although the cards themselves are not illegal.
"The ***** credit cards all maintain systems, through monitoring and paying the credit cards and debit cards so you and I can use them," Buchanan said. "There are only four or five ***** players in the world in that market. They are going to have access to moving that money back and forth if you use a credit card for it."
MASTERCARD, AMEX SERVED WITH SUMMONS
The Internal Revenue Service served MasterCard and American Express with a summons in October, asking for names of U.S. taxpayers who had credit, debit and charge cards issued by banks in Antigua and Barbuda, the Caymans and the Bahamas in 1998 and 1999, or who received money from these banks.
The other top U.S. card network, Visa, was not served with the summons, and the IRS wouldn't comment on a reason. No charges have been brought against the networks, which are owned by ***** banks.
The summons lists several Caribbean firms with Web sites that peddle MasterCard and Visa cards and promise secrecy.
One is Axxess International in the Bahamas (http://www.axxess-international.com). The firm's 'infiniti' offshore card, which carries a MasterCard label, offers "the convenience and acceptance of a Gold MasterCard ... with the confidentiality and security of a Bahamian Trust." Axxess could not be reached for comment.
American Express, which calls the summons "extremely broad," said it is talking to the IRS about the requested information but hasn't turned over any data yet. American Express has marketing distribution deals with some Caribbean banks, which refer customers the New York-based issuer. American Express has investigated a number of Web sites, and found none that issued its cards, a spokeswoman said.
MasterCard also said it's talking to the IRS but has yet to give up information. Banks that issue cards bearing the MasterCard and Visa logos must follow local banking laws, network spokeswomen said.
There is a brewing legal standoff between the IRS and the card networks, which want to protect customers' privacy.
"This will go all the way to the upper levels of the judiciaries," Cash predicted.
IRA GUN RUNNERS USE DEBIT CARDS
The sheer volume of business going through card systems -- billions of dollars each day -- as well as the industry's privacy safeguards and competition for customers make plastic an ideal way for criminals to move money.
"Credit card companies are very competitive," Kroll's Cash said. "They are very much compensated by how much people spend on their cards. It's not in their interest to go around finding out who is spending what on what."
Credit card companies do not have to flag unusually large transactions, the way U.S. banks must report large cash deposits. Nor are they required to know the source of their customers' money, as banks should. Plus, it is not that hard to get a card with a fake individual or corporate name offshore.
"The reason (credit cards) became a laundering tool is that many of these banks would offer to set up the card either in individual offshore names, so it wouldn't be immediately traceable to you as an individual when you used the card, or it would much more readily lend itself to using an alias to sign for an actual expenditure," a law enforcement official said.
Debit cards are considered even better than credit cards because they automatically give cash to the offshore account holder and are more anonymous, experts say.
"Debit cards are a nifty tool to launder money," said Charlie Intriago, a former U.S. prosecutor who now publishes the Money Laundering Alert newsletter. "Once you get the money into an offshore account, the debit card allows you to spend it anywhere in the world..."
U.S. prosecutors two years ago nabbed four Irish Republican Army members living in South Florida who were buying guns in the United States. They used a Visa debit card issued through a Belfast bank, and tried to ship the weapons to Ireland.
"We were surprised in the IRA case," said Richard Scruggs, a former federal prosecutor in Miami involved in the case. "We weren't looking for that. We just kind of stumbled upon it... We were able to trace cash deposits into the debit card accounts in Belfast and on this end, it paid for expenses, cashing out huge sums of money they used to presumably buy guns, plus the materials they packaged the guns in, including toy trucks and computers, they got with the debit cards also."
The arrival of so-called smart cards, which enable people to store money on microchips, has made laundering even easier for criminals who want to access funds without a trace.
"Individuals looking to launder money could go to an area where there is less scrutiny than there is in the United States or a G-7 country, and get someone to load up millions of dollars on the card," a law enforcement official said. "The card itself is not considered a negotiable instrument for the purposes of reporting when you are coming back into the United States... You can now walk into a financial institution and say 'I have $10 million on this card and I want to have this money transferred."'
Updated: Thu, Aug 09 12:01 PM EDT
By Mary Kelleher
NEW YORK (Reuters) - Credit and debit cards can be used to buy groceries, stereos and fur coats -- or to purchase guns, help evade taxes, and shift illegal profits from offshore bank accounts into the United States.
Crooks and tax fraudsters increasingly are tapping into their accounts in Caribbean tax havens like the Bahamas using credit, debit and charge cards. These cards bear the Visa, MasterCard and American Express Co. logos, and enable money launderers to move drug, gambling and gun money around as well as access unreported taxable income, experts say.
"It's a lucrative business all around -- the bank gets a fee, the credit card company gets a fee, the bill gets paid, and you get access to your money," said Thomas Cash, managing director at investigative firm Kroll Associates and former head of the U.S. Drug Enforcement Agency in Florida and the Caribbean.
