g: 9 Posted By: BenH
Views: 761 Replies: 9 (TL : DR - My interpretation of the federal regulations and how/why retailers implement policies relating to GC purchase. This isn't a skimmer though...if you are interested, read it all. UPDATED DISCLAIMER: This is meant to be an informational post to understand things on the back-end a bit better. Even with full understanding it is unlikely to help you net a higher spend. Individual retailers have different policies and those policies are often misunderstood or unevenly enforced. Thread title updated to clarify).After months of being told different stories by various employees of retail stores while trying to purchase GCs for credit, I was beginning to get a bit fed up. After being denied for 2x$500 cards at my one remaining "safe" WG store, I had a face-to-face with the store manager regarding their policies. This manager, a suited gentleman in his mid 40's (first time I'd seen a WG manager in a suit) spoke with me candidly for about 15-20 minutes. He informed me that he was the "community leader" for multiple WG stores in the area. He began by espousing that the $500 limit was some type of law. I challenged him on this, and he became a bit flustered. To his credit, he took the time to research with me the information he had on hand. The manager continued to claim that there were various laws that governed their policies, but conceded that the limits seemed somewhat imposed internally and he couldn't tell me precisely what laws they were subject to. I left without a complete understanding of why WG implements the policy they do, but the desire to know more. Before I discuss exactly what he told me, it is important to understand (or at least try to understand...) FinCEN. FinCEN is the Financial Crimes Enforcement Network, a division of the US Treasury department. FinCEN are the ones that instituted the BSA (Bank Secrecy Act) and the KYC (Know Your Customer) initiatives that many of us are familiar with. Their main purpose - track money exchanges to help combat terrorism and money laundering.So what does this mean to the FWF community and those manufacturing spend (churners) specifically? Well, many of our activities, while legal, can appear suspicious in certain circumstances - not unlike those of criminals.FinCEN issued a rule in July of 2011, called the "Prepaid Access Rule" to which they issued a final amendment in September 2011. The dates for compliance with all of these rules was apparently January 2012. These rules and regulations have been around for a while (over a year) and yet it doesn't seem that all organizations are aware of what it actually means or how to implement it. It seems, like in many cases with newer laws, that those subject to them are going to be as careful as possible until they are more fully understood.There is a lot of data on FinCEN's "Rule". IANAL - and wading through it is very difficult for one not familiar with how to interpret U.S.C. Laws get amended and repealed and it is difficult to know what the most up-to-date information is. I am sharing my initial research here for discussion by the community. This is not a thread about how-to-game the system. Nor is this thread meant to be waived over the heads of retailers who don't seem to know the laws themselves. This is meant to educate us on what the actual laws say and to understand how and why certain retailers may be implementing certain policies.It is hard to know where to start, but I'm going to use this July 2011 news brief from FinCEN titled "FinCEN Issues Prepaid Access Final Rule Balancing the Needs of Law Enforcement and Industry.". The brief references two issues of the Federal Register defines much of the terminology being used.Important Terminology:MSB (Money Services Business) - This is a pretty obtuse term used throughout the various documentation. This linked definition is the best, most concise I can find. Basically, if you issue cash, check, money orders, stored value (prepaid), etc in the amounts greater than $1000/day in any one category you would be considered an MSB (banks and SEC/Commodoties brokers excluded). You can search the database of all registered MSBs here. However, not all MSBs must register with FinCEN however.For example, if I search all "Providers of prepaid access" in Chicago, IL - I get only two hits:
Order Express, INC - a company that appears to do money transfer to Latin America
You Too, INC - A restaurant company - seemingly listed because they provide gift cards to their restaurants.
If I search "Sellers of prepaid access" in the same area, I get dozens of hits, most of which are Currency Exchange locations.So, why aren't all the Supermarkets and Drugstores that sell prepaid cards listed here?Well, according to the news brief above:FinCEN Brief said: Sellers are retailers of prepaid access devices. While sellers are not required to register with FinCEN (just as no MSB that operates solely as an agent for another MSB is required to register),...
Therefore while both Sellers and Providers could be considered MSBs, apparently sellers don't have to register with FinCEN. But...
FinCEN Brief said: ...they must maintain an anti-money laundering program if the prepaid access product offered is covered by the rule
What prepaid access products are covered by the rule?
