FinCEN’s Delayed Prepaid Anti-Money Laundering Rules Have Prepaid Card Program Managers, Retailers, and Others Wondering What the Future Holds

by Mercator Advisory Group 0

Last summer, the Financial Crimes Enforcement Network (FinCEN) published proposed rules in the Federal Register to establish rules that would help prevent prepaid cards from being used to launder money. The agency had a variety of provisions in the rules requiring additional record keeping on the part of merchants who sell prepaid cards, limiting the amount of money that could be carried across borders on a prepaid card, and generally covering non-bank entities under provisions of the Bank Secrecy Act. The end comment period on the initial rules was extended from July 28, 2010 to August 27, 2010. Since then, there has been no word on when final regulations might be issued, or if they will be issued at all. According to an article published by Reuters, Senators are pushing for action. All the same,

However, the Credit Card Accountability Responsibility and Disclosure Act of 2009 obliged Treasury to write anti-money laundering rules for the prepaid industry. This task fell upon the department’s Financial Crimes Enforcement Network (FinCEN), which has faltered. The CARD Act’s deadline for the issuing a final rule came and went more than a year ago.

The rules would set legal definitions for prepaid, but would not change the rules on financial institutions. Instead it would focus on those issuers’ distribution partners. Under the proposed rules, retailers need to have effective anti-money laundering programs, file suspicious activity reports when appropriate, and keep records of transactions and customer identification.

One of the issues with this rule is that even though some prepaid cards have been found in connection with criminal investigations, there is no evidence of widespread criminal use of prepaid cards. As the article points out, law enforcement and FinCEN have not provided any information to substantiate the concerns that prepaid cards are a tool of criminals.

These rules will likely affect the industry as a whole, but for now, all the industry can do is watch and wait.

Click here to read the press release and acopy of the rules.

Click here to read PaymentsJournal articles covering this topic.

Click here for a related Mercator publication.