Homeland Security Investigations

Office ofthe Executive Associate Director

U.S. Department of Homeland Security

500 12th Street, SW

Washington, D.C. 20536

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9 2012

James H. Freis, Jr.

Director
Financial Crimes Enforcement Network

Post Office Box 3

Vienna, Virginia 22183

Dear Director Freis:

We are pleased to offer comments to Notice of Proposed Rule Making (NPRM) RIN 1506AB13 which proposes expanding the definition of monetary instruments, for the purposes of
cross-border reporting, to include tangible prepaid access devices. As you well know, we have

been vocal proponents of this proposed rule and we therefore commend the U.S. Department of
the Treasury, Financial Crimes Enforcement Network (FinCEN) for putting this NPRM forward.
As the nation's lead border law enforcement investigative agency, staying on pace with
technology and the dynamic developments in the delivery of financial services is of the upmost
importance. This rule recognizes that these products in fact represent the evolution of other
reportable prepaid monetary instruments like money orders and travelers checks.
The designation of tangible prepaid access devices as cross-border reportable monetary
instruments will be incorporated into existing enforcement processes in a seamless manner. As
with other important changes to entry requirements, U.S. Immigration and Customs
Enforcement's (ICE) Homeland Security Investigations (HSI) will work with our partners at U.S.
Customs and Border Protection (CBP) to ensure that the traveling public is provided the
necessary information to make an accurate declaration of the amount of cash and monetary
instruments that they are bringing into or taking out of the U.S. Now to address the questions
posed in the NPRM:
A. Obstacles to law enforcement

Over the last year, HSI has been working with the Department of Homeland Security, Science &
Technology (DHS S&T) Directorate, to develop a handheld reader with features that will, among
other things, allow law enforcement to quickly and accurately differentiate between a travelers
debit, credit and prepaid products. This reader, which is in an advanced stage of development,
will enhance our ability to enforce the Currency and Monetary Instrument Reporting (CMIR)

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ICE HSI Response to FinCEN Cross Border NPRM

Page 2 of4

requirement with respect to prepaid access devices in a manner which imposes minimal to no
inconvenience to individuals and complies with U.S. laws, regulations, and procedures.
Although the delivery mechanisms (e.g., prepaid cards, cell phones, etc.) of monetary
instruments may be evolving, the concept of a device or document that consumers can use to
access value is not new. HSI and CBP have over 40 years of experience enforcing the CMIR
requirements. The challenges outlined in FinCEN's question mirror the challenges that HSI and
CBP have faced with regard to other monetary instruments such as bearer negotiable checks,
money orders and traveler's checks, among others. HSI has developed interdiction and
investigative techniques to address these challenges.
CBP officers and HSI Special Agents deal with both intentional and unintentional false
declarations on a daily basis. The penalty structure that is already in place takes the totality ofthe
circumstances into account to ensure that when penalties are employed they are measured and
proportional.

B. Should closed loop cards that can be used only at specific store or merchant, or for a
specific service, and cannot be used at ATMs to access cash continue to be subject to a
border declaration obligation as proposed?

Yes, it is HSTs experience that the rise in the popularity of all types of prepaid cards has created
a parallel market where closed loop cards can be traded for other cards or cash. Excluding these
cards from the declaration requirement will create a vulnerability that will be ripe for
exploitation by criminal organizations.

a) Should other types oflower riskpre-paid access devices that are not consideredprepaid
programs under thefinal rule be excludedfrom the definition ofmonetary instruments,
such as government-funded, limited-value orpayroll cards?
HSI agrees that products such as government-funded cards should be excluded from the
requirement; however, limited-value and payroll cards should not be excluded from the

definitionof monetary instrument. The vulnerabilities associated with payroll cards are
exacerbated by the difficulties law enforcement faces when trying to establish the beneficial
ownership of many U.S. corporations. Excludinglimited-value and payroll cards increases the
possibility that these cards will continue to be abused. Law enforcement has already
documented large scale misuse of payroll cards by both sophisticated and unsophisticated
criminal organizations.

