GUIDANCE TO MONEY SERVICES BUSINESSES ON OBTAINING AND MAINTAINING BANKING SERVICES

April 26, 2005

Advisory

GUIDANCE TO MONEY SERVICES BUSINESSES ON OBTAINING AND

MAINTAINING BANKING SERVICES

This Advisory emphasizes the obligations of money services businesses under the Bank

Secrecy Act, and outlines the information and documentation those businesses should have

and be prepared to provide when seeking to open or maintain account relationships with

banking organizations.

Background

In response to concerns by money services businesses and banking organizations alike, on

March 30, 2005, the Financial Crimes Enforcement Network (“FinCEN”) and the Federal

Banking Agencies1 issued a joint statement recognizing the importance of ensuring that

money services businesses that comply with the law have reasonable access to banking

services. The statement also confirmed that banking organizations should apply the Bank

Secrecy Act requirements to money services businesses, as they do with all accountholders,

on a risk-assessed basis.

As a follow-up to the joint statement, FinCEN and the Federal Banking Agencies are issuing

joint guidance to banking organizations to clarify the requirements of the Bank Secrecy Act

and to set forth the minimum steps that banking organizations should take when providing

banking services to money services businesses. FinCEN is issuing this document

concurrently to identify and explain to money services businesses the types of information

and documentation they are expected to have and to provide to banking organizations.

Money Services Businesses Compliance with the Bank Secrecy Act and Other

Applicable Requirements

FinCEN has defined money services businesses to include five distinct types of financial

services providers and the U.S. Postal Service: (1) currency dealers or exchangers; (2) check

cashers; (3) issuers of traveler’s checks, money orders, or stored value; (4) sellers or

redeemers of traveler’s checks, money orders, or stored value; and (5) money transmitters

Other

Applicable Requirements

FinCEN has defined money services businesses to include five distinct types of financial

services providers and the U.S. Postal Service: (1) currency dealers or exchangers; (2) check

cashers; (3) issuers of traveler’s checks, money orders, or stored value; (4) sellers or

redeemers of traveler’s checks, money orders, or stored value; and (5) money transmitters.

There is a threshold requirement for businesses in the first four categories – a business that

1 The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the

National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift

Supervision.

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engages in such transactions will not be considered a money services business if it does not

engage in such transactions in an amount greater that $1,000 for any person on any day in one

or more transactions. See 31 CFR 103.11(uu). Among other requirements, certain money

services business principals are required to register with FinCEN.2 Additionally, many states

require money services businesses to obtain a license.

Money services businesses provide valuable financial services, especially to individuals who

may not have ready access to the formal banking sector. Like other financial institutions,

money services businesses must take reasonable steps to guard against money laundering and

the financing of terrorism by assessing the risks and vulnerabilities associated with their

operations and understanding and complying with the requirements of the Bank Secrecy Act

and applicable state laws.3 It is critical that the money services business industry maintain the

same level of transparency, including the implementation of the full range of anti-money

laundering controls required by law, as do banking organizations

ng the risks and vulnerabilities associated with their

operations and understanding and complying with the requirements of the Bank Secrecy Act

and applicable state laws.3 It is critical that the money services business industry maintain the

same level of transparency, including the implementation of the full range of anti-money

laundering controls required by law, as do banking organizations.

The money services business industry has, as a whole, joined us in the fight against money

laundering and the financing of terrorism by diligently implementing the requirements of the

Bank Secrecy Act as well as similar state-based requirements. Industry leaders have made

compliance a top priority. Yet the money services business industry, and the range of

products and services offered and customer bases served, are extremely diverse. Thus, over

the past several years, we have devoted considerable resources to conduct aggressive outreach

and education campaigns concerning Bank Secrecy Act requirements.4 Despite those efforts,

some in the industry, particularly those that offer these services only as an ancillary

component of their primary business, appear to be unfamiliar with or unaware of their

obligations under the Bank Secrecy Act, even if they have been in business for some time.

