31 March 2015

US regulators turn attention to pre-paid money laundering threat

23 June 2010  |  10224 views  |  0 Security/Risk

In a bid to tackle money laundering and terrorist financing, the US Financial Crimes Enforcement Network (FinCEN) has proposed new rules to tighten regulatory control of non-bank pre-paid devices.

The government agency proposal would make non-bank providers of pre-paid devices such as plastic cards, mobile phones, electronic serial numbers and key fobs, subject to comprehensive Bank Secrecy Act (BSA) regulations similar to depository institutions.

The changes would "impose obligations on the party within any given pre-paid access transaction chain with predominant oversight and control, as well as others who might be in a position to provide meaningful information to regulators and law enforcement, such as prepaid access sellers".

The move is designed to help regulators catch up with the rapid and extensive innovation seen in pre-paid services over the last 10 years, and the medium's increasing popularity.

If the current "gaps" are not filled, the anonymity and ease of access of pre-paid devices opens them up money laundering and terrorist financing, says the FinCEN.

The proposals would see the renaming of "stored value" as "prepaid access" to allow for future changes in technology and pre-paid devices. The terms "issuer" and "redeemer" would also be dumped in favour of "provider" and "seller".

Registration requirements would be placed on providers of pre-paid access and suspicious activity reporting, customer information recordkeeping and new transactional record-keeping requirements on both providers and sellers of prepaid access.

The proposal has been submitted to the Federal Register and is open for comment for 30 days.

The move comes as Ana Cavazos-Wright, a senior payments risk analyst in the retail payments risk forum at the Atlanta Fed, warns on the money laundering threat posed by pre-paid mobile payments.

Cavazos-Wright highlights the emergence of digital value smurfing, where crooks break down large sums of money before moving it electronically without triggering currency reporting requirements.

If smurfers are able to transfer stored value funds from one mobile phone to another or to other devices without using a bank for the transfer, they would bypass financial reporting requirements and hamper monitoring and detection efforts, she warns.

However, some vendors are improving their security and a government bill has also recently been introduced that would institute an identification requirement for the purchase of pre-paid mobile devices in a bid to close this anonymity gap.

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