BSA/AML Examination Manual - ffiec

Electronic Cash — Overview
Electronic Cash — Overview
Objective. Assess the adequacy of the bank’s systems to manage the risks associated
with electronic cash (e-cash), and management’s ability to implement effective
monitoring and reporting systems.
E-cash (e-money) is a digital representation of money. E-cash comes in two basic forms:
stored value card e-cash and computer e-cash. Stored value card e-cash is most often
downloaded through special terminals (e.g., specially equipped automated teller machines
(ATMs), computers, or cellular phones) onto electronic cards. Computer e-cash is
downloaded to personal computer hard disks via a modem or stored in an on-line
repository.
Stored value cards can operate in either an open or closed system. 177 Typically, open
system cards may be reloaded, allowing the cardholder to add value. Closed system
cards are usually limited to the initial value posted to the card, but some may allow the
cardholder to add value. Additionally, funds can be prepaid on an open system card by
one person, with someone else accessing the currency elsewhere through an ATM.
Prepayment involves a transfer of funds to the card (e.g., telephone calling cards). Some
domestic and offshore banks offer cards with currency access through ATMs
internationally. Since stored value cards are easy to fund and transport without creating a
paper trail, they are attractive for abuse by various illegal enterprises and money
launderers. For example, drug dealers have been known to load currency onto prepaid
cards and send the cards to their drug suppliers outside the country. Phone cards and
other closed system prepaid cards can be purchased for currency and transferred from one
person to another and resold. Often, a firm independent of a bank processes all card
transactions through a “pooled” bank account held in the name of the firm managing the
card program. 178
Consumers use e-cash to access, store, and redeem funds that are maintained
electronically. In addition, e-cash, in the form of payroll cards, is now offered by
employers to their employees in place of a check to distribute wages. These payroll cards
may also function as multi-purpose or general use reloadable cards (i.e., the cardholder
can add value to the card at a variety of retail outlets using currency). The value of the
funds stored on these cards can be transferred between cardholders using compatible
electronic systems and networks, often without using banks.
177 “Open” system cards can be used to connect to global debit and ATM networks; the cards can be used
for purchases at any merchant or to access currency at any ATM that connects to global payment networks.
“Closed” system cards are limited in that they can only be used to buy goods or services from the merchant
issuing the card or a select group of merchants or service providers that participate in a network that is
limited geographically or otherwise (e.g., retail gift cards and mass transit system cards).
178 Refer to the Money Laundering Threat Assessment Working Group, U.S. Money Laundering Threat
Assessment, December 2005 and the National Drug Intelligence Center Assessment, Prepaid Stored Value
Cards: A Potential Alternative to Traditional Money Laundering Methods, October 2006.
FFIEC BSA/AML Examination Manual 206 8/24/2007