Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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07/1/2010 FinCEN Proposes New Rules on Gift Cards and Other Prepaid Access Devices

A gift card is one of the simpler types of “stored value” devices included under the anti-money laundering regulations.  A transit card for the New York City transit system is another.  Unfortunately for FinCEN, which introduced regulations regarding such devices in 1997, the terminology of the industry has evolved and “stored value” is not widely used, nor really accurate.  The term that FinCEN now wants to adopt, according to proposed regulations, is “prepaid value.”  Also, instead of issuers and redeemers of stored value, FinCEN now talks of providers and sellers of stored value.  This is a recognition that the industry has grown in directions not anticipated when FinCEN began to include it under the AML requirements and its terminology has become dated and confusing.

Prepaid access is not confined to gift cards, though it began that way.  Fobs are used, and systems are now used with cell phones and other electronic devices that can connect with institutional databases.  Prepaid access is being used for many things besides merchandizing programs, and has become a way for paying construction workers and day laborers and distributing health and government benefits (including certain Social Security payments and disaster relief assistance).  With the growth of this industry, and its diversification as a means of transmitting funds, have come additional concerns about the money laundering and terrorist financing potential of such devices.  They are much easier to move across borders than cash, and FinCEN wants to impose new requirements on the prepaid access industry.

FinCEN is proposing to impose suspicious activity reporting, customer information and recordkeeping requirements on providers and sellers of prepaid access.  The threshold for SAR filings will be $2,000 or more. Registration requirements would also be imposed on providers of prepaid access, though not on sellers. FinCEN realizes that imposing requirements on a new industry could be harmful to the growth of that industry, and proposes to exempt certain types of activities, such as programs for the payment of benefits, incentives, wages, or salaries through payroll cards when only the employer can add funds to the card or other device.

FinCEN requests comments on many aspects of its proposal, but is apparently concerned that some commenters might give it information that the agency may not want to make public.  In several places the release says that certain sensitive information received from commenters “may be maintained in a confidential docket.”  Thus, not all comments may be made public.  FinCEN is apparently interested in learning whether large amounts of funds may be moving across borders on prepaid access devices.

The proposed regulations will be analyzed in detail in the July issue of the Monitor.

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