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Stored Value Cards
May have money-laundering reporting requirements
FinCEN is making a report to Congress on the status of several hanging-fire items. Among them is the interesting proposal regarding stored value cards.
The proposal's plan is to make issuers of stored-value products register with the government, similar to the requirements now in place for check cashers and money transmitters. The proposal then goes on to suggest requirement of reporting international funds transfers above $750 and suspicious transactions above $500.
Check cashers and money transmitters are vigorously opposed to the rules, as they would cost them "millions of dollars" to comply.
According to an attorney representing large money transmitters such as Western Union Financial Services and Money-Gram Payment Systems Inc., filing what they estimate would be 800,000 forms annually on just overseas wire transfers above $750 alone would cost those industries almost $9 million.
CyberCash Inc., Mondex, the Smart Card Forum and others in the stored-value business also protest the proposals. The perception of stored value cards being available from potential sellers such as restaurants and retail outlets could be seriously restricted because the sellers would not want to handle the necessary paperwork, according to a spokesperson for several stored-value providers. One attorney from that group said the proposal could "…significantly hamper the development of these new products."
Even some of the larger banks making inroads on the stored value card market do not like the idea of the new requirements, nor do they see the necessity of them. One large bank representative, John H. Huffstutler, senior vice president of Bank of America, San Francisco, according to the American Banker, wrote, "Stored-value cards do not constitute a money-laundering problem in the United States, and it is not clear that they ever will."
Most banks, on the other hand, feel the proposal helps to level part of the playing field. Treasury has been battling an ever increasing volume of activity in money laundering, even in light of the fact that the financial industry filed over 11 million Currency Transaction Reports last year. Many financial institutions feel that these proposals will force those developing new products to consider law enforcement concerns, and may assist in the anti-money laundering effort. The proposal exempts banks from any additional reporting.
Stored Value's "Hidden" Problem
One of the requirements for the financial industry in international payments and overseas wire transfers is the very close monitoring of the OFAC list to be sure none of the funds are going to countries, businesses or individuals on the list of "forbidden" recipients. This restriction will be difficult, if not impossible, to enforce in the sphere of stored value cards being transported off-shore. Congress has to take into consideration not only the reporting in this area, but also the training and communication necessary.
Copyright © 1998 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 8, No. 3, 3/98
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