Money Service Businesses

A business that meets one or more of the definitions below must comply with the AML Rules & Regulations effective April 29, 2002.  As an MSB you should be familiar with and complying with the minimum requirements for an AML Program.  In addition, you must comply with § 352 of the USA PATRIOT Act.  As an MSB, you must also register with FinCEN and re-register ever two years.  Other industries are not required to register with FinCEN.

The term “money services business” includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

Product or Service Type of MSB
Money Orders Issuer, Seller or Redeemer of money orders
Traveler’s Checks Issuer, Seller or Redeemer of traveler’s checks
Money Transmission1 Transmitter of Money
Check Cashing2 Check Casher
Currency Dealing or Exchanging3 Currency Dealer or Exchanger
Stored Value2,3 Issuer, Seller or Redeemer of Stored Value
1 The activity that makes one a money transmitter must be carried on as a business
2 Not required to file SARs
3 Excluded from the registration requirement if an MSB solely because issuer, seller or redeemer of stored value
Bank responsibilities regarding MSB accounts are creating a new class of unbanked businesses. For more information concerning AML Program compliance and if & when you are required to comply, see MSB Frequently Asked Questions

Reporting Suspicious Activity

For more on an MSB reporting suspicious activity see

Bank Discontinuance

The closing of MSB bank accounts across the United States has been a major problem for years (since about 2005).  If you have not had this problem in your part of the country, consider yourself very fortunate.  However, be patient, it’s coming.  Many smaller banks still accept MSB accounts, but have not been heavily penalized by their regulators.  The regulators will get to them because larger banks are complaining about being singled out and therefore will bring the pressure down on the smaller banks.

Bank responsibilities regarding MSB accounts are creating a new class of unbanked businesses. Financial institutions believe that they must close MSB accounts simply because the regulatory risks and associated costs are so great that they can’t afford to retain them.  In addition, most MSB accounts are not very profitable for the bank.

FinCEN has addressed this issue and provided some valuable guidance for banks.  However, that guidance alone is not sufficient to induce banks to reopen MSB accounts.  I believe, as many others, that the agencies should significantly reduce the regulatory requirements on financial institutions, so it would be easier for banks to open MSB accounts and worthwhile to maintain them.  If the banks across the U.S. would just lend an ear to others in my line of work, who are out there working with the MSBs and who has for many years had the experience of investigating and prosecuting the bad ones, they may accept more MSB accounts.

For instance, in the summer of 2005, a large U.S. Bank informed their MSB customers that as of September 15, 2005, they would no longer be an account holders at that bank and must take their business elsewhere.  This appeared to have been done across the board, with no exceptions.  Many other large banks did something similar and it has not gotten any better for MSBs.

This has been a major problem for quite some time and MSBs are fighting to keep or have access to bank accounts everywhere in the U.S.  I personally know that this was and still is a huge problem in the State of Mississippi, but the problem has eased some in the past several years.  In September 2007, I met with several bankers in Mississippi concerning their closing one of my client’s accounts.  After reviewing a sample copy of an audit report and AML Plan that I would be preparing for my client (their customer), they made the decision to hold off until they had a chance to review what I prepared for him.  My client remained with that bank for about 5 years after that.  In addition, the other banker I spoke to on the same day also wanted his business and opened an account for his MSB business.  As it worked out, at 9:00am my client was going to be a former customer of a certain bank, but by the end of the day, after meeting with the bank officers of two different banks, he had both banks competing for his business.  In addition, both banks indicated they would be receptive to opening other MSB accounts as long as the MSB had someone conduct an independent audit and prepare an AML Policies and Procedures manual, as I have for my clients.  Now please understand that the above client is only in the business of cashing checks, which is much lower risk than an MSB that offers all of the other services.  If you are a money transmitter, the chances of securing a bank account become much more difficult.  Having a Western Union terminal is not bad, but if you transmit money directly from your store, the risk skyrockets.  I know retired agents who are more familiar and possibly an expert in the money transmitter field who can probably assist you and your business.

The bank discontinuance problem is not close to being solved, but if we can get the banks listening to someone other than regulators and others who are completely negative about having MSB accounts, then we may be able to begin changing the way banks look at MSBs.  Other industries will have this same problem in the near future.  It is beginning to surface in the industry of jewelers and precious metals dealers.  I have had one precious metals dealer shut his doors because he could not get a bank account for his business.  When the problem hits these other industries, the banks will not be able to afford the luxury of refusing accounts for all of them.

