As part of an ongoing effort to curtail domestic corruption, the Chinese government continues to tighten regulations governing the commercial prepaid card market. On November 23, 2011, China's Ministry of Commerce ("MOFCOM") released its Rules on the Administration of Single Use Commercial Prepaid Cards (draft for feedback) (the "Draft Rules")1 for public comment through December 23, 2011.2 As the third government release in 2011 in connection with this popular form of gift-giving, the Draft Rules impose significant compliance obligations on card issuers.
The Chinese commercial prepaid card market has grown rapidly in recent years. As a popular alternative to cash gifts, prepaid cards, while promoting domestic consumption, have also been tied to money laundering, corruption and tax evasion. On May 23, 2011, the Opinions on Regulating the Administration of Commercial Prepaid Cards (Guo Ban Fa  No. 25) (the "Opinions") were jointly issued by a powerful coalition including the People's Bank of China ("PBOC," China's central bank), the Ministry of Supervision, the Ministry of Finance, MOFCOM, the State Administration of Taxation, the State Administration for Industry and Commerce, and the National Bureau of Corruption Prevention. The Opinions laid out guidelines requiring the registration of purchasers' names and prohibiting the cash purchase of prepaid cards above certain values. They charged PBOC with the preparation of the implementing rules for multiple use commercial prepaid cards3 while tasking MOFCOM with promulgating rules for single use commercial prepaid cards4.
In response, on October 28, 2011 PBOC released for comment the Rules on the Administration of Prepaid Card Business of Payment Institutions (draft for feedback) (the "PBOC Draft Rules") regarding multiple use prepaid cards. MOFCOM soon followed suit with its own Draft Rules for single use cards.
II. Summary of the Draft Rules
The Draft Rules define "single use commercial prepaid cards" as vouchers for the purchase of goods and services of issuing commercial enterprises5 or retail chains. Excluded from the scope of the Draft Rules are low-value, single use prepaid cards for goods or services valued less than RMB200 (~$32).
Consistent with the PBOC Draft Rules, the Draft Rules impose the following registration, payment, record-keeping and value requirements on issuers of single use prepaid cards:
- real-name registration requirement: issuers must register the identity of the purchaser if he or she purchases cards whose aggregate value exceeds RMB 10,000 (~US$1,580);
- prohibition against cash purchases: corporate purchases of RMB5,000 (~US$790) or more and individual purchases of RMB50,000 (~US$7,900) or more may be made only by bank transfer (not cash) and the purchaser's bank account number must be registered;
- five-year record-keeping requirement: issuers must maintain records of the information collected under (i) and (ii) for a minimum of five years; and
- limits on card value: the value of a branded prepaid card is capped at RMB 5,000 (~US$790), while the value of a generic prepaid card is limited to RMB 1,000 (~$160).
The issuance of the Opinions, the PBOC Draft Rules and the Draft Rules in short order demonstrates the Chinese government's determination to tighten regulation of the prepaid card market. Upon finalization, the Draft Rules will impose significant obligations on card issuers. Given the impact these rules will have on the prepaid card business, card issuers (or any commercial enterprise planning to engage in the prepaid card business in China) should closely monitor the development and finalization of these rules and prepare for compliance with them.
In addition, companies that purchase prepaid cards as promotional items or as gifts for customers or government employees should ensure that their internal policies and practices with respect to giving cards – and recording these gifts in the company's accounts – accurately reflect the Chinese government's intent to curtail their misuse as a means of tax evasion and bribery.
Paul Hastings will continue to monitor these regulations and report on further developments.
1 A copy of the Chinese version of the Draft Rules can be found at http://tfs.mofcom.gov.cn/aarticle/as/201111/20111107843135.html (last accessed on December 28, 2011).
3 The Opinions define "multiple use prepaid cards" as prepaid cards which may be redeemed in multiple regions and sectors and at multiple companies.
4 The Opinions define "single use prepaid cards" as prepaid cards redeemable only for goods or services provided by the issuing enterprise or retail chain.
5 The Draft Rules define "commercial enterprise" as an enterprise engaged in the wholesale and retail industries or providing hospitality, residential, other commercial services.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.