AML Compliance for Money Service Business

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Financial institutions are required to create, implement, and maintain an efficient anti-money laundering (AML) compliance program by the Bank Secrecy Act (BSA) and its associated rules. Money service businesses (MSBs), including currency dealers and exchangers, money transmitters, check cashers, issuers of traveler’s checks, money orders, and stored value cards are considered financial institutions under the BSA. MSBs must take measures to prevent the use of their operations for the funding of terrorism or money laundering. This blog post will discuss the key elements of an effective AML compliance program for MSBs.

What is Money laundering?

Money laundering is a process by which criminals conceal the proceeds of criminal activities and convert them into legitimate funds. Money laundering can involve multiple steps of transferring, disguising, or hiding illegal funds in order to make them appear legitimate. Criminals often use MSBs as part of their money laundering schemes because they are easy to access and allow transactions to be conducted anonymously.

banks have been major targets in laundering operations. In a similar manner, criminals employ MSBs, or businesses that offer money orders, traveler’s checks, money transfers, check cashing, currency exchange, and stored value services, to conceal or obscure the source of funds obtained from unlawful activities.

What is a Money Service Business?

The term “money services business,” according to FinCEN, refers to any individual engaging in business and trade, whether regularly or in one or more of the following roles as an established business concern:

  • Current dealer or exchanger
  • Money transmitter
  • Check casher
  • Seller or redeemer of money orders ,traveler’s checks, stored value
  • traveler’s checks, money orders or stored value Issuer
  • redeemer or Seller of money orders, traveler’s checks, or stored value
  • U.S. Postal Service

Registering with the Federal Government

MSBs are required to register with FinCEN and comply with a variety of record keeping, reporting, and anti-money laundering obligations under FinCEN regulations and the USA Patriot Act. Additionally, 49 of the 50 states have adopted MSB regulations that generally reflect the requirements set forth at the federal level. You can get assistance setting up a money service firm from an experienced compliance lawyer.

Unless a person or company is merely an MSB because they act as an agent of another MSB, every MSB must register with FinCEN by electronically submitting FinCEN Form 107, Registration of Money Services Business. The controlling person or the owner of the MSB shall register within a 180-day period beginning on the day after the date the MSB is founded. They must also submit a new Form 107 to renew their MSB registration every two calendar years after the first registration.

the registration process involves providing FinCEN with a wealth of crucial information about the MSB, including the nature of the business it conducts, the financial institutions and bank accounts through which transactions may be occurring, who owns or controls the MSB, and the number of branches and/or agents that are active in the US. To avoid having to make corrections later, extra care should be taken to meet all deadlines and supply FinCEN with accurate information throughout the registration process.

AML Requirements

MSBs are subject to the AML requirements of the USA Patriot Act and FinCEN regulations. The purpose of these regulations is to detect, deter, and prevent money laundering activities. All MSBs must establish an effective anti-money laundering program.

Money Service Businesses must have a compliance program in place to prevent money laundering. MSBs may face a significant regulatory burden as a result of being classified as financial institutions. Although they are advised, other parts of federal regulation, such economic sanctions, do not require a compliance program.

The organization must validate transaction goals and verify information about involved parties through its AML compliance program. Federal regulators enforce these measures to safeguard the American financial system from illegal activities and misuse.

Baseline standards dictate necessary information and record retention, but AML program requirements vary with transaction volume and MSB specifics. Banks handling high transaction volumes may require advanced AML programs with integrated interdiction software for effective screening and flagging.

Developing an Effective AML Program for Money Service Businesses

An anti-money laundering (AML) compliance program must be created and implemented by all MSBs. Individuals should be effectively prevented by the program from utilizing the MSB to support money laundering or financing terrorism. Each program needs to be created and account for the risks that come with it, typical AML compliance program should include:

  • Appoint an AML compliance officer :

This individual is responsible for administering the program, and will be the one to contact with all questions related to AML compliance. Candidates for this role must be very knowledgeable about sources of regulatory data, compliance analysis tools, and related rules. A compliance officer must also have substantial financial industry experience, preferably in AML compliance, legal matters, or internal risk audits. An additional requirement is a professional certification (CAMS, CAFP, CRCM, etc).

  • Evaluating the company’s total risk depending on the type of the business:

This includes assessing risks associated with different types of customers, geographic locations, products and services that the MSB offers. Developing internal policies and procedures: These should include customer due diligence measures (KYC/CDD) as well as risk-based transaction monitoring, record keeping and reporting obligations. Documentation is key in this process

  • Incorporate policies, procedures, and internal controls that are reasonably designed to ensure that the BSA is followed:

This includes setting up a system to ensure that new employees are trained in the specific procedures of their role, and that these policies are followed throughout the company. Communication should also be established between all departments involved in compliance, such as management, legal, operations, IT and customer service.

  • Reporting Suspicious Activities:

Red flags must be immediately identified, such as unusually large transactions and bank accounts formed with insufficient customer information. Any fictitious information provided by a client also constitutes a significant red flag that requires immediate attention and action.

  • Educate and train staff on how to properly follow AML requirements:

Make sure that all personnel are aware of their obligations under the program and have been trained in properly identifying suspicious activities. It is also important to keep staff updated with any changes or updates in AML regulations.

  • Periodic independent reviews to maintain the program’s effectiveness:

Depending on the size and complexity of the MSB, it may be beneficial to hire a third-party firm that specializes in AML compliance programs to review the program’s effectiveness. This should be conducted at least annually.

These are key points for creating an effective AML compliance program for a Money Service Business (MSB). Each MSB must evaluate their risk factors and devise a program fitting their unique needs. A robust AML compliance program ensures meeting legal obligations and securing finances. It is crucial for the program to be monitored, updated, and tested as regulations and customer requirements change.

MSBs should consider technology needs based on business nature, transaction volume, and compliance data requirements. Technology enhances efficiencies in handling compliance demands. Regularly updating the AML program ensures it stays effective and relevant. Proper implementation protects the business from financial crimes and regulatory issues.

Finally, a successful AML compliance program is only as strong as its implementation and enforcement. Ensure that all staff are properly trained in the program and understand their obligations under the law. It is also important to make sure that all policies, procedures, and reports are regularly reviewed and updated when needed. By staying vigilant on your AML compliance program, you can ensure that your business remains compliant and secure.

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