Well this FAQ helps (along with the previously linked info) define them. Basically, they seem to include all prepaid access instruments with these exclusions:
Excludes government funded and pre-tax flexible spending for health and dependent care funded prepaid access programs. - Relatively self explanatory
Exempts closed loop prepaid access products sold in amounts of $2,000 or less - A closed loop product is one that can be used at a particular store (or chain) only. So, if Toys R Us issues gift cards in amounts less than $2,000 they would be exempt from the rules that govern prepaid access programs.
Exempts from the rule prepaid access products of $1,000 or less and payroll products if they cannot be used internationally, do not permit transfers among users, and cannot be reloaded from a non-depository source. - This would seemingly exclude all the reloadable GCs that we are familiar with. The key here seems to be the "non-depository source." A depository source would basically be a card that is reloaded at your bank, or directly via ACH, etc. The FAQ states: "Re-loads that are not made through a depository institution would include but are not limited to, reloads through retail store transactions (e.g., cash, check or credit card), wire transfers originating at money services businesses, or checks payable to a payee other than the provider of prepaid access." Therefore, all retail loads are not exempt because they are "non-depository." The exception here would seem to be debit card. Yes - it may actually be reasonable for a retail establishement to deny the use of cash and only accept debit because the source is instantly verifiable.
The brief continues...
FinCEN Brief said: ...and can be used without a later activation process that includes customer identification;
The above is true of most pre-paid cards you purchase. You don't need to identify yourself to use them.
FinCEN Brief said: ...or if a retailer sells prepaid access products (regardless of whether offered under a prepaid program) providing a portal to funds that exceed $10,000 to any person during any one day.
I'm not fully clear on this last rule. But, presumably, if I can buy a re-loadable card that will allow me to load over $10,000 on it (regardless of when I load, just that it could potentially provide access to $10,000 in funds) then they are subject to the above regulations.
So, are these retail locations (Supermarkets, Pharmacies, etc) considered "sellers" of prepaid access?
A very insightful administrative ruling, FIN-2012-R003 from FinCEN discusses the distinction further. It is defnitely worth a read. One interesting snippet:
FIN-2012-R003 said: If the Company sells a prepaid product from a defined MSB prepaid program that can be used before verification of customer identification, the Company would be a seller of prepaid access. The company also would be a seller of prepaid access if it sells any type of prepaid access, regardless of whether it is from a defined MSB prepaid access program or from another prepaid access arrangement, without having implemented policies and procedures reasonably adapted to prevent the sale of such prepaid access to funds that exceed $10,000 to any person during any one day. However, if the Companys prepaid access sales only involve products other than prepaid access products from a defined MSB prepaid program that provides access to funds prior to customer identification, and the Company has implemented policies and procedures reasonably adapted to prevent the sale of prepaid products that provide access to more than $10,000 to any person during any one day, then the Company would not be a seller of prepaid access.
The first sentence seems to clearly indicate that if you sell a prepaid product that can be used without verification you are a seller. It seems that the latter half states that if you are only selling products that require customer verification, and have policies that limit access to less than $10,000 a day you are exempt from "seller" status. For example, if I only sell a pre-paid card that requires you to register it with your name and has a maximum balance of $8,000 - then I might be excluded from being a seller.
"Sellers" and "Agents" or "Agent MSBs" are synonymous (based on my research)
It seems to break down like this:
A bank, like BankCorp, issues prepaid cards for a provider network, like InComm (Vanilla). The bank (being a bank) is not an MSB (although it has its own sets of requirements, e.g. BSA).
InComm is a marketer/distributor and while I don't actually see them listed on the MSB registration page, ITC Financial Licenses and IH Financial Licenses, Inc. are (see fine print here for relationship) are listed.
These MSBs work with retailers as their "agents" or "sellers".
Blackhawk Network/GiftCardMall.com is another example of the relationship between these MSBs and their agent retail locations.
An organization doesn't need to register if it strictly serves as an agent for another MSB. However, the parent MSB may require its agents to comply with certain policies. According to the FAQ referenced above:
FinCEN FAQ said: Sellers of prepaid access will need to develop and implement an effective AML program, report suspicious activity, and comply with recordkeeping requirements related to customer identifying information and transactional data. Sellers, as agent MSBs, will not have to register with FinCEN as MSBs.
