Recently the Financial Crimes EnforcementNetwork (FinCEN) released its final rules on Bank Secrecy ActRegulations relating to prepaid access. While the final rules werebetter than what they had originally proposed, the commentary thataccompanied the rules revealed a disturbing lack of knowledgearound the prepaid industry. The tone of the debate around moneylaundering and prepaid also reveals a troubling lack oftransparency on the part of law enforcement officials.
The commentary to the rules states that law enforcement’s concern”comes in part due to the ease with which prepaid access can beobtained, the high velocity of money that potentially can be movedwith prepaid access, and the anonymous use of some, primarilyclosed loop prepaid access.” Ease of access is a strange thing tocause concern. What justification is there for making prepaid cardshard to get? For criminals, any interaction with the largerfinancial system is an opportunity to be caught, so they are notlooking to reduce their liquidity while at the same time raisingtheir profile. Second, the concern about high velocity ignores theload limits, spending caps, and monitors that prepaid card programshave in place. It is akin to hysterical politicians claiming thatsomeone can load “millions of dollars” onto a prepaid card and movethose funds undetected. The reality is, they can’t. Third, a moneylaunderer wants to move cash, not the ability to buy doughnuts,books, or shoes. The closed-loop concern is largely overblown aswell.
Further comments reveal an additional lack of understanding ofprepaid. FinCEN writes that it believes “the average lifespan of aprepaid card to be three years.” I am sure that nearly everyprogram manager in America read this and said “in what alternateuniverse?” Churn is a huge problem for general purpose reloadablecard managers, with an average lifespan in many programs of nine to18 months. On the closed-loop side, retailers don’t want theircards hanging out for three years, they want customers back intheir stores. Based on other data that Mercator has collected frommerchants, many report that a high percentage of the gift cardsthey sell in the holiday season are redeemed in the firstquarter.
Yet, FinCEN and law enforcement agencies refuse to provide anybasis for their claims and concerns. They refuse to provideexamples of cases they have solved where prepaid has been a majorfactor in crimes. It is not clear whether the concerns are foundedon some kernel of truth or paranoid fantasies about how they mighttry to use them if they were criminals themselves. Law enforcementshould be sharing this information with the industry so that theindustry participants can design their programs and processes tohelp prevent these kinds of problems in the first place.