We have a commercial customer that is operating a retail wireless phone store. A good portion of their retail business is in prepaid phone cards. At the same time, the business is re-selling prepaid phone cards to other retailers (convenience stores, for example). These sales appear to be to a group of second middlemen, or to chains of retail establishments, based on the volume of the sales (they aren't amounts that would be sold to a mom & pop store). The customer was upfront about their business when they opened the account, indicated that they would be making a large number of wire transfers, and even told us that their previous bank had told them they wouldn't do the wires for them anymore b/c the activity appeared suspicious (this was a large bank with a monitoring function located out-of-state - it is conceivable that they just didn't understand the business; it's also conceivable that they were right to close the account).

From some background research, the supplier of the phone cards indicates that many of their customers resell the cards to other retailers. This business is listed as a retailer of the phone card company, which has a professional web presence, occassional press mentions, etc.

Some concerns I have are: the business is wiring funds to, and then receiving funds back from, the supplier - I don't understand why the funds would flow both directions. Same with their downstream wholesale customers: they receive wires from, and then wire funds back to, them - why would they return funds? Also, I am surprised to see them making some payments by official check, especially when it is to the same customer that they have wired funds to in the past.

I know that prepaid phone cards are high risk for money laundering. Does anyone have any experience monitoring these customers - or does anyone have any ideas on the activity described? Thank you all!

Jokerman,
I see that no one has responded to your questions. I don't have any first hand experience with phone card sellers, but what you described certainly meets the test for requiring extensive due dilligence.

Have you filed for Information Sharing under 314(b)? Do you know if this customer's previous bank has also filed? If so, you can call the other bank to discuss money laundering concerns.

You might also trying contacting FinCEN and asking them if they have specific guidelines and/or red flags for activity involving pre-paid phone cards.

You may also want to review this publication from FinCEN on Prepaid Phone Cards:

Suspicious Activity Related to PrePaid Phone Cards

Finally, if you still feel uncomfortable, you may want to consider filing a SAR and contacting FinCEN to see if you can discuss it with appropriate law enforcement. Check with your legal counsel on this also.

And, when you've done all that Bonnie suggests, consider whether this is a relationship that your institution has an ability to monitor and maintain.

Your situation is similar to one that I encountered in my prior life. However, yours appears to be worse due to the wires going back and forth. The phonecard business is hard to understand, especially when they are dealing with both retail customers and wholesalers.

IMHO, file a SAR and get rid of them. Easy to say, right? Think of it this way-tons of cash, wire transfers back and forth, no apparent reasonable explanation for the activity, FinCEN has taken time to highlight the potential criminal scenarios and they were dumped by their previous bank. Is there any upside in keeping this account at your bank? Do you want to continue monitoring the account? Make a list of the pros and cons-than make a decision.

By the way, the account that I encountered also came from another bank, who told them to leave. The owner informed us of this, just as your customer did. We wound up filing a SAR.

Although you didn't mention any dollar amount, I'd be willing to say that you receive over $100,000 in deposits (mostly cash)into this account on a monthly basis. It seems too good to be true that phonecards generate that much business.

No, the deposits are relatively normal for any retail business. Both checks and cash, in amounts that you would expect for this kind of store.

It's really the wires and the official checks that concern me - I am not worried at all about their retail business.

Upside to keeping the account - approximately $5M/yr in service charge income. (That is moderately significant for a bank our size.) Also, they have, in my opinion, exlpained _some_ of the activity (purchasing and reselling phone cards). They haven't explained - and we have yet to ask about - the wires back to their customers and back from their supplier, or the official checks. I am encouraging the account officer and/or the BSA officer to make that inquiry. Part of the reason for the post was for background information, if any was available, that I could provide the account officer and BSA officer.

I had looked at and passed along the FinCEN publication, but hadn't thought of the 314(b) requests - I believe we did not file. Is there a period we would have to wait for that to become effective before the other bank could share with us? The other bank is a nationwide, well-known bank.

Thanks for your responses, I do appreciate it.