Last week it was brought to my attention our bank is considering selling Stored Value Cards………but only to our existing customers (no sales to non-customers). These will obviously be opened ended cards. At this point I am unaware if these cards will be re-loadable or have a dollar limit associated with them.

Since we would only be selling these to existing customer who are being screened at account opening with CIP, ChexSystes, OFAC, Credit Bureau reports, etc.; what additional BSA risks are we opening up for ourselves.

Any guidance (or web links) regarding this issue would be really helpful to me.

I think you have found an area where the law "lags" technology. While there are at least record retention requirements regarding sales of official checks, there is no BSA or AML related regulation for banks dealing with the sale of stored value cards, a much more robust and sophisticated way to move money.

If you search the new examination procedures for "stored value" you will find several references. However, there is little or no guidance there, just acknowledgements that this version of "E-cash" can be used to launder money.

Basic suggestions would be along the lines that they only be:

1) sold to existing customers (perhaps those that have banked with your institution for a period of time) and
2) allowed to carry balances reflective of "consumer" activity.

As a part of your new product evaluation it might also be helpful to know if this is intended as a product that would "keep" customers or one that would "attract" customers. If it's the latter, are they customers that would alter your risk profile?

Some of the mitigating factors we noted in our risk assessment include: cards are not reloadable, low cash value (maximum $1,000), significant fees will quickly reduce value if not used promptly, cannot be used at an ATM to obtain cash.

I noted an interesting article yesterday regarding prepaid cards @ http://moneycentral.msn.com/content/Banking/P137668.asp

Our institution is only selling them in partnership with the check printer Deluxe. Our bank's web site has a link to the DeluxeCard on-line ordering system. The on-line process is quick and simple. We decided this was the best way due to your concerns and the fact that there may not be much in-branch demand. Then we would have inventory to worry about monitoring.

In the Chicago market, this is handled a number of ways. The Simon shopping mall group sells them right in the customer service area for a $2.00 fee. I have competing banks a few blocks in just about any direction selling them. It seems to be split pretty evenly........some will only sell to bank customers, others will sell to non-customers too. The fees range from $3.95 to $7.95, no matter what the amount of the card is. I'm not sure whether these banks selling to non-customers are running OFAC checks and the like. It is a very interesting situation though.

After reading the article that BrendaC noted, I can only wonder when there will be new or revised regulations dealing with the concerns raised. Maybe by next Christmas season...?

That's a good article, but I am surprised at the reference to fraud detection systems as being relevant to mitigating the money laundering risks. One of the best panels at the ABA's MLES this year dealt with credit cards. In that discussion it was generally acknowledged that the anti-fraud systems used by credit card issuers cannot identify money laundering. The launderer's use of the card to purchase goods and services appears to be normal.

If a would-be terrorist is handed 10 stored value cards issued by 10 different banks with a balance of $1,000 on each shortly after he clears customs, he's in business. Even after the fact, his movements and actions will be far more difficult to track than those of the 9/11 terrorists.

I was the originator of this "stored value" card issue and Michele was very nice to post this in the Threads on my behalf. I wanted to thank all who left responses as well as the article. Thank you very much!!!

Can I ask a follow-up question? I was reading through previous posts and I believe if we sell Gift Checks to non-customers we should do an OFAC check, correct?
Should we also check them against the 314a list?
Thank you in advance for any guidance you can give.

This thread doesn't provide any guidance in regard to the sale of checks.

My suggestion is that you should follow the same procedures for sales of gift checks that you do for official checks. If you review the OFAC list for offiical check sales, you will review it for the sale of gift checks. In addition, if $3,000 or more in currency is involved, these sales will be reviewed when you process your 314(a) queries.

There is an excellent, detailed discussion of stored value cards beginning on page 20 (document, not PDF) of the recently published U.S. Money Laundering Threat Assessment. The Assessment focuses more on their sale by MSBs than banks, but this portion is a generic analysis.

Ken,

Are you saying that you would consider these cards monetary instuments that must be logged for $3,000+ cash purchases? (I haven't been able to find a definitive answer on this anywhere.)

Here's a definitive answer, and it's been given here several times before: The sale or recharging of stored value cards does not have to be "logged" for the $3,000 cash sales recordkeeping rule. That rule specifically requires the recordkeeping only for the sales of bank checks or drafts, cashier's checks, money orders and traveler's checks (see 31 CFR 103.29(a)).

Of course, the rule could be amended. If it is, you'll hear about here, on BankersOnline.com.

So we don't have to look at stored value card sales for 314(a) requests, correct?

The response at #485058 mentioning 314(a) was to a question about gift checks - it was off the topic.

Currently, there are no specific record retention or identification requirements directed at stored value cards. The instructions to 314(a) searches do not mention a need to review sales of stored value cards. However, stored value cards are subject to the same OFAC vagaries as every other product or service you offer; "checking the list" is not specifically required, it's a risk based decision.

Beyond checking the OFAC list, any requirements you impose on the sale of stored value cards would be from an abundance of caution. Voluntarily treating these sales the way you treat monetary instrument sales would make sense. If it's a "reloadable" card or the maximum dollar amount you offer is significant, voluntarily treating it as you treat an "account" for CIP purposes would also make sense.