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The Green Sheet Online Edition

November 26, 2012 • Issue 12:11:02

FinCEN pushes for cross-border prepaid enforcement

sellingprepaidA proposed new rule by the Financial Crimes Enforcement Network (FinCEN) would require travelers to declare the balances on their prepaid cards at border crossings, according to the Federal Reserve Bank of Atlanta. The Oct. 29, 2012, post on the Atlanta Fed's Portals and Rails blog said FinCEN issued a Notice of Proposed Rule Making (NPRM) to expand the scope of its cross-border reporting requirements to include "tangible prepaid access devices."

To implement the new rule, the Department of Homeland Security is working on a hand-held card reader that would apparently be used by border agents to discern the balances on prepaid cards.

The Atlanta Fed blog post, written by Cynthia Merritt, Assistant Director of the Retail Payments Risk Forum, said current law directs travelers to report cash and other monetary instruments that in the aggregate exceed $10,000. "The premise behind this requirement is that it prevents money laundering and criminal-terrorist financing by enabling the traceability of currency and its equivalents, and hopefully eliminating anonymous flows of money into and out of the United States," Merritt added.

According to Homeland Security's reply to FinCEN's NPRM, the proposed new rule is not a divergence from the agency's enforcement challenges concerning such monetary instruments as checks, money orders and traveler's checks, Merritt said.

Cash and carry

Research conducted by U.S. and Mexican officials, and entitled Bi-National Criminal Proceeds Study, said that while the potential for stored-value and prepaid cards as money laundering tools does exist, cash remains the preferred mode for illicit transport of funds across the border.

The study said "an extraordinary amount of cash – estimates range from $19 to $29 billion – travels annually from the United States into Mexico to fuel the operations of the increasingly violent and brazen criminal enterprises involved in drug trafficking."

Other than cash, Mexican criminals use the same basic methods to transport funds across the border as do U.S. criminal organizations, namely via wire transfers and stored-value/prepaid cards. "The potential use of stored-value cards for illicit purposes has been noted by law enforcement officials," the report said. "Without proper safeguards, these new payment methods can be abused for illicit purposes. What is important here is to deter the use of unlicensed and unregistered financial services providers from abusing the stored-value system."

Card patrol at the border

In response to FinCEN's NPRM, the U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) department said it is working with the U.S. Customs and Border Protection agency "to ensure the traveling public is provided the necessary information to make an accurate declaration of the amount of cash and monetary instruments that they are bringing into or taking out of the U.S."

The HSI reported it is working with the DHS to develop a hand-held card reader "with features that will, among other things, allow law enforcement to quickly and accurately differentiate between a traveler's debit, credit and prepaid products."

The HSI said the reader is in an advanced stage of development and will enhance ICE's ability to enforce the Currency and Monetary Instrument Reporting requirement as it pertains to prepaid cards, and "in a manner which imposes minimal to no inconvenience to individuals and complies with U.S. laws, regulations and procedures."

It is HSI's belief that the popularity of prepaid cards has created a "parallel market where closed-loop cards [gift cards] can be traded for other cards or cash." HSI said government benefit cards should not be inspected, but that payroll cards, for example, should be. "Excluding limited-value [gift cards] and payroll cards increases the possibility that these cards will continue to be abused," the HSI said. "Law enforcement has already documented large-scale misuse of payroll cards by both sophisticated and unsophisticated criminal organizations."

Prepaid cards are also dangerous because of "simplified" know your customer processes, according to the HSI. "There is no question that a financial institution's relationship with, and obligations to, prepaid customers are significantly and substantially different from those they have with traditional customers," the agency said.

The HSI recommends that people declare at the border "cell phones, key fobs or other tangible objects when these objects are associated with a prepaid account." The HSI made this determination as a result of its conviction that enforcement of prepaid regulations at border crossings concerns "the prepaid nature and liquidity of the product, rather than the delivery system."

Plastic contraband

But in the Atlanta Fed's blog, Merritt said law enforcement may not understand the nature of the prepaid card industry. "When law enforcement takes possession of a cash or monetary instrument at the border, they are effectively holding the funds, but not so with a prepaid card or other device," she wrote. "Holding the card does not provide access to the funds."

Additionally, criminals could easily evade the $10,000 limit law, according to Merritt. She cited the Network Branded Prepaid Card Association as saying that a card loaded with $1,000 could be reported at the border, and then hours later be reloaded at another location to boost the balance on the card to $15,000. end of article

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