On November 2, 2011, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued Frequently Asked Questions (FAQs) to provide interpretive guidance for the Prepaid Access Final Rule (Final Rule) (discussed earlier here). The FAQs are intended to respond to the numerous questions that have been lodged at FinCEN since the Final Rule was released on July 29, 2011.
Notably, the FAQs clarified that because a bank is precluded under the Bank Secrecy Act (BSA) from being deemed any category of a Money Services Business (MSB), it cannot be a “provider of prepaid access” subject to the requirements of the Final Rule. Consequently, in those instances where a bank exercises “principal oversight and control” over a prepaid program, no participant is required to register as the provider of prepaid access. However, in such cases the bank is not relieved of its BSA obligations (including with respect to any prepaid program with which the bank is involved) – indeed, a bank must fulfill its BSA obligations irrespective of whether there is a registered provider of prepaid access.
Where a participant is deemed the “provider of prepaid access,” such participant must comply with the Final Rule (i.e., filing suspicious activity reports, collecting and retaining transactional information, and maintaining an AML program). By contrast, a program manager that participates in a prepaid program, but is not deemed the “provider of prepaid access,” has no obligations under the Final Rule.
The FAQs also discuss whether devices sold for future access to products or services such as songs, iTunes, telephone minutes, megabytes, wireless top-up and games are deemed “prepaid access” under a prepaid program subject to the Final Rule. Although many of these products would be deemed prepaid access, the FAQs explained that many such products would likely be excluded by the $2,000 closed loop threshold. Nevertheless, the seller of such devices will be subject to the Final Rule as a “seller of prepaid access” if it both sells in excess of $10,000 in such device to any person on any given day and does not have policies and procedures reasonably adapted to prevent such sales to any one person on any one day. “Sellers of prepaid access” are deemed agent MSBs under the Final Rule and hence do not need to register with FinCEN, but must maintain an anti-money laundering program that includes customer verification, suspicious activity reporting (subject to a $2000 minimum threshold), and record retention.
The complete FAQs are available here.