Travelzoo 2014 Annual Report Download - page 63

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Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar foreign laws, could be
expanded to include Local Deals and Getaways vouchers.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as
the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist
financing, impose certain anti-money laundering requirements on companies that are financial institutions or that provide
financial products and services. For these purposes, financial institutions are broadly defined to include money services
businesses such as money transmitters, check cashers and providers of prepaid access cards. Examples of anti-money
laundering requirements imposed on financial institutions include customer identification and verification programs, suspicious
activity monitoring and reporting, record retention policies and procedures and transaction reporting. We do not believe that we
are a financial institution subject to these laws and regulations based, in part, upon the closed loop nature and other
characteristics of vouchers and our role with respect to the distribution of vouchers to members. However, the Financial Crimes
Enforcement Network, a division of the U.S. Department of the Treasury tasked with implementing the requirements of the
Bank Secrecy Act, recently issued final rules regarding the scope and requirements for non-bank parties involved in stored
value or prepaid access cards, including obligations on sellers or providers of “prepaid access”. Under the final rule, providers
or sellers of closed loop vouchers, such as those offered through the Local Deals and Getaways program, would only be subject
to registration if the voucher exceed $2,000 in total value or if they are sold in aggregate amounts exceeding $10,000 to any
single person in one day. Should the $2,000 limit be exceeded or should more than $10,000 in aggregate vouchers be sold to
any individual person (sales to businesses for resale or distribution are excluded) then we may be deemed either a seller or
provider of prepaid access subject to regulation. In the event that we become subject to the requirements of the Bank Secrecy
Act or any other anti-money laundering law or regulation imposing obligations on us as a money services business, our
regulatory compliance costs to meet these obligations would likely increase which could reduce our net income. In addition, the
costs for third parties to sell vouchers would increase, which may restrict our ability to enlist third parties to issue vouchers.
Our internal control over financial reporting may not be effective, and our independent auditors may not be able to certify
as to the effectiveness of such internal controls, which could have a significant and adverse effect on our business.
We are obligated to evaluate our internal control over financial reporting in order to allow management to report on, and
our independent auditors to opine on, our internal control over financial reporting, as required by Section 404 of the Sarbanes-
Oxley Act of 2002 and the rules and regulations of the SEC, which we collectively refer to as Section 404. In our Section 404
evaluation, we have identified areas of internal controls that may need improvement and have instituted remediation efforts
where necessary. Currently, none of our identified areas that need improvement has been categorized as material weaknesses.
We may identify conditions that may result in significant deficiencies or material weaknesses in the future.
We may be unable to protect our registered trademark or other proprietary intellectual property rights.
Our success depends to a significant degree upon the protection of the Travelzoo brand name. We rely upon a
combination of copyright, trade secret and trademark laws, as well as non-disclosure and other contractual arrangements to
protect our intellectual property rights. The steps we have taken to protect our proprietary rights, however, may not always
succeed in deterring misappropriation of proprietary information.
We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea,
Taiwan, the European Union and the U.K. If we are unable to protect our rights in the mark in North America, Europe, and Asia
Pacific, where we have licensed the trademark as described above under “overview”, a key element of our strategy of
promoting Travelzoo as a brand could be disrupted and our business could be adversely affected. We may not always be able to
detect unauthorized use of our proprietary information or take appropriate steps to enforce our intellectual property rights. In
addition, the validity, enforceability, and scope of protection of intellectual property in Internet-related industries are uncertain
and still evolving. The laws of countries in which we may market our services in the future are uncertain and may afford little
or no effective protection of our intellectual property. The unauthorized reproduction or other misappropriation of our
proprietary technology could enable third parties to benefit from our technology and brand name without paying us for them. If
this were to occur, our business could be materially adversely affected.