Part III of the Analysis of the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017

As we recently blogged, Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017. Although most sections of the bill address federal criminal money laundering statutes, the proposed Section 13, relating to prepaid access devices, addresses an area governed by the Department of Treasury and FinCEN.

Section 13 of the bill, which seeks to amend 18 U.S.C. § 5312(a), addresses anti-money laundering reporting requirements regarding “prepaid access devices.” The most immediate impact of these changes would be to require cross-border reporting of funds accessible through products covered by the expanded definition of “prepaid access devices” on the Report of International Transportation of Currency or Monetary Instruments (“CMIR”). Under 31 U.S.C. §5316, a person or her agent or bailee must file a CMIR, otherwise known as FinCEN Form 105, when the person knowingly transports more than $10,000 in “monetary instruments” into or out of the United States.

The proposed amendment has three significant elements:

• It would expand the definition of “financial institution” under the Bank Secrecy Act to include issuers, redeemers and cashiers of “prepaid access devices,” digital currency,” or “any digital exchanger or tumbler of digital currency.”
• The bill would greatly expand the definition of “prepaid access device” in the statute. This expanded language includes a very broad catchall provision, sweeping in any “other instrument, that provides a portal to funds or the value of funds that have been paid in advance and can be retrievable and transferable at some point in the future,” likely including digital currency.
• The bill would define all items covered by the expanded definition of “prepaid access device” as “monetary instruments.”

There is some Congressional history to this proposal. A 2013 Report by the U.S. Senate Caucus on International Narcotics Control, titled “The Buck Stops Here: Improving U.S. Anti-money Laundering Practices,” states that Caucus Co-Chairs Feinstein and Grassley and Caucus Member Sheldon Whitehouse had written a letter in early 2011 to Treasury Secretary Geithner “urging the Administration to quickly propose and finalize a rule making stored value subject to cross-border reporting requirements.” FinCEN issued a notice of proposed rulemaking in October 2011 (“2011 NPR”) that would have added “tangible prepaid access devices” (such as stored value cards) to the definition of monetary instruments. The 2011 NPR received significant commentary from industry and a final rule has not been issued. According to the docket folder in Regulations.gov, FinCEN is planning to release a supplemental NPR in November 2017. It is worth noting that the scope of “tangible prepaid access devices” in the 2011 NPR was much narrower than the definition of “prepaid access devices” in the current bill.

Section 13 likely will need significant reworking if the bill advances. The drafters do not appear to understand how reloadable prepaid accounts work and the expanded definitions may not be workable in their current form. Among other issues, reloadable products can evade having funds in the account at the time of a border crossing. The broad references to digital currency also will require review. There is no question that the prepaid industry will have to work hard to educate lawmakers, similar to their ongoing work with the CFPB on the recent prepaid account final rule.