As I have been discussing in my previous recent posts, your business may be an MSB (Money Services Business) if the business offers one or more of the following services:
• money orders
• traveler’s checks
• check cashing
• currency dealing or exchange
• stored value
AND The business:
Conducts more than USD 1,000 in money services business activity with the same person (in one type of activity) on the same day.
OR The business:
Provides money transfer services in any amount.
Just to clarify, stored value services refer to funds or monetary value represented in digital electronics format (whether or not specially encrypted) and stored or capable of storage on electronic media in such a way as to be retrievable and transferable electronically (31 C.F.R. 103.11(vv)).
Financial institutions — including the expanding network of money services businesses (MSBs) — have been both witting and unwitting participants in laundering activities. Banks have been major targets in laundering operations because they provide a variety of services and instruments, including cashier’s checks, traveler’s checks, and wire transfers, which can be used to conceal the source of illicit proceeds. Similarly, criminals use MSBs — establishments that provide money orders, traveler’s checks, money transfers, check cashing, currency exchange, and stored value services — to hide or disguise the origin of funds derived from illegal activity.
In order to protect themselves, and to support national and international efforts against financial crime, it is important that MSBs know how money laundering schemes can operate.
ESTABLISH ANTI-MONEY LAUNDERING COMPLIANCE PROGRAMS
Each MSB is required by law to have an effective anti-money laundering (AML) compliance program. The regulation requiring MSBs to develop and maintain an AML compliance program is contained in 31 CFR 103.125. Each program must be commensurate with the risks posed by the location, size, nature, and volume of the financial services provided by the MSB.
For example, a large money transmitter with a high volume of business located in the Los Angeles area is at higher risk than a small check casher with a low volume of business located in Boise. Therefore, the large California money transmitter would be expected to have a more complex AML compliance program, commensurate with its higher risk, than the smaller Idaho check casher, who is at lower risk of being used to facilitate money laundering.
An effective program is one designed to prevent the MSB from being used to facilitate money laundering.
Each AML compliance program must be in writing and must:
• Incorporate policies, procedures and internal controls designed to assure compliance with the BSA;
• Designate a compliance officer responsible for day-to-day compliance with the BSA and the compliance program;
• Provide education and/or training of appropriate personnel; and
• Provide for independent review to monitor and maintain an adequate program.
Strong management commitment to the AML compliance program promotes ongoing compliance and helps prevent the MSB from being used by money launderers.
FinCEN further encourages MSBs to adopt policies and procedures that incorporate the Basel Committee Statement of Principles on Money Laundering, which urges:
• Proper identification of all persons conducting financial transactions with the financial institution.
• High ethical standards in financial transactions and compliance with laws and regulations governing financial transactions.
• Cooperation with law enforcement.
• Information and training for staff to ensure that they can and do carry out these principles.
ESTABLISH CUSTOMER RELATIONSHIPS
Strict customer identification and verification policies and procedures can be a financial institution’s most effective weapon against money laundering. Requiring appropriate identification and verifying information in certain cases and being alert to unusual or suspicious transactions can help an MSB deter and detect money laundering schemes.
A customer identification and verification policy tailored to the operations of a particular business:
• Helps detect suspicious activity in a timely manner.
• Promotes compliance with all state and federal laws applicable to MSBs.
• Promotes safe and sound business practices.
• Minimizes the risk that the MSB will be used for illegal activities.
• Reduces the risk of government seizure and forfeiture of funds associated with customer transactions (such as outstanding money orders/traveler’s checks and outstanding money transfers) when the customer engages in criminal activity.
• Protects the reputation of the MSB.
FILE SUSPICIOUS ACTIVITY REPORTS
Suspicious Activity Reports (SARs) are among the government’s main weapons in the battle against money laundering and other financial crimes. Such reports are also a key component of an effective anti-money-laundering compliance program. Many MSBs are required to file SARs when they suspect that potentially illegal activity has occurred and when the activity has met the relevant reporting threshold.
The types of MSBs that are currently covered by the MSB SAR requirements are:
• Money transmitters,
• Currency dealers or exchangers,
• Money order — issuers, sellers, or redeemers,
• Traveler’s checks — issuers, sellers, or redeemers,
• U.S. Postal Service
FinCEN is considering amending the SAR regulation to require check cashers to report suspicious activity.
MSBs that provide only stored value services are not required to report suspicious activity at this time.
A SAR must be filed by an MSB when a transaction is both:
• Suspicious, and
• $2,000 or more ($5,000 or more for issuers reviewing clearance records).
A SAR must be filed within 30 days of detection of the suspicious transaction by the MSB.
MSBs that are not currently covered by the SAR rule — such as issuers, sellers, or redeemers of stored value — may voluntarily file SARs. Any MSB may also voluntarily file SARs for suspicious activity below the reporting threshold.
It is illegal to tell any person involved in a transaction that a SAR has been filed. Maintaining the confidentiality of SARs will prevent suspected individuals involved in criminal activity from structuring their activity in such a way as to evade detection by law enforcement. It also will help protect the MSB filing the report. A SAR and/or the information contained in a SAR must only be provided to FinCEN or an appropriate law enforcement or supervisory agency when requested.
Some suspicious transactions require immediate action. If the MSB has reason to suspect that a customer’s transactions may be linked to terrorist activity against the United States, the MSB should immediately call the Financial Institutions Hotline, toll-free at: 1-866-556-3974.
Similarly, if any other suspected violations — such as ongoing money-laundering schemes — require immediate attention, the MSB should notify the appropriate law enforcement agency. In any case, the MSB must also file a SAR if the MSB is subject to mandatory reporting. A BSA provision (called a “safe harbor”) provides broad protection from civil liability to MSBs and their employees that file SARs or otherwise report suspicious activity.
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