Why do banks shy away from MSBs?

Because the MSB industry has been touted as a major money laundering industry.  They have been hammered by regulators for years.  The problem is not really the banks, its the regulators.  The regulators can’t make up their mind what they want to do or how closely or loosely they want to regulate the banks.  In speaking with a group of bankers recently, one told me that during a recent FDIC exam, the regulator spent two weeks looking at MSBs and another regulator spent one hour on MSBs at a different bank.  Their method of how to regulate MSBs is not consistent, so the banks don’t know what to do.  When they don’t know what to do and get penalized either way, they alleviate the problem by getting rid of it (MSB accounts).  They do that because they feel that maintaining an MSB account is just not the worth the time and aggravation, not to mention the penalties and fines levied should they not conduct the necessary due diligence and have the necessary documentation in their files.  There are some banks who continue to maintain MSB accounts, but only for enormous fees to make it worth while.  However, even with high fees they will not tolerate having to jump through hoops making sure an MSB is in compliance.  The MSB must take that burden off of the bank and make it easier for them to retain your business.  This is accomplished by complying with the rules and regulations and supplying the bank with whatever they require in order for them to satisfy their regulators.  Then all the bank has to do is make sure they receive a copy of your AML Plan and audit report each year.  Doing this will likely improve the banking relationship and the possibility of you to retain your bank accounts.

I recently made a presentation to a banking group concerning MSBs and the misconceptions banks have about them.  It appears, as I suspected, they have been told for a long time that MSBs launder illegal money and could cause serious financial problems for the bank.  Many banks now stereotype all MSBs as being a money laundering industry and criminal cases such as E-Gold of Miami, FL and Sigue Corporation of California does not help the situation.  However, after conducting that presentation and discussing these misconceptions with them, they were much more receptive to accepting MSB accounts.  That is however, as long as the MSB provides them with the necessary documents (audit report and AML Policies and Procedures) to show that they are compliant.  As previously stated, if the MSB makes them come looking for what they need, the MSB will be looking for another bank.

Let me tell you what I know about MSBs and I have preached this to banks all over the U.S.  Some have listened and others really don’t care, because their upper management has said, they will not have MSB accounts and do not want to hear anything otherwise.  There are not many ways of laundering money through an MSB.  Additionally, the owner of the MSB must be involved in the money laundering if it is to be successful.  If the owner is not involved and the MSB has an adequate AML Program, it is virtually impossible to launder money through an MSB. Take for instance an MSB that only cashes checks.  When they deposit their cashed checks, they withdraw cash of that same or close to that same amount each time.  It is virtually impossible for that check casher to be laundering money and I only say “virtually,” because I’ve been taught to never say something is impossible.  However, no one, not even other money laundering experts, has ever been able to show me another method of a check casher laundering money.  I suggest to my MSB clients that they withdraw the exact amount (to the penny) at the same time they deposit the checks.  However, for some check cashers, that is very difficult to do because some check cashing days are busier than others. They do attempt to stay as close to the deposited amount as possible, or more.

Why is it virtually impossible?  The objective of a money launderer is to get cash into the banking system, not take it out.  If a check casher is used to launder money, the check casher is supplied with illegal proceeds that is used for cashing the checks.  Therefore, eliminating the need for withdrawing cash from the bank (i.e. Operation Polar Cap).  So if they are withdrawing the same amount of cash as the checks being deposited, then they can’t be laundering money (not through the check cashing business).

Additionally, banks should not be concerned if an MSB also has wire remitting capabilities, through Western Union, Money Gram etc. (one of the larger nationally know companies). Because you now have at least two levels of “due diligence” protection.  Not only does the MSB (with an adequate AML Program) conduct all the necessary KYC “know your customer” and “due diligence” checks at their business, with regard to all wire transfers, but the wire service also has more stringent “know your customer” and “due diligence” checks at their end.  Those wire remitting companies do not allow their agents (MSB) to get out of line in any way before alerting them and shutting down the wire terminal, if necessary.  The MSB can only wire out a certain amount, usually $3,000, for an individual before the company will be alerted as something suspicious.  And then their computers match sender and receiver names, addresses, SSNs, similar names, etc. Don’t get me wrong, there are some MSBs out there who will attempt to skirt the law, but the number of them are so minuscule in numbers and will stick out like a sore thumb.  If the MSB has a good AML Program, including the annual independent audit (by a qualified independent party) and training, it would be extremely unlikely.

