The Prepaid Press - March 15, 2008 - (Page 6)

PREPAID BUSINESS March 15 · 2008 - 6 5 MINUTES WITH Terry Maher, Counsel to NBPCA Interviewed by Gene Retske In 2006, a federal joint task force of sixteen federal agencies issued a report on money laundering. Listed among the thirteen laundering methods of greatest concern were stored value cards. A committee, established by the Network Branded Prepaid Card Association, headed by attorney Terry Maher, recently issued a series of recommendations to its members on how to reduce the risk for prepaid cards. (See “NBPCA Offers Recommendations to Fight Money Laundering” in this issue). We spoke to Terry, who is a partner in the Baird Holm LLP law firm of Omaha. TM: For one, by Visa and MasterCard rules, the banks have to be involved. There might be some smaller banks that aren’t monitoring their program managers very well, but the banks, for the most part, understand the risks and are doing what they can to monitor their program managers. This document was put out there to help assist not only the issuers, but also the program managers, to understand what things they should be looking for and what systems they should have in place to reduce the chance that prepaid cards are used for money laundering. GR: Can you give me an example of what might be a good practice for a program manager? TM: They want to make sure that they know who they are doing business with. One of the main concerns that the threat assessment noted was extensive non-bank third party involvement in many prepaid card programs, like open loop cards, that could be sold at retail. The leading practices document has a section to help either the issuer or the program manager to understand what kind of due diligence they should be doing on their third party agents. GR: The document also addresses activity reports and ongoing monitoring processes. TM: Typically, the Bank Secrecy Act, as amended by the Patriot Act, requires financial institutions and money service businesses – ispolicy is adequate internal control to detect potential money laundering. And, if it is detected, under the laws, you have an obligation to file a Suspicious Activity Report, so that this activity can be monitored and tracked by the federal government. They consider SARs, as they are called, to be a critical element in helping iden- “Typically, the Bank Secrecy Act, as amended by the Patriot Act, requires financial institutions and money service businesses – issuers, sellers and redeemers of stored value – to have anti-money laundering written compliance policies in place.” tify potential criminal activity. GR: What does the merchant who sells cards have to do to be in compliance? TM: There are three types of activities that we are going to be seeing at the point of sale. One is the sale of an anonymous gift card product – a Visa, AMEX, MasterCard, Discover product. At the retail level, the retailer and the clerk need to be aware of situations that might indicate the product is being used for money laundering - somebody who is coming in and continually buying cards in bulk, using different names, paying with large quantities of cash. GR: What other types of activities might trigger a warning? TM: If you see a retail location selling ten times the number of cards that you expected them to, maybe it is an indication that location might be involved in laundering money for drug gangs. GR: What is the second activity? TM: The second is selling a general spend card, or at least the activation packet. That is not as bad for the retailer, because the program manager or issuer – GreenDot, NetSpend, MIO, Eudora – are going to be the ones who, as part of the activation process, do the verification on who the person is. They are also going to be tracking how the card is used. So, the fact that you sell the card is not very problematic, because the program manager is going to be doing the identification compliance. GR: OK, and the third thing? TM: The third thing is the recharge network. You are going to have people who want to reload their general spend cards at the point of sale. Again, we are going to need the retailers and clerks to be trained to look for unusual activity. The report sets forth a number of red flags that are an indication of potential illegal activity. To a certain extent, the program manager and processors are going to be monitoring those activities, but if somebody comes in and pulls out five general spend cards and wants to put money on each one of them, and they are all in different names, maybe the clerk should be taught to identify that as unusual activity and to call the program manager’s office. GR: Training seems to be a big issue at the retail level. TM: In fact, the critical element of any compliance program is employee training. If the retailer is doing Western Union or MoneyGram activities, they are already having to train the people to address those issues. Hopefully, some of this can be programmed into the device where it would cause a decline to happen. The bottom line is, if a retailer wants to be in this business, they have to put systems into place, or work with program managers who have systems in place, and do the training of their employees, not only for fraud prevention, but for money laundering. Terry Maher can be reached at 402.636.8297, or via email at tmaher@bairdholm.com. Visit the NBPCA at www.nbpca.com GR: What is the purpose of this report? TM: The anti-money laundering threat assessment, as well as other national and international money laundering threat assessments, have indicated their concern about prepaid. We, as the