Given the importance of compliance with the anti-money laundering requirements to the

protection of our financial system and our national security, money services businesses that

fail to comply with even the most basic requirements of the Bank Secrecy Act, such as

registration with FinCEN if required, not only are subject to regulatory and law enforcement

scrutiny, but also are likely to lose banking services that enable them to function. We will

continue to work closely with the Internal Revenue Service and state regulators going forward

to ensure compliance while at the same time providing all money services businesses with the

necessary resources and support

ion with FinCEN if required, not only are subject to regulatory and law enforcement

scrutiny, but also are likely to lose banking services that enable them to function. We will

continue to work closely with the Internal Revenue Service and state regulators going forward

to ensure compliance while at the same time providing all money services businesses with the

necessary resources and support.

2 See 31 CFR 103.41. The registration requirement applies to all money services businesses (whether or not

licensed as a money services business by any state) except the U.S. Postal Service; agencies

of the United States, of any state, or of any political subdivision of a state; issuers, sellers, or redeemers of stored

value, or any person that is a money services business solely because that person serves as an agent of another

money services business (however, a money services business that engages in activities described in §

103.11(uu) both on its own behalf and as an agent for others is required to register).

3 A comprehensive summary of the Bank Secrecy Act requirements applicable to money services businesses is

located at http://www.msb.gov/.

4 Additional resources are provided for money services businesses at the end of this Advisory.

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Obtaining Banking Services – Basic Information Concerning the Money Services

Business and Account Activity

Banking organizations have been instructed, at a minimum, to take the following steps when

determining whether to open or maintain an account for a money services business:

‰ Obtain basic identifying information about the money services business through the

application of their Customer Identification Program;5

‰ Confirm FinCEN registration, if required;

‰ Confirm compliance with state or local licensing requirements, if applicable;

‰ Confirm agent status, if applicable; and

‰ Conduct basic risk assessment to determine the level of risk associated with the

account to solicit additional i

nformation about the money services business through the

application of their Customer Identification Program;5

‰ Confirm FinCEN registration, if required;

‰ Confirm compliance with state or local licensing requirements, if applicable;

‰ Confirm agent status, if applicable; and

‰ Conduct basic risk assessment to determine the level of risk associated with the

account to solicit additional information, as deemed necessary.

A money services business should be prepared to provide this information to its banking

organization when seeking to open an account or when requested to do so by its banking

organization for purposes of maintaining an existing account relationship. Registration with

FinCEN, if required, and compliance with any state licensing requirements represent the most

basic of compliance obligations for money services businesses; a money services business

operating in contravention of registration or licensing requirements would be violating

Federal and possibly state laws.6 As a result, banking organizations will require confirmation

of a money services business’s registration and licensing status prior to opening an account.

The extent to which a banking organization will seek additional information from a money

services business beyond the minimums outlined above will be dictated by the banking

organization’s assessment of the level of risk posed by the individual customer. Care has

been taken to remind the banking industry that not all money services businesses pose the

same level of risk, and that not all money services businesses will always require additional

due diligence. In some cases, the amount of additional customer due diligence performed by

a banking organization will be negligible. In other situations, the additional due diligence

performed will be extensive

een taken to remind the banking industry that not all money services businesses pose the

same level of risk, and that not all money services businesses will always require additional

due diligence. In some cases, the amount of additional customer due diligence performed by

a banking organization will be negligible. In other situations, the additional due diligence

performed will be extensive.

Like other financial institutions subject to the Bank Secrecy Act, money services businesses

must assess the risks of their operations as a step in developing effective anti-money

laundering programs. Money services businesses seeking to obtain or maintain account

relationships with banking organizations should be prepared to provide information or

explanation to their banking organizations about the risks associated with the services offered,

the customer base, the markets served, and the locations of the money services business.

5 Banking organizations are required to implement a Customer Identification Program. See 31 CFR 103.121

(FinCEN); 12 CFR 21.21 (Office of the Comptroller of the Currency); 12 CFR 208.63(b), 211.5(m), 211.24(j)

(Board of Governors of the Federal Reserve System); 12 CFR 326.8(b) (Federal Deposit Insurance Corporation);

12 CFR 563.177(b) (Office of Thrift Supervision); 12 CFR 748.2(b) (National Credit Union Administration).

6 In addition to violating the FinCEN registration regulation, which can result in both civil and criminal

penalties, failure to register with FinCEN is a violation of 18 U.S.C. 1960. See U.S. v. Uddin, No. 04-CR-80192

(E.D.Mich. April 11, 2005). Under certain circumstances, failure to obtain a required state license to operate a

money services business can also result in a violation of 18 U.S.C. 1960. See U.S. v. Velastegui, 199 F.3d 590

(2nd Cir. 1999).