As is turns out, any MSB that has ever had a serious problem, civilly or criminally, was not in compliance and therefore did not have an adequate AML Program.

If I were in the business of laundering money, the last place I would look would be an MSB, because it’s too easy to detect.  Banks should be much more concerned about a large night club than an MSB.  Illegal proceeds could be laundered much faster and easier with a large night club, because they have almost exclusively cash paying customers. Hiding that cash from the Government would be much easier than any MSB.

How’s the relationship with your bank?

If you are a client of mine and I have conducted an independent audit of your business and AML Program, then you should already know the value and importance of a thorough independent audit/review, comprehensive training and expert consultation on practices that could limit your risk for being targeted for money laundering and/or terrorist financing. In addition, you should have already provided your bank with a copy of a detailed audit report and AML Policies and Procedures.  These documents should go a long way in earning your bank’s respect and the relationship with your bank is most likely on solid ground.  The relationship with your bank could be the most important relationship of your business because without a bank account you would not be able to operate.

The reason for a bank’s caution is because they also have similar government rules and regulations to follow. Their “Know Your Customer” and “Due Diligence” policies and procedures are more strict and better than any other industry. Just as you are required to have an independent audit/review conducted, so are all banks.  When they have an audit/review, they must show their regulators that they know all of their customers.  If the regulators discover that the bank can not assure that you are in full compliance, they get assessed hefty fines and penalties.  How many $20,000 penalties do you think the bank will have before they get rid of your account?

How can the MSB change the bank’s way of thinking?  It’s easier than you think.  If you just make the bank’s job easier by showing them that you are compliant and voluntarily, submit to them what they need, so that they can satisfy their regulators.  If you do this they will not question your commitment to compliance. Then supply these documents to the bank annually and the bank does not have to chase you down when they need something or  do anything further to satisfy their regulators.  This will not work with all bank because some have received orders from the top brass in the bank not to accept MSB accounts and if you force the bank to come to you looking for the audit report or policies and procedures, they will likely close your accounts and ask you to go elsewhere.  Also, if you wait for them to initially ask for what they need, they may not give you enough time to get the work done before they are force to close your accounts.  There are also certain things you may need if IRS contacts you for a compliance exam.  Don’t wait until it is too late.

AML Policies and Procedures

If your business has not had a comprehensive AML Policies and Procedures manual (AML Plan) prepared for your business then you have not had an independent audit conducted and can’t possibly be in compliance with the rules and regulations.  Why?  Because the AML Policies and Procedures is the first step of your AML Program and it lays out the entire foundation of the program.  After that, the next step is to have an independent audit/review and training conducted.

Many smaller banks can’t afford to let MSB customers go to another bank, but they also can’t afford the fines and penalties assessed when they don’t receive the proper documentation showing your compliance and theirs as well.  If you do what is stated above, you can make their decision easy, but if you don’t, their decision also becomes an easy one.

Ask yourself these questions:

  1. What will you do when your banker, IRS or FinCEN asks for a copy of your audit report?
  2. How will you mend the relationship with any of them?
  3. How much can you afford to pay in fines and penalties?

Once you damage the relationship with your bank it is virtually impossible to mend that relationship, especially if you are an MSB customer.

If your AML Compliance Program is strong, then the relationship with your banker will likely be strong as well, and should continue that way.  However, if your compliance is weak or non-existent and you have poor risk management, then the relationship with your banker will also be weak or non-existent.  Why, because you are placing them at risk, not to mention the risk of your own business.  And trust me, banks do not like to be at risk.  In addition, failing to comply with state and federal regulations can have severe financial consequences, including the forfeiture of assets. The Internal Revenue Service has been delegated authority to examine certain financial institutions, including money services businesses, to determine compliance with requirements.

If you desire more information on having an AML Plan prepared and becoming compliant, please complete this questionnaire and email it to me.