The Financial Crimes Enforcement Network (FinCEN) last week released a proposal (the Proposal) to materially change how stored value programs and the participants therein are defined for purposes of the regulations implementing the Bank Secrecy Act (BSA) with respect to money services businesses and also to materially change the anti-money laundering obligations applicable to such participants. The Proposal is being issued pursuant to the Credit CARD Act of 2009, which requires the Treasury Secretary, in consultation with the Secretary of the Department of Homeland Security “to issue final regulations regarding the sale, issuance, redemption, or international transport of stored value, including stored value cards.” FinCEN has solicited comment on various aspects of the Proposal; written comments must be submitted within 30 days of the Proposal’s publication in the Federal Register. FinCEN has also invited comments on issues relating to international transport of prepaid access and will address such issues in a future proposal.
New defined terms include:
“Prepaid Access”: The Proposal would replace the term “stored value” with “prepaid access,” defined as an “electronic device or vehicle, such as a card, plate, code, number, electronic serial number, mobile identification number, personal identification number, or other instrument that provides a portal to funds or the value of funds that have been paid in advance and can be retrievable and transferable at some point in the future.” §103.11(vv).
“Provider of Prepaid Access”: The Proposal would remove the terms “issuer” and “redeemer” of stored value and create two new terms: “provider of prepaid access” and “seller of prepaid access” (discussed below). A “provider of prepaid access” is “the person with principal oversight and control over one or more prepaid programs. Which person exercises ‘principal oversight and control’ is a matter of facts and circumstances,” including “organizing the prepaid program” and “setting the terms and conditions and determining that the terms have not been exceeded,” “determining the other businesses that will participate in the transaction chain underlying the prepaid access,” and “controlling or directing the appropriate party to initiate, freeze, or terminate prepaid access.” §103.11(uu)(4)(i).
“Seller of Prepaid Access”: A “seller of prepaid access” is “any person that receives funds or the value of funds in exchange for providing prepaid access as part of a prepaid program directly to the person that provided the funds or value, or to a third party as directed by that person.” §103.11(uu)(7).
“Prepaid Program”: A “prepaid program” is “an arrangement under which one or more persons acting together provide(s) a particular form of prepaid access.” An arrangement is not a prepaid program if (A) it is limited to one of the following: (i) payment of benefits or wages through payroll cards; (ii) payment of government benefits such as unemployment through electronic devices; (iii) disbursement of reimbursement funds from pre-tax flexible spending accounts for health care expenses; (iv) an arrangement for prepaid access to funds not to exceed $1,000 maximum value that can be initially loaded on the device, associated with the device at any given time, or that can be withdrawn from the prepaid access device on a single day; or (v) "closed-loop prepaid access," which is “prepaid access to funds or the value of funds that can be used only in transactions involving a defined merchant or location (or a set of locations)"; and (B) it does not permit (i) funds or value to be transmitted internationally; (ii) person-to-person or other transfers between users of a prepaid program; or (iii) (unless it qualifies as closed-loop prepaid access) the ability to load value from other non-depository sources onto the prepaid access. §103.11(uu)(4)(ii).
Providers and sellers of prepaid access under a prepaid program would be subject to obligations including the following:
SARs: To report transactions of at least $2,000 attempted or conducted by, at, or through such provider or seller if it knows, suspects, or has reason to suspect that the transaction: (A) involves illegally derived funds or is intended to conceal illegally derived funds as part of a plan to evade federal law; (B) is designed to evade BSA reporting requirements; (C) serves no business or apparent lawful purpose; or (D) would facilitate criminal activity. Providers and sellers of prepaid access would also be subject to the Currency Transaction Reporting requirements for cash and currency transactions of more than $10,000. §103.20(a).
Record Retention: To maintain transaction records for five years generated in the ordinary course of business by the payment processor or other party that facilitates prepaid-related transactions. These records would include the type, amount, location, and time of the transaction. §103.40
AML Obligations: To maintain policies and procedures to comply with each of the obligations presented above, as well as to verify the identity of a customer of a prepaid program, including name, date of birth, address and identification number, and to retain such information for five years after the termination of the relationship. §103.125
In addition, providers (but not sellers) would be required to register with FinCEN and to identify each prepaid program for which they provide prepaid access. Each prepaid program would be obligated to have a provider of prepaid access registered with FinCEN. §103.41(a)(1).