In the United States, the Financial Crimes Enforcement Network (FinCEN) was established in 1990 and is, in general terms, charged with implementing measure to prevent misuse of financial systems for criminal activities. With specific regard to payments, money laundering and terror financing are the hot topics that come to mind. However, when one things about preventing these types of activities, wire transfers and high value international payments executed across interbank networks have typically been the most publicized point of scrutiny – especially when this must be balanced against privacy concerns The best example of this in recent years  is the subpoena to investigate suspicious activity that may have resulted in SWIFT transactions, as discussed in an earlier post, “Bridging the Atlantic.”


Alternative Channels for Financial Crime
But as regulations tighten, and real-time scrutiny of traditional transactions increases (not least because of the multi-million dollar penalties banks face for non-compliance), perpetrators of criminal activity will naturally gravitate to less regulated means of moving funds. As the payments industry seeks to innovate with new payment types and new delivery mechanisms – such as prepaid and mobile payment transactions – there is greater opportunity for these channels to be ‘abused.’

On June 21st, FinCEN published a Notice of Proposed Rule Making (NPRM) seeking to add greater transparency around one rapidly growing payment type: prepaid devices (cards, phones, key fobs etc with pre-loaded monetary value). The concern is that a subset of prepaid devices may be issued by non-financial entities, and therefore the issuing process is not covered by current financial services industry regulations. The NPRM proposes that the Bank Secrecy Act be applied to the issuers (sellers) and will impose obligations on parties involved. Clearly the goal is to identify "the who and the why" of selling prepaid instruments.

Personally I believe this is a worthy step. Current transaction values may well be relatively small, but with the increase in transaction volumes, the opportunity for prepaid instruments to be used for nefarious purposes can only increase. However, one final point of note is to take lessons learned from the SWIFT case. FinCEN will be challenged to find a balance between transparency and privacy.


For more information on Microsoft’s risk and compliance solution areas, you might enjoy reading the blog of my colleagues, Sai Sireesh and Jeff Jinnett.