In summary, it would seem that all of these retail locations are sellers/agents and, while they don't need to register, they still must comply with certain reporting rules and maintain a level of internal compliance. This compliance was mandatory as of March 31, 2012.So what/when does a seller need to file and how do they do it?Well previously they were done with the following two forms:104 - CTR - Currency Transaction Report - "This Currency Transaction Report (CTR) should NOT be filed for suspicious transactions involving $10,000 or less in currency"109 - SAR - Suspicious Activity Report by MSB - "provides complete protection from civil liability for all reports of suspicious transactions made to appropriate authorities" and agents who report this activity "may not notify any person involved in the transaction that the transaction has been reported." Additionally, "Any transaction conducted or attempted by, at, or through a money services business involving or aggregating funds or other assets of at least $2,000" - What is interesting to note is that there is no defined time period for the aggregate purchases and the form seems to indicate that it can span any length of time.As of April 2012 however it seems these forms are deprecated and all filing is done electronically here. It appears however that these forms are still used to collect information at P.O.S and can then be e-filed.Ok - so we are know familiar with a bunch of this terminology and some of these procedures. But, the real questions still remain:
Is it legal to buy/sell prepaid for credit?
What is the maximum amount of prepaid I can buy/sell?
#1 - I can't find anything that discusses the tender in which you use to purchase the cards (other than the non-depository exclusions listed previously).
From a terrorism/money laundering perspective, I don't think it matters to the government. Money launderers aren't looking to charge a bunch to a credit card - they already have the money, and they are looking to launder it.Therefore, I believe the policy to sell or not to sell for credit is strictly a store policy. This policy would most likely be in place to protect the store from "shrinkage" - basically theft/fraud/loss with invalid/stolen cards. It is quite possible that the prepaid provider networks that work with the store help in setting this policy. The question here is, if I buy with stolen/invalid cards, who pays? The provider network or the store? It is also possible that there are local state or city laws that set these limits with credit in an attempt to curb theft. That is a whole other topic - but at this point, I am unaware of any laws (or even concrete provider/seller policy) that restricts credit usage.#2 - Here too, there doesn't appear to be a limit, legally, as to what can be transacted. It seems that staying within certain limits only means that an entity may or may not qualify as a provider or seller for purposes of reporting and compliance. What is important is that the MSBs, and their agents, enact viable Anti Money Laundering (AML) policies, file Suspicious Activity Reports (SAR), and file Currency Transaction Reports (CTR) when applicable.I'm currently under the belief that the restrictions put in place by various retail establishments have been enacted alongside guidance of their MSBs to meet the following criteria:
A workable AML policy - This is not clearly defined by FinCEN, so I believe many err on the side of caution. They say "If we only allow $1000/day/person" that is well under any suspicious limits - so that's a good policy.
Mitigate aggregate spending in excess of $10K - An MSB or its agents would have to file a CTR if the aggregate spending by a person was over $10,000/day. If every WG allowed me to purchase $2000/day, I could easily hit up 6 of them in a matter of hours. This would mean that the MSB (through its agents) sold me $12,000 in a day. Since there is no easy way for them to track this, they can't very well file a CTR. Therefore, as part of their AML policy and to mitigate any CTR filings, they keep the limit low enough that it would be unlikely for me to reach it.
As for WG's policy? According to their internal handbook which the store manager looked at online with me. The policy is written such that even after he was looking at it for 10 minutes he couldn't 100% interpret it. At its strictest interpretation is seems they have a $500/day policy for all GC purchases. At its loosest, its $500/day in each type of card (meaning from each provider network, or parent MSB). It also doesn't matter how you pay - cash or credit - the limit is still there. Again, this is likely a very tight policy meant to limit the liability of both WG and their provider networks.I hope this was helpful to some of you in understanding the basics. I don't claim to have it all correct - but I think I have a pretty good start. This is a work in progress, and I'll try to update this once I finish looking at some more of the documentation I've found. I also encourage you all to research and contribute here. If we are lucky we have some people in the legal profession, or those that work with some of the companies involved and can give us some better insight.Here are some other references I found while researching. Some of them give pretty nice synopsis of what I discussed above, but I wasn't able to find them until I actually knew what I was looking for:FinCEN Webcast on the final rule (found this after I wrote this - *great* primer):
http://treas.yorkcast.com/webcast/Viewer/?peid=65574c79c23846088...FinCEN MSB Money Laundering Prevention Guide
http://www.fincen.gov/statutes_regs/bsa/regs_proposal_comment.ht...Interpretations of the Rule from various law firms:
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