Firms find that sound compliance depends on establishing a tiered approach to reviewing money services businesses

By Steve Cocheo, executive editor,  ABA Banking Journal, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

 

[This article was posted on April 2, 2008 on www.ababj.com, the website of ABA Banking Journal, copy right 2008 by the American Bankers Association.]

Handling the compliance responsibilities that arise when providing banking services to check cashing companies, remittance transmitters, and other money services businesses defies cookie-cutter compliance efforts. And while regulators want banks to follow regimented policies and procedures in the anti-money-laundering/Bank Secrecy Act area, judgment and balance are called for.
    “The one-size-fits-all approach to money services businesses doesn’t work,” said attorney Ezra C. Levine. “You need to look at the differences in size of the MSBs that you work with.”
    Levine, partner at Howrey LLP, Washington, D.C., moderated a panel on “Dealing with Small MSBs” during the annual Money Laundering Enforcement Conference, sponsored by ABA and the American Bar Association, in late October 2007. Panelists from a large bank that services large and small MSBs, and two MSBs, addressed the program topic.

Splitting MSBs at Wells Fargo
At Wells Fargo Bank N.A., San Francisco, large MSBs are banked by the company’s wholesale group, and smaller MSBs are banked by the organization’s retail banking side. So, while parent companies or central suppliers of money service operations would be handled by the wholesale side, the retail locations of agents that, for example, handle Western Union money transfers, would be handled by the retail group. In terms of business volume, firms generating less than $20 million in revenue from money services would be considered “small” MSBs.
    Wells conducts regular audits of its MSB customers—some on site—to determine whether to continue banking them or to decline to work with them any longer, according to speaker P.K. Prakash, senior vice-president and wholesale group BSA officer and policy/compliance manager, in the company’s international and insurance services group. These audits are conducted as part of the bank’s risk assessment process, to determine which MSBs fit within the parameters that the bank is willing to accept as appropriate for its customers.
    Prakash says that in the bank’s audit and review efforts with MSB customers it is careful to explain that it not assuming any regulatory role. (The company conducts approximately 60-70 evaluations of large MSBs and a couple of hundred evaluations of smaller MSBs.) This is even though each MSB’s policies and procedures for filing Suspicious Activity Reports and Currency Transaction Reports are examined. Prakash explained that for Wells this effort is a matter of customer screening. He said that it is recognized that companies of differing sizes typically have different degrees of controls inanti-money-laundering efforts.
    The MSB business has been marked by a significant degree of acquisition activity, with larger MSBs acquiring smaller ones, or smaller ones gobbling up other small ones and becoming larger as a consequence. Thus, Prakash said, his operation must be sensitive to transitions in organizations as this evolution continues. Another market factor that his operation is sensitive to isnichemanship among MSBs. He explained that some MSBs specialize in moving money to one country or region, for instance. This is on top of the differing risks posed by different types of MSBs. Check cashers, money transmitters, and other firms have different exposures to money laundering and related risks.

Splitting the MSB universe at Western Union
In a similar fashion, Western Union Financial Services tiers the many, many agent organizations and relationships through which it provides MSB services through. Joseph Cachey III, senior vice-president, explained that the firm has three levels of agent, among its 50,000 agent relationships:
• National accounts—These are agent deals with very large organizations, such as the largest grocery and retail chains that provide MSB services of Western Union through their retail locations.
• Regional accounts—These agent deals are with smaller agents, but still companies that do business over multiple states.
• Check cashers—Relationships with these MSBs are broken further down by the size of the operation.
    Tiering the MSBs enables Western Union to review the compliance efforts of each category in an appropriate manner, according to Cachey, who is in charge of external partnerships, leadership and strategies in the AML Global Compliance section of the Englewood,Colo.-based company. The Kroger chain, for instance, has training and other compliance tools in place, far different from a mom-and-pop agent.
    “One-size-fits-all is not the way the world works,” said Cachey. “Size matters, and it’s OK to do some thing different if you are looking at a different situation.”

MSBs and the regulators’ revised manual
Indeed, the latest revisions to the interagency  Bank Secrecy Act/Anti-Money-Laundering Examination Manual, released in August 2007, were made, in part, with the challenges of doing business with MSBs in mind. Speaker Anthony Luis Rodriguez, chief global compliance officer of RIA Financial Services, gave his views on the revisions that relate to MSBs. (RIA is the “dba” of Continental Exchange Solutions, Inc., and is the world’s third-largest global money-transfer company. It provides, under different names in different parts of the world, money transfer, bill payment, money order, and check cashing services.)
    Rodriguez says that the 2007 revisions gave bankers and MSBs some additional guidance, though they are not revolutionary changes. He characterized them as a step in the right direction. Especially helpful for smaller MSBs, he said, was the definitive notice that banks will not be held responsible to effectively be regulators of MSBs’ compliance efforts, although they must review their clients’ risk assessment efforts as part of their own risk management efforts, as described by Wells Fargo’s Prakesh, above. Thus, while matters are some what clearer, he said, they can still become sticky for the smaller MSB, although he felt that, overall, the revisions will have a beneficial effect on the small firms.
    By contrast, in Rodriguez’ opinion, “for large players, the revised manual doesn’t make much of a difference.”
    However, attorney Levine said that in spite of there gulators’ adjustments, the message, overall, for some bank players from their examiners still remains: drop your MSB customers, they are too risky.
    Levine noted that, at the time of the presentation, the staff of the Financial Crimes Enforcement Network, www.fincen.gov, was supposed to be bringing out a revised definition of  an MSB soon. (As of mid-February 2008, this had not occurred. However, several letter rulings published on the FinCEN website since the conference clarify the applicability of the MSB definition to certain types of firms conducting certain types of activities.)
    Tom Haider, representative on the panel of another large MSB, wasn’t satisfied with governmental efforts made to date. Haider, vice-president, government affairs, and chief compliance officer at MoneyGram International, Minneapolis, noted that the current definition still covers everything from a mom-and-pop deli that cashes the occasional check to very large corporations like his own.
    “That’s just goofy,” said Haider. “It doesn’t make sense.”
    Haider pointed out that for many of the agent locations doing business with his firm, MSB activities are only one aspect of all the services that they provide.
    Further, Haider said that while even the small players must try to set up systems for detecting illicit activity, the effort may be wasted.
    “The bad guys, they know what the rules are,” said Haider. “They’re going from store to store around town,” trying to fly under the compliance radar. BJ

[This article was posted on April 2, 2008 on www.ababj.com, the website of ABA Banking Journal, copy right 2008 by the American Bankers Association.]