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n result in both civil and criminal

penalties, failure to register with FinCEN is a violation of 18 U.S.C. 1960. See U.S. v. Uddin, No. 04-CR-80192

(E.D.Mich. April 11, 2005). Under certain circumstances, failure to obtain a required state license to operate a

money services business can also result in a violation of 18 U.S.C. 1960. See U.S. v. Velastegui, 199 F.3d 590

(2nd Cir. 1999).

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Such information may be very simple for many small money services businesses operating in

local areas with limited products, in contrast with sophisticated, global money services

businesses. Accordingly, money services businesses should be prepared to provide and

explain to their banking organizations certain basic operational information:

• Types of products and services offered by the money services business

A money services business should help its banking organization understand –

; the categories of services engaged in by the particular money service business;

; whether the money service business is a “principal” (with a fleet of agents) or an

agent of another money services business;

; whether the money services business is new or an established operation; and

; whether or not money services represent a primary or ancillary aspect of the

business (such as a grocery store that derives a small fraction of its overall revenue

from cashing checks).

• Location(s) and Market(s) served by the money services business

A money services business should help its banking organization understand –

; the markets it targets;

; the locations it serves;

; whether it offers international services; and

; whether it caters exclusively to local residents

a grocery store that derives a small fraction of its overall revenue

from cashing checks).

• Location(s) and Market(s) served by the money services business

A money services business should help its banking organization understand –

; the markets it targets;

; the locations it serves;

; whether it offers international services; and

; whether it caters exclusively to local residents.

• Anticipated account activity

A money services business should help its banking organization understand –

; the services the business intends to use, such as currency deposits or withdrawals,

check deposits, or funds transfers;

; the branch locations the business intends to use;

; estimated transaction amounts;

; any external or seasonal factors that may impact expected transactions.

• Purpose for the account

A money services business should be prepared to explain to its banking organization the

purposes for which its accounts would be used. For example, a money transmitter might

require a bank account to remit funds to its principal U.S. clearing account or may intend

to use the account to remit funds cross-border to foreign-based agents.

Finally, banking organizations have been advised to take additional steps in circumstances

where, based on the collection of the information described above, heightened risk has been

identified. Once again, care has been taken to explain that these additional steps are not

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ipal U.S. clearing account or may intend

to use the account to remit funds cross-border to foreign-based agents.

Finally, banking organizations have been advised to take additional steps in circumstances

where, based on the collection of the information described above, heightened risk has been

identified. Once again, care has been taken to explain that these additional steps are not

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appropriate in all cases and should not be considered the standard to be applied to all money

services business accounts. Money services businesses should nonetheless be prepared to

provide additional information to banking organizations, including details into the operation

of their business and their anti-money laundering program. Such additional information could

include –

; The money services business’s anti-money laundering program;7

; The results of the money services business’s independent testing of its anti-money

laundering program;8

; Review list of agents, including locations, within or outside the United States, that

will be receiving services directly or indirectly through the money services

business account;

; Written procedures for the operation of the money services business;

; Written agent management and termination practices for the money services

business; or

; Written employee screening practices for the money services business.

Given the diversity of the money services business industry, and the directive in our

regulations to apply the requirements of the Bank Secrecy Act on a risk-assessed basis, the

extent and content of information identified above will vary markedly

management and termination practices for the money services

business; or

; Written employee screening practices for the money services business.

Given the diversity of the money services business industry, and the directive in our

regulations to apply the requirements of the Bank Secrecy Act on a risk-assessed basis, the

extent and content of information identified above will vary markedly.

314(b) Voluntary Information Sharing

Section 314(b) of the USA PATRIOT Act of 2001 allows certain financial institutions, after

providing notice to FinCEN, to voluntarily share information with each other for the purpose

of identifying and, where appropriate, reporting possible money laundering or terrorist

financing under protection of legal safe harbor.9

Banks and money services businesses can utilize Section 314(b) information sharing to work

together to identify money laundering and terrorist financing. While participation in the

7 FinCEN’s regulations require money services businesses to establish anti-money laundering programs tailored

to their operations and the risks posed. 31 CFR 103.125. For example, the anti-money laundering program of a

small money services business involved solely in the transmission of funds in small amounts will differ

dramatically from the global money services business with both domestic and foreign agents.

