Firms find that sound compliance depends on establishing a tiered approach to reviewing money services businesses
Posted on April
2, 2008
By Steve Cocheo, executive editor,
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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.]
Trackback(0)
|
TrackBack URI for this entry
Subscribe to this comment's feed
