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Fincen must be independent enough to be an honest broker in its rulemaking and enforcement network roles, while remaining responsive to the policy objectives of Treasury and statutory mandates from Congress.
September 25 -
Jennifer Shasky Calvery took the reins at the Financial Crimes Enforcement Network last month, after 15 years at the Justice Department prosecuting money laundering and organized crime.
October 12
As the regulatory evolution of the prepaid industry continues, a new rule for travelers carrying prepaid cards may impose serious limitations on consumers and have unintended negative consequences.
When crossing U.S. borders, travelers must declare if they have cash or monetary instruments with a value exceeding $10,000. Last year, Treasury's Financial Crimes Enforcement Network proposed a new anti-money laundering regulation that would require persons with prepaid cards that have more than $10,000 loaded onto them to declare the cards when crossing a border. (The theory being that the prepaid cards are functionally equivalent to monetary instruments.)
Additionally, it has now been
In our view, this regulatory effort will impose a burdensome and misguided solution that will be ineffective in preventing actual criminal money-laundering activity. This is for several reasons:
Requiring the reporting of a prepaid card at the border doesn't achieve the same thing that reporting true monetary instruments does. This is because funds tied to prepaid cards, unlike traditional monetary instruments (such as checks, traveler's checks, money orders or cash), are not physically on the cards. Prepaid cards are devices that provide access to funds held at a bank or financial institution, very similar to debit cards. In addition, true monetary instruments are anonymous and transferable, while users of payroll and general purpose reloadable prepaid cards have their identities collected and verified.
Also, like debit cards, the amount of funds in a prepaid account can be increased or decreased without the cardholder even being aware. For example, imagine a person with a bank account who has a debit card. This person may not know exactly when her wages will be direct deposited into her bank account, and therefore be accessible via the debit card. This is the same for a prepaid card; it is easily possible for a person to board a flight with $500 on a prepaid card, and while in flight, have the card get automatically loaded with government benefits or payroll, raising the balance. Possession of a card alone does not control the funds.
It is also important to remember that consumers who travel with credit or debit cards have no obligation to report their bank account balances or the size of their credit lines. In fact, such information is strictly protected from government scrutiny under the Right to Financial Privacy Act. Certainly consumers who rely on prepaid cards to access financial services should be entitled to the same rights. Additionally, a comparison of bank debit cards and GPR prepaid cards indicates that, from a functional perspective, there is little basis to impose disparate treatment on prepaid cardholders.
Indeed, treating prepaid cardholders inequitably versus those with credit cards and bank accounts is inherently unfair, intimidating and could even result in forcing cardholders away from the safer and more secure prepaid card products and back to riskier and anonymous payment products , which are harder to track and monitor.
Aside from the unnecessarily burdensome and invasive process for consumers, the steps of reporting and reading prepaid cards at U.S. borders would, in our view, be ineffective in preventing financial crimes. For example, in the case of reloadable prepaid cards that require ID verification, criminals could easily and truthfully decline to report a prepaid card with only $1,000 loaded onto it at the border, and then thereafter, load additional funds onto the card, in the same way a bank account can receive additional funds remotely. Even some law enforcement representatives agree that this is an obvious loophole.
Because this legislation could not prevent criminals from moving funds across the border, while at the same time violating privacy rights and likely ensnaring innocent, law-abiding citizens who use prepaid cards as their primary tools to budget and manage their finances, we urge reconsideration of this flawed proposed rule.
Judith Rinearson is a partner at Bryan Cave LLP's New York City offices, and chairman of the Government Relations Working Group of the