8 FinCEN’s regulations do not require money services businesses to retain outside auditors to conduct the

independent test of an anti-money laundering program. 31 CFR 103.125; 67 Fed. Reg. 21114 (Apr. 29, 2002) at

21115. This is especially important for small money services businesses that may not have the ability to retain

an outside auditing firm

s with both domestic and foreign agents.

8 FinCEN’s regulations do not require money services businesses to retain outside auditors to conduct the

independent test of an anti-money laundering program. 31 CFR 103.125; 67 Fed. Reg. 21114 (Apr. 29, 2002) at

21115. This is especially important for small money services businesses that may not have the ability to retain

an outside auditing firm.

9 Section 314(b) of the USA PATRIOT Act, as implemented by 31 CFR 103.110, establishes a safe harbor from

liability for a financial institution or association of financial institutions that voluntarily chooses to share

information with other financial institutions for the purpose of identifying and, where appropriate, reporting

money laundering or terrorist activity. To avail itself of the 314(b) safe harbor, a financial institution must

comply with the requirements of the implementing regulation, 31 CFR 103.110, including notice to FinCEN,

verification that the other financial institution has submitted the requisite notice, and restrictions on the use and

security of information shared. The safe harbor afforded by Section 314(b) is only available to financial

institutions that are required to implement an anti-money laundering program, which includes banks regulated by

a federal functional regulator (see 31 CFR 103.120) and money services businesses (see 31 CFR 103.125). For

additional information on the 314(b) voluntary information sharing program, or to submit a notice to FinCEN to

share information voluntarily, please refer to http://www.fincen.gov/.

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ns that are required to implement an anti-money laundering program, which includes banks regulated by

a federal functional regulator (see 31 CFR 103.120) and money services businesses (see 31 CFR 103.125). For

additional information on the 314(b) voluntary information sharing program, or to submit a notice to FinCEN to

share information voluntarily, please refer to http://www.fincen.gov/.

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314(b) information sharing program is voluntary, FinCEN encourages banking organizations

and their money services business customers to consider how voluntary information sharing

could enable each institution to more effectively discharge its anti-money laundering and

suspicious activity monitoring obligation.

Additional Resources

FinCEN has made comprehensive resources available to money services businesses, free of

charge, that provide information about compliance with the Bank Secrecy Act and explain

how money services businesses can prevent money laundering.

FinCEN has established a web site, http://www.msb.gov/, dedicated to money services

business regulations and guidance, such as FinCEN Rulings and answers to frequently asked

questions.

Free, easy-to-understand educational materials include:

• “Quick Reference Guide to Bank Secrecy Act Requirements for Money Services

Businesses;”

• “Guide to Money Laundering Prevention;”

• Posters and “Take One” cards, available in multiple languages and bi-lingual versions,

to inform money services business customers about Bank Secrecy Act requirements

and help customers understand why the business must ask for personal information;

and

• Videos and CD-ROMs, in English and Spanish, with case studies designed to educate

money services business employees about the Bank Secrecy Act requirements

e One” cards, available in multiple languages and bi-lingual versions,

to inform money services business customers about Bank Secrecy Act requirements

and help customers understand why the business must ask for personal information;

and

• Videos and CD-ROMs, in English and Spanish, with case studies designed to educate

money services business employees about the Bank Secrecy Act requirements.

Money services businesses can obtain these free educational materials by:

• Submitting an online order form through http://www.msb.gov/ (fastest option)

• Printing an order form from http://www.msb.gov/ and faxing to 1-800-773-8356 or

mailing to:

Money Services Business Program Office

P.O. Box 39

Vienna, VA 22183

• Phoning an order to 1-800-386-6329

FinCEN Regulatory Helpline – 800-949-2732 – for questions concerning Bank Secrecy Act

requirements.

FinCEN Financial Institutions Hotline – 866-556-3974 – to report suspicious activity that may

be related to terrorist financing or ongoing money laundering schemes.

Money Transmitter Regulators Association (http://www.mtraweb.org) - the association of state

regulators of the money transmitter industry.

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