SARs on MSBs

Common Reasons for SARs AGAINST MSBs

Money services businesses are considered potentially high risk for money laundering and terrorist financing activities. An MSB’s bankers will be reviewing its account relationship and transaction history on an ongoing basis using a combination of automation and periodic human review of transaction history. Depending upon what the bank sees or fails to see, an MSB’s bank could file a suspicious transaction report (SAR) concerning the MSB. And, just like MSBs must keep the filing of SARs confidential and not tip off customers, so too must banks. It is pretty safe for an MSB to assume, however, that a SAR has been or soon will be filed against it if its bank identifies that the business is subject to compliance with the Bank Secrecy Act and is failing to comply. An MSB might reasonably determine that the bank has identified non-compliance as a result of conversations where it is apparent the business is not complying, as a result of questions about certain transaction activities, or as a result of letters requesting proof of registration and compliance for which the business has not responded with affirmative proof of compliance. If the MSB is not currently complying with the BSA, the best course of action is to communicate with the banker, manage the relationship, and promptly take actions to come into compliance. The following types of activities are among the most common reasons for filing a SAR against an MSB:

Registration issues

The bank’s customer is identified as a principal MSB but has failed to register with the Financial Crimes Enforcement Network as a Money Services Business. OR, the customer has failed to maintain its registration with FinCEN.

A business may simply not realize it is an MSB subject to compliance with the Bank Secrecy Act. As they say though, ignorance of the law is no excuse. The bank may contact its customer as a courtesy and advise it of its responsibilities to register with FinCEN as an MSB. In this scenario, the business’ account relationship is maintained and the business given time to understand and meet the registration requirement. If the requirements are not met in a timely manner, the bank would then take action to close the account relationship. Sometimes, however, a bank may take action to close the relationship concurrently with its notification to the business that it has been identified as an MSB. The bank will file a Suspicious Activity Report on the business for failing to meet the registration requirement under the Bank Secrecy Act. In no case will the bank indicate that it has filed a SAR or will be doing so – it is under legal obligation not to disclose such information. If the bank maintains the account relationship and the business delays in coming into compliance through registration with FinCEN, the bank will file supplemental SARs every 90 days on the business.

Licensing issues

The bank’s customer has failed to obtain or maintain licensing under the requirements of state law.

For example, a bank recognizes through activity monitoring that a business customer is cashing checks or even transmitting funds for its customers but has not obtained a license to do so as required under the laws of the state in which it is doing business. The bank MAY contact its customer as a courtesy and advise it of its responsibilities to register or obtain licensing under state law. Typically, this notice will also indicate an expected time period in which the oversight will be corrected; if registration or licensing is not obtained within the indicated time frame, the bank will typically take action to close the business’ account relationship. The business will also file a Suspicious Activity Report on the business for failing to meet the state’s licensing or registration requirements. In no case will the bank indicate that it has filed a SAR or will be doing so – it is under legal obligation not to disclose such information. If the bank maintains the account relationship and the business fails to meet the licensing requirement (or to stop the offending activities), the bank will file supplemental SARs every 90 days.

Ineffective BSA/AML compliance program

The bank becomes aware of a material failure of the MSB to maintain an effective BSA/AML compliance program as required under the Bank Secrecy Act.

FinCEN has given banks guidance on the minimum information gathering to be performed when managing the risk of banking MSBs. Some banks simply do not bank MSBs. Others will bank, asking for the basic information… and asking for more information depending upon the risk tolerance decisions of the bank and depending upon their assessment of the risks associated with a particular MSB. If conversations, correspondence, site visits or the review of supplied documentation indicate a failure to meet compliance obligations, the bank may file a SAR against the MSB. What might the bank identify as “missing”?

  • registered MSB has not named a compliance officer,
  • written, risk-based AML policies and procedures nonexistent or inadequate,
  • MSB staff are untrained and unaware of their responsibilities,
  • MSB has not had a documented independent review as required.

Some of these things may not necessarily result in a SAR filing. The bank may give notice of the perceived or actual deficiency and give the MSB time to provide proof of improved compliance. For example, if a higher risk MSB has a one page independent review written by the owner’s untrained mother-in-law… the bank might ask for a immediate independent review by a qualified party.

Structuring

The bank observes a pattern of transactions whereby cash is deposited or withdrawn in an apparent attempt to avoid or evade the Currency Transaction Report (CTR) filing requirements.

Some examples of suspicious observed activities might include:

  • Cash withdrawals or deposits at $9,900.00
  • Cash withdrawals below $10,000.01 with checks payable to self deposited to other banks or cashed at other MSBs.
  • Cash deposits below $10,000.01 with checks payable to self from accounts at other banks being deposited.
  • Cash deposits below $10,000.01 with check deposits including money orders payable to self purchased from other MSBs.
  • MSB employee makes a deposit or withdrawal that is reportable and fails to provide identifying information for the reportable transaction when it is requested of him/her.
  • MSB employee seeks to change a transaction to prevent it from being reported when asked for identifying information.

Potential Money Laundering or Terrorist Financing

Potential Money Laundering or Terrorist Financing

  • Transaction activity appears strange and without any apparent business purpose.
  • Movement of funds to/from accounts of the business and/or owners and/or related entities at other banks without any apparent lawful purpose or reason.
  • Significant, unexplained change in transaction patterns from that expected or normal for similar businesses
  • Wire transfer activity to/from entities outside the United States – especially when involving higher risk geographies

False Statements

False statements, material misrepresentations,

  • False statements in loan requests and transactions
  • Falsehoods identified in tax returns or material differences between tax returns and loan requests
  • Misrepresentation of activities of the business
  • Misrepresentation or failure to fully disclose material facts requested in applications, requests

If your business is not complying with the Bank Secrecy Act, don’t delay further but take prompt action to come into compliance. Also, work with your banker to manage your relationship before its too late; MSBs that lose their bank find it very difficult to find a replacement. You can find information to assist you in complying on this web site and in the Money Services Business Bank Secrecy Act / Anti-Money Laundering Compliance Guide available for sale on this site.