The state of Arizona is finding itself on the front line of the war against Mexican drug cartels. Their attorney general will meet this week with leaders of other southwestern states to try to stop the flow of drugs across the border with Mexico. To do that, they say they will have to stop the flow of cash as well, including a new way smugglers are trying to get past the cash-sniffing dogs.
Lawmakers say gift card technology is now making it easier for drug lords to move cash across the border undetected. These 'stored value instruments' are often issued by offshore banks and allow large sums of money to be moved throughout the world. Arizona Attorney General Terry Goddard spoke to Kiran Chetry on CNN’s “American Morning” Wednesday.
Kiran Chetry: Walk us through these gift cards. How have they become so useful to the drug cartels?
Terry Goddard: This isn't your Starbucks or Best Buy gift cards. What we're talking about here are stored value instruments, which have chips in them…that basically can store fairly large amounts of cash. The total amount is undetermined; it depends on who the depositing bank or financial institution is. As a result, since they're not considered monetary instruments, they can be taken across the border and you don't break any laws. It is a huge loophole in our financial crimes observations.
Chetry: So you're talking about gift cards, these blank cards that can be preloaded with large amounts of cash. How do they cash it in once they get across the border?
Goddard: These basically are your passport for cash. They are your way of getting into a financial institution. If you're buying coffee with them, obviously your return is not that big. But if you've got a participating financial institution, say in the Cayman Islands or in Central America, then all you have to do is go to a group that corresponds with that financial institution, present your card and take out your cash. So there's nothing at the border that you have to display. Under U.S. law, these cards, however much they may be worth are not considered financial instruments. Therefore, the border patrol, customs agents when they see them there is no violation because they're not part of the money that you're required to declare. And they can't read them, which is a big problem. Basically we need to have transparency so that if a law enforcement agency looks at one of these cards, he or she knows how much it is worth.
Chetry: So you want Congress to take up this issue. You made some recommendations about this situation. What do you hope to achieve and are they listening to your concerns about this?
Goddard: Well, they finally are. This is not a new concern. FinCEN, the Treasury Department report over three years ago, said here's a loophole that is causing large amounts of money to go across the border undetected. And my goal and our goal in law enforcement is to cut off the flow of cash to the organized criminal cartels that are bringing drugs and people in to the United States. This is one way we can do it.
Chetry: It seems the other big problem is these banks and these largely unregulated countries like the Cayman Islands don't have mechanisms in place that follow suspicious transactions, large amounts of money. Is there any way that the U.S. government or the states’ attorneys general can do anything about that?
Goddard: As a state attorney general, I cannot. However, the U.S. government being involved in international financial money laundering observation and interdiction can play a major role. But this is an international problem. You put your finger on it. There are huge amounts of money being electronically transferred across borders throughout the world. Not just to Mexico. And so we need to play a much more observant role if we're going to cut off this flow of illegal cash. That's a big, big problem. But let’s start with these gift cards. They're a huge loophole in our currency transaction regulation.
Chetry: How big of a dent do you think you'll be able to put in drug trafficking by being able to get this gift card loophole closed?
Goddard: Nobody knows, because nobody knows how much cash is going because it's not reported. So how much is going across the border into Mexico? I cannot tell you. But it is one source of money that is completely below the radar screen. It's not being observed. It's not … being sniffed by cash-sniffing dogs. It is an entirely different way to smuggle money. Let's bear in mind that organized crime depends on money. They're not in it for the love of the game. They're in it for the cash. If we can cut off or restrict the cash we'll go a long way to cutting down the cartel violence in Mexico.
Chetry: You made these recommendations to Congress. We'll see what action, if any, they're prepared to take.
Goddard: I hope they take action soon.