primary industry trade group for open loop prepaid, felt it was appropriate to do the research and put the document together. GR: The concern is money laundering, right? TM: Right. They have a feeling that the cards are anonymous, are not tracked, are easily transported, and can be used worldwide. So, the regulators consider them to be an optimal tool for money laundering. We think part of that is a fundamental misunderstanding about how the cards work. GR: What are they so concerned about? TM: They are concerned about anonymous gift cards that could be used at ATMs and so forth. They are concerned that somebody could use cash from an illegal activity, buy gift cards, and ship those cards rather easily, through the mail or by courier, to the drug gang located in another country. Then, that drug gang could either use the gift cards to purchase merchandise and sell it to convert to cash, or actually convert it to cash, if the card allows cash access. GR: What about open loop cards? Are they concerned about them? TM: Yes, they are concerned about both, but the regulators consider the network cards to be a problem. But, again, we think that is a misunderstanding about how the cards work. GR: What do you think they misunderstand? TM: One, they think that the third parties, the program managers, are basically renting the BIN, or Bank Identification Number, from the issuing bank, and that the issuing bank has no clue what is going on from that point forward. They think that there is a non-bank entity, the program manager, out there, inexperienced in money laundering issues, not putting in appropriate internal controls to reduce the risk that the cards are used for money laundering. GR: Why do you think that is an incorrect impression? “They think that there is a non-bank entity, the program manager, out there, inexperienced in money laundering issues, not putting in appropriate internal controls to reduce the risk that the cards are used for money laundering.” suers, sellers and redeemers of stored value – to have anti-money laundering written compliance policies in place. An essential element of that tppEXPO’08 Slated for August 19-21 from page 1 analogy for tppEXPO’08,” says Robin Tobias, The Prepaid Press Expo Producer. “We recognize the importance of a gathering point for all prepaid industry participants, and we have designed the Expo to maximize the opportunity for interaction in the layout, the session agenda and the schedule.” Even the conference tracks were designed to maximize the experience for all participants, presenters and attendees. “Instead of the normal practice of spreading tracks across the duration of the show, we lined up all the sessions for each track into a single day,” said Gene Retske, The Prepaid Press Expo Conference Director. “We have attended a lot of trade shows, and one very common complaint is that the conference sessions are spread across several days.” Retske said that this was done in an attempt to get conference attendees to maximize their time at the show, but not for the convenience of the attendees. tppEXPO’08 will hold all the Grammaticus Conference sessions for each track in a single day. Representatives will be attendance from every branch of prepaid, from telephony services like long distance calling cards, to prepaid wireless, payments and gift and branded cards. For example, the prepaid telephony sessions will all be conducted on Tuesday, August 19th, the prepaid wireless sessions on Wednesday, August 20th, and the payments sessions on Thursday, August 21st. “Attendees will be able to attend all the sessions for a single track and still spend time viewing exhibits and networking,” added Retske. When designing the Conference agenda, The Prepaid Press says its primary goal was providing comprehensive information about prepaid opportunities, at an affordable price. The cost for each track is $200, or a full Grammaticus Conference pass is available for $499. The Prepaid Press Expo has partnered with the highly regarded Pelorus Group, who will plan and manage the tppEXPO’08 conference itself. Online registration is available on the show website, www.prepaidpressexpo.com. Those interested in speaking opportunities should contact the Pelorus Group directly at 908.707.1121. There are still booths available. If you are interested in exhibiting or sponsoring, contact Lisa Brown at 866.203.2334, http://www.prepaidpressexpo.com http://www.nbpca.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - March 2008

The Prepaid Press - March 2008 tppEXPO’08 Slated for August 19-21 AT&T Strikes Back Contents The Retske Report: Net Neutrality 5 Minutes With Terry Maher, NBPCA Counsel Regulatory Rundown: FCC Enforcements Prepaid Wireless Roundup Prepaid Wireless in Brief tppEXPO’08 Spotlight BlackBerry Prepaid Option to be Offered Virgin Mobile USA Ringbacks Growing The Splitting of a Titan The State of Prepaid Technology: Part II – The Other Prepaid Calling Spot Rates Calling Cards in Brief IVR and Stratus to Offer SIP Platform PhoenixSoft Completes Integrated IP Transcoding The Legal Line Web Streamlines Bill Pay & Prepaid Distribution Travelex Debuts New Foreign Currency Packs TSYS and Telrock to Provide Mobile Solutions Payments in Brief NBPCA Offers Tips to Fight Money Laundering Hypercom Responds to Ingenico Inquiry Kiosks Change the Face of Prepaid Prepaid 101: Prepaid Wireless Coinstar to Expand Centers in Wal-Mart Locations Meta and MoneyGram Partner NRF Battles Retail Crime Retail Focus in Brief Our Advertisers Contact Us

The Prepaid Press - March 2008

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