On 23 May, the General Office of the State Council unveiled the Regulating Commercial Prepaid Cards Opinion (Guo Ban Fa [2011] No. 25), issued by seven ministries and commissions: the People’s Bank of China, Ministry of Supervision, Ministry of Finance, Ministry of Commerce, State Administration of Taxation, State Administration for Industry and Commerce, and National Bureau of Corruption Prevention. The opinion calls on all localities to implement its contents to curb and prevent money laundering, encashment, theft and evasion of taxes as well as offering and taking bribes using commercial prepaid cards.
Scope of application
The typical feature of commercial prepaid cards is that they are prepaid and issued by non-financial bodies. They are divided into two categories based on different types of card issuers:
- Multi-purpose prepaid cards are issued by specialized card issuers and can be used across regions, industries and corporations; and
- Single-purpose prepaid cards are issued by commercial enterprises and used for purchasing goods or services only from the enterprises themselves or from the chain of commercial enterprises selling the same brands.
Regulators
- The issue of multi-purpose prepaid cards by non-financial institutions must be approved by the People’s Bank of China. Offenders will be investigated and penalized for illegally engaging in the payment and settlement business;
- The Ministry of Commerce is responsible for regulating single-purpose prepaid cards and formulating appropriate measures; and
- No financial institutions may issue prepaid cards without approval.
Issue and purchase
- Real-name registration for card purchases: card issuers will register the real names of work units or individuals that purchase registered commercial prepaid cards or purchase unregistered commercial prepaid cards for an amount of RMB10,000 (US$1,500) or more on a one-off basis.
- Non-cash card purchases: work units that purchase, on a one-off basis, prepaid cards for an amount of RMB5,000 or more and individuals who purchase, on a one-off basis, prepaid cards for an amount of RMB50,000 or more must do so by bank transfer. They may not use cash. For the purchase of prepaid cards by bank transfer, card issuers must register the names and numbers of debit and credit accounts as well as the amount of each transaction.
- Issue of cards carrying a limited value: the face value of unregistered commercial prepaid cards must be no more than RMB1,000, while that of registered commercial prepaid cards must not be over RMB5,000.
- Card issuers must issue invoices according to regulations. Tax departments should step up the management of invoices and tax audit, and investigate and penalize card issuers which have issued fake invoices for the cards sold, as well as work units which, after purchasing prepaid cards, deduct expenses before taxation that have nothing to do with their business operations.
- Term of validity: no term of validity is set for registered commercial prepaid cards, while unregistered commercial prepaid cards must be valid for not less than three years. Card issuers should offer support services to activate or replace expired prepaid cards that still contain an outstanding balance.
The opinion stresses that employees of state authorities, especially leading cadres, are strictly banned from accepting any form of commercial prepaid cards during public service activities. Those who have accepted commercial prepaid cards but have not turned them over promptly according to regulations will be treated as having received an equivalent amount of cash and penalized
accordingly.
Regulation of prepaid money
- For multi-purpose prepaid cards, the opinion says the prepaid money received by card issuers and used by customers to pay for their future needs is not the property of the card issuers themselves, and must not be misappropriated or diverted to other purposes by card issuers. Issuers of multi-purpose prepaid cards must open reserve deposit accounts with commercial banks exclusively for the purpose of holding prepaid money. They must enter into a depository agreement with the banks, and be subject to supervision by the banks over the use of the reserves.
- For single-purpose prepaid cards, the opinion only calls on the Ministry of Commerce to strengthen the supervision of prepaid money to prevent financial risk.
The People’s Bank of China and the Ministry of Commerce aim to continue to improve the regime governing charges, complaints, confidentiality, redemption and repayment in respect of commercial prepaid cards. They will carry out a special inspection of the commercial prepaid cards market by the end of the year in conjunction with other departments.
Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.
