New AML Rules for Retail Sellers of Pre-paid Gift Cards
Sellers of "pre-paid access" products over set dollar amounts will be required to comply with regulations
By: Cecilia L. Gardner, President and CEO
The same agency (FinCEN) that brought you the USA PATRIOT Act rules requiring anti-money laundering programs for dealers in precious metals, stones and jewels, has recently passed rules that require certain providers and sellers of pre-paid access products: defined as plastic gift card, mobile phones, key fobs and/ or any other mechanism that provides a portal to funds that have been paid for in advance and are retrievable through an electronic device such as a plastic gift card and transferable. Compliance requires the seller or provider to fully identify the customers who buy the product, institute an AML program and policy, report suspicious activity and comply with record keeping requirements for verified customer identification data and transactional data. If such sellers are also dealers in precious metals, stones or jewels under the USA PATRIOT Act, these requirements would be added to their already established AML program.
What are the goals of the new rules?
FinCEN has determined that the increasing use of these pre-paid access products presented a risk for money laundering and terrorist financing. These instruments will now be subject to rules that would gather the information needed to attack money laundering, terrorist financing and other illicit transactions using these devices. FinCEN claims that their approach accomplishes these goals while “preserving innovation and the many legitimate uses and societal benefits offered by pre-paid access.”
To whom do these new rules apply?
The new rules apply to two categories of entities that provide or sell these prepaid access products (gift cards, etc.) – those that “provide” these products, such as banks or other financial institutions, and those that sell these products such as retailers to consumers. If you are a provider, you are required to register with FinCEN, institute an AML program, gather and retain customer verified identification information and to report any suspicious activity. Sellers do not have to register with FinCEN.
How does a seller comply?
If you are a seller at retail of these pre-paid access products, you must collect and verify customer identification information, institute an AML program (if you do not already have a program in place), report suspicious activity (using an IRS Suspicious Activity Report), and comply with record keeping activity related to your customer identification and transaction data.
Are there exemptions?
Yes, there are certain exemptions: If a pre-paid access product is a “closed loop” – meaning it provides access to $2000 or less and can only be used for goods or services from a specific retailer or retail chain, these rules do not apply. But if the closed loop pre-paid access product is for more than $2000, even if it is “closed loop” – then you must follow the rules. If your pre-paid access is $1000 or less, even if is not closed loop – you will not have to comply, unless the product can be used internationally or can be re-loaded from a non-depository source. If a retailer sells a pre-paid access product providing access to $10,000 or more to any person during one day, they will have to comply.
What is the compliance deadline?
These rules go into effect on March 31.
If you have questions whether you need to comply, or how to go about complying, please contact the JVC by e-mail: email@example.com or at 212-997-2002.