"Your biggest mission in life, if you're involved in money laundering or hiding income, is being able to use your ill-gotten gains," Cash said.
Money laundering refers to the way criminals push illegal profits through a chain of bank accounts and businesses to make the funds look clean, or legitimate.
U.S. regulators are ramping up efforts to root out debit and credit card abuse, training hundreds of staff to identify criminal overseas transactions and hunt down tax evaders.
At stake in the effort to weed out offshore tax evaders is an estimated $9 billion to $23 billion in lost tax revenues, said John Buchanan, who heads the abusive tax schemes program at the IRS. The IRS estimates that roughly between 100,000 and 250,000 people use offshore credit cards, although the cards themselves are not illegal.
"The ***** credit cards all maintain systems, through monitoring and paying the credit cards and debit cards so you and I can use them," Buchanan said. "There are only four or five ***** players in the world in that market. They are going to have access to moving that money back and forth if you use a credit card for it."
MASTERCARD, AMEX SERVED WITH SUMMONS
The Internal Revenue Service served MasterCard and American Express with a summons in October, asking for names of U.S. taxpayers who had credit, debit and charge cards issued by banks in Antigua and Barbuda, the Caymans and the Bahamas in 1998 and 1999, or who received money from these banks.
The other top U.S. card network, Visa, was not served with the summons, and the IRS wouldn't comment on a reason. No charges have been brought against the networks, which are owned by ***** banks.
The summons lists several Caribbean firms with Web sites that peddle MasterCard and Visa cards and promise secrecy.
One is Axxess International in the Bahamas (http://www.axxess-international.com). The firm's 'infiniti' offshore card, which carries a MasterCard label, offers "the convenience and acceptance of a Gold MasterCard ... with the confidentiality and security of a Bahamian Trust." Axxess could not be reached for comment.
American Express, which calls the summons "extremely broad," said it is talking to the IRS about the requested information but hasn't turned over any data yet. American Express has marketing distribution deals with some Caribbean banks, which refer customers the New York-based issuer. American Express has investigated a number of Web sites, and found none that issued its cards, a spokeswoman said.
MasterCard also said it's talking to the IRS but has yet to give up information. Banks that issue cards bearing the MasterCard and Visa logos must follow local banking laws, network spokeswomen said.
There is a brewing legal standoff between the IRS and the card networks, which want to protect customers' privacy.
"This will go all the way to the upper levels of the judiciaries," Cash predicted.
IRA GUN RUNNERS USE DEBIT CARDS
The sheer volume of business going through card systems -- billions of dollars each day -- as well as the industry's privacy safeguards and competition for customers make plastic an ideal way for criminals to move money.
"Credit card companies are very competitive," Kroll's Cash said. "They are very much compensated by how much people spend on their cards. It's not in their interest to go around finding out who is spending what on what."
Credit card companies do not have to flag unusually large transactions, the way U.S. banks must report large cash deposits. Nor are they required to know the source of their customers' money, as banks should. Plus, it is not that hard to get a card with a fake individual or corporate name offshore.
"The reason (credit cards) became a laundering tool is that many of these banks would offer to set up the card either in individual offshore names, so it wouldn't be immediately traceable to you as an individual when you used the card, or it would much more readily lend itself to using an alias to sign for an actual expenditure," a law enforcement official said.
Debit cards are considered even better than credit cards because they automatically give cash to the offshore account holder and are more anonymous, experts say.
"Debit cards are a nifty tool to launder money," said Charlie Intriago, a former U.S. prosecutor who now publishes the Money Laundering Alert newsletter. "Once you get the money into an offshore account, the debit card allows you to spend it anywhere in the world..."
U.S. prosecutors two years ago nabbed four Irish Republican Army members living in South Florida who were buying guns in the United States. They used a Visa debit card issued through a Belfast bank, and tried to ship the weapons to Ireland.
"We were surprised in the IRA case," said Richard Scruggs, a former federal prosecutor in Miami involved in the case. "We weren't looking for that. We just kind of stumbled upon it... We were able to trace cash deposits into the debit card accounts in Belfast and on this end, it paid for expenses, cashing out huge sums of money they used to presumably buy guns, plus the materials they packaged the guns in, including toy trucks and computers, they got with the debit cards also."
The arrival of so-called smart cards, which enable people to store money on microchips, has made laundering even easier for criminals who want to access funds without a trace.
"Individuals looking to launder money could go to an area where there is less scrutiny than there is in the United States or a G-7 country, and get someone to load up millions of dollars on the card," a law enforcement official said. "The card itself is not considered a negotiable instrument for the purposes of reporting when you are coming back into the United States... You can now walk into a financial institution and say 'I have $10 million on this card and I want to have this money transferred."'