Suspicious Activity Involving Credit/Debit Cards

FinCEN was asked by the General Accounting Office (GAO) to conduct a study on how credit/debit/ATM cards may be used in facilitating money laundering. GAO requested that FinCEN conduct a search of the SAR database for fiscal years 2000 and 2001 with the following specific parameters: 1) SARs filed that indicated BSA/Structuring/Money Laundering as the violation type where the term credit card or credit cards appeared in the narrative; 2) SARs filed that indicated Credit Card Fraud as the violation and where the terms BSA, Bank Secrecy Act, money laundering, or structuring appeared in the narrative; 3) SARs filed that indicated BSA/Structuring/Money Laundering as the violation type where the term debit or debit cards appeared in the narrative; and 4) SARs filed that indicated Debit Card Fraud as the violation and where the terms BSA, Bank Secrecy Act, money laundering, or structuring appeared in the narrative.

Statistical Overview

The search of the SAR database for fiscal years 2000 and 2001 identified 499 SARs filed by 134 financial institutions in which the narrative section contained information pertinent to the request. These SARs represent about one tenth of one percent of the total of all SARs filed during that period. Of the relevant SARs:

• BSA/Structuring/Money Laundering was cited as the primary violation in 488 SARs (97.7%);
• eight (8) SARs cited credit card fraud as the primary violation;
• two (2) SARs cited debit card fraud as the primary violation;
• one (1) SAR cited defalcation/embezzlement as the primary violation;
• violation amounts ranged from $0 to $9.76 million; and
• filers of 70 SARs indicated (by checking Box 40 of the SAR) that they had reported the suspicious activity directly to law enforcement - 39 were reported to federal agencies and 31 were reported to state or local authorities.

Highlighted Patterns of Activity

Analysis of the narrative sections of the set of relevant SARs identified a number of patterns of suspicious activity associated with credit cards. Following are descriptions of these patterns, grouped by the number of SARs that could be linked to each subject area.

Structuring of Payments on Credit Card Accounts

A total of 115 SARs described cash structuring activity in the narratives. Typically, the SARs described structuring by customers who attempted multiple transactions below the CTR reporting requirements. Most often, these were cash transactions where the customer asked to deposit funds into various accounts, pay down loans, purchase cashier's checks, and make credit card payments. When these clients were informed that a CTR would be filed based on the total amount of activity, most withdrew one (1) or more transactions to get under the CTR threshold. Such activity was routinely reported as suspicious by the financial institution involved.

Of particular interest for those transactions reported as suspicious is the high dollar amount that customers wanted to pay on their credit card accounts. These attempted total payments were typically well over $5,000 and often exceeded $10,000. In several scenarios, a non-bank customer attempted to make cash payments to a credit card which was in the name of an actual bank customer. Two (2) SARs describe structuring by use of automated teller machine (ATM) cards, i.e., multiple (small denomination bills) cash deposits to different accounts by one person.

ATM/Debit Cards

A total of 61 SARs described credit/debit/ATM card fraud. Most of these SARs discussed lost or stolen credit cards being used by another party.

An additional 70 SARs discussed the use of ATM/debit cards. As in previous examples, individuals structured multiple deposits or withdrawals to avoid CTR reporting requirements. In the case of checks deposited via an ATM, most proved to be fraudulent checks, but only after cash withdrawals or point-of-sale transactions transpired, causing the bank to suffer a loss. Some scenarios depicted customers who wired money into their accounts from an account in a bank in a foreign country and then proceeded to make multiple ATM withdrawals in that foreign country. [See FinCEN SAR Bulletin - Issue 1 (June 1999) Automated Teller Machines.]

Cash Advances from Credit Card Accounts

Cash advances on credit cards were described in 97 narratives. These large advances were drawn on one or more credit cards. Typically, the customer used these advances to purchase cashier's checks or to wire funds to a foreign destination. Clients also requested that cash advances be deposited into savings and or checking accounts. Credit Card Convenience Checks16

A total of 32 SARs discussed suspicious activity involving courtesy/convenience checks supplied by credit card issuers. In some scenarios, convenience checks were deposited into an account in small amounts, indicative of possible structuring activity. In other instances, banks reported that the convenience checks were returned unpaid. Filers also noted that convenience checks were used in attempts to perpetrate identity theft.

Use of Monetary Instruments in Credit Card Account Activity

A total of 15 SARs described suspicious activity involving traveler's checks. In all instances, the checks were purchased with a credit card at the offices of the issuer. Of these SARs, eight (8) were filed on the same individual. This individual deposited the traveler's checks into his personal account, claiming that the checks were provided by "clients" to pay off the outstanding balance on the credit card. This subject also claimed that depositing traveler's checks would circumvent any need for the filing of CTRs. During FY2000/2001, the subject deposited $1.9 million in traveler's checks. The remaining SARs filed by the credit card issuer described suspicious activity in which traveler's checks were purchased in bulk with a credit card, then deposited within a short period of time - typically no more than a day or two following the purchase.

Eight (8) SARs reported customers, who made cash purchases of cashier's checks. Some checks, were made payable to various credit card companies. Other cashier's checks were purchased with cash advances from credit cards made payable to a third party or to the purchaser.

A small number of SARs reported credit card payments using money orders. These money orders were usually sequentially numbered. Many filers believed sequentially numbered or bulk money orders were suspicious because the original source of the funds could not be identified. Payment with money orders to credit card accounts is rare, and attracts the attention of the banks.

Three (3) SARs filed by the same financial institution described activity in which individuals used counterfeit or forged checks to make payments on their credit cards. In all, 16 fraudulent checks were deposited into three separate accounts. It did not appear that these three (3) individuals were related in any way; however, the filing institution cross-referenced all three SARs.

Wire Transfers Linked to Credit Card Activity

A total of 16 SARs were filed in which filers noted suspicious credit card activity linked to wire transfers. Reported activity included:

• cash deposits followed by immediate wires to credit card companies;
• incoming wires from foreign countries to an individual's credit card account;
• outgoing wires to credit card accounts;
• incoming wires followed by checks written to credit card companies; and
• cash advances used to wire funds to foreign destinations.

Three (3) SARs filed by a single financial institution described incoming wires from a foreign location payable to a credit card corporation. The aggregate total of these SARs was $11,824,982.90.

Overpayments on Credit Card Accounts

A total of 15 SARs described payments in excess of amounts owed on credit cards, which necessitated the issuance of a refund check by the bank. Seven (7) of these SARs discussed such payments made in cash. Other methods of overpayment include checks written to the credit card account, electronic transfers between accounts, and payment via debit card. Four (4) SARs did not elaborate on the method of payment. The source of funds could not be determined by the banks; refund checks ranged from $7,000 to $192,000. This overpayment/refund process is indicative of possible money laundering activity, inasmuch as it provides a relatively simple mechanism for conversion of criminal proceeds, or other problematic funds, to a bank instrument that can be further negotiated with little or no attention to the origin of the funds.

Subjects Linked to Organized Crime
Of the 488 SARs reviewed for this request, only six (6) SARs were filed on subjects associated with organized criminal activity. The six (6) SARs were filed in early 2001 on four (4) suspects. The suspicious activity identified revealed check payments credited to their credit card accounts by a fifth individual, who had been indicted on charges of money laundering, contraband cigarette smuggling, and visa/immigration fraud charges.

Excerpted from SAR Activity Review Issue 4 , page 29