C. Should branded open loop reloadable prepaid cards with the name of the person to
whom the card has been issued embossed on the front of the card be subject to border
declaration as monetary' instruments?

Yes, HSI believes that reloadable prepaid cards with a name embossed on the front of the card

should be subject to borderdeclaration as a monetary instrument. The features of prepaidcards

that make them vulnerable to abuse by criminal elements have nothing to do with whether a card

ICE HSI Response to FinCEN Cross Border NPRM

Page 3 of4

has a name embossed on it or not. Prepaid card customers undergo a simplified know your
customer/customer due diligence process, which is conducted by the prepaid card program
manager, not a financial institution. In most instances the financial institution will not be
involved in the verification of information provided by the customer or store this information in
their servers since these cards are tied to pooled bank accounts and not traditional depository
accounts. There is no question that a financial institution's relationship with, and obligations to,
prepaid customers are significantly and substantially different from those they have with
traditional customers.

D. Should the border declaration obligation be associated with the value immediately
available to a prepaid access device at the time the device enters or leave the country or
should the declaration obligation apply to the potential maximum value available via the
prepaid access device?

HSI believes that the border declaration requirement should apply to the value immediately
available to a prepaid access device at the time the device enters or leaves the country. This is
consistent with the way the regulations currently are applied to existing monetary instruments.
This is also within the capabilities of our proposed technical solution.
. Should the border declaration apply to codes, passwords and other intangibles as well as
to any tangible object that is dedicated to accessing prepaid funds?

HSI believes that border declaration should not apply to codes, passwords and other intangibles.
Identification and verification of intangibles in the context of border enforcement poses logistical
and potential legal issues that are not contemplated by currency and monetary instrument
declaration regulations. The structure of the currency and monetary instruments declaration
regime, hinges on the existence of a physical object. The language requires something that can
be passed from one individual to another in order to be presented to a third party for
execution/payment.
a) Should it only apply to cards or also to cellphones, keyfobs, or other tangible objects
that include a device that enables them tofunction in a similar manner to "swiping" a
magnetic stripe card?
Border declaration should apply to cell phones, key fobs, or other tangible objects when these
objects are associated with a prepaid account. These products represent the evolution of value
delivery systems from cash to other forms which assure the authenticity of the value associated
with the product, while providing increased access and personal security to the users. As with
cards; the application of the border declaration requirement should be determined by the prepaid
nature and liquidity of the product, rather than the delivery system.
F. Additional costs associated with the completion of the CMIR form as a result of this
proposed rule.

HSI has no comments regarding this question.

ICE HSI Response to FinCEN Cross Border NPRM

Page 4 of4

G. Is it appropriate to exempt, the international transport mail or shipment by a prepaid

access business or its agent of tangible prepaid access devices prior to their delivery to a
seller for sale to the public?
Yes, HSI believes that it is appropriate to exempt the international transport mail or shipment
prior to delivery of a tangible prepaid access device to a seller for sale to the public; this is
consistent with the application of the existing regulation relating to the exemption for traveler's
checks and cash prior to delivery to a central bank. Prepaid cards and other tangible devices are
replacement products for cash and traveler's checks, these exemptions are based on the fact that
neither cash nor traveler's checks have any intrinsic value, the value is added by an authority
which then puts them into circulation. This process is analogous to tangible prepaid devices.
H. Should devices that require a PIN number for a point of sale or for ATM use be
excluded as intangible prepaid access?

HSI believes that these devices should not be excluded. Based on our investigative experience,
the vulnerabilities of these cards have more to do with the amount and reliability of customer
information collected by program managers, as well as with the liquidity of the products, than
the manner in which a device is able to access funds via ATMs.

HSI reiterates its support for this NPRM and looks forward to working with FinCEN, CBP and
the financial industry to develop an enforcement strategy that will strike a balance between
national security and the delivery of important services to millions of people that utilize prepaid
access devices for a wide variety of legitimate purposes.

Sincerely,

James A. Dinkins

Executive Associate Director

Homeland Security Investigations