Check Cashing Compliance

Check Cashing Compliance

November 16, 2016

Check cashing compliance is another facet of your check cashing business that you have to juggle. In addition to balancing your business, your check cashing bank account, your employees, and your clients, compliance is top of mind. This is a tall order. To make matters more complicated, check cashing regulation is constantly changing – and so are your requirements. Furthermore, two different types of money service businesses need to be address: unregulated or unlicensed MSBs and regulated or licenses MSBs.

Unregulated check cashers are those cashing less than $1,000 per customer per day. These unlicensed MSBs are often businesses who offer retail check cashing services through an existing location.  They do not face the same check cashing compliance pressures as regulated MSBs. Unregulated check cashers do still, however, have a strong incentive to stay compliant in order to protect their business from check cashing fraud.

For regulated check cashers, like stand alone check cashing outlets cashing over $1,000 per day per person, compliance will make or break their operations. These licensed check cashers are subject to both Federal and State regulation. If you fall into this category, make sure you understand both components of the check cashing compliance requirements.

Demystifying Check Cashing Compliance

At its core, check cashing compliance is about transparency. The nature of the check cashing industry makes clear communication, customer identification, and record keeping extremely important for staying compliant. Check cashing compliance has one goal: prevent financial crimes. These crimes can include money laundering, check fraud, tax fraud, and terrorist funding.

Check cashers provide vital financial services to people who do not have access to a bank account. Unfortunately, criminals attempt to take advantage of the system in order to commit financial fraud and launder money. Recently, North Miami business owner Junior Jean Baptiste cashed 2,000 tax refund checks, totaling $11million, that were written out to the names of dead people. From 2009 to 2011, Baptiste created false identification documents and committed tax fraud (The Miami Herald).

In other instances, check fraud is committed by cashing forged IRS checks, stolen checks, or fake business checks. Check cashing compliance systems provide a method for your business and employees to screen customers and record transactions. There are several different components to check cashing compliance, which are discussed below. A robust MSB compliance program includes methods for: identifying customers, running customers through a larger database, recording transactions, clearly communicating with your banking partner, and mitigating your risk at every step of the check cashing process.

KYC for Check Cashing Compliance

Cases like Baptiste’s point out the importance of transparency at every stage of the check cashing process. The Financial Crimes Enforcement Network (FinCEN) created their Know Your Customer (KYC) guidelines in an effort to combat financial crimes like tax fraud. KYC is part of a larger effort to regulate customer due diligence, which helps check cashers and their banks accurately identify customers and determine the nature of their business relationships.

KYC efforts include enhanced customer due diligence practices like POS identification systems, diligent Suspicious Activity Reporting (SARS), and thorough record-keeping for check cashing transactions. Additionally, check cashers should send the data they gather on customer identity to their financial institutions to keep the line of communication open. Proper KYC efforts help prevent identity theft, financial fraud, money laundering, and terrorist financing.

How FinCEN Shapes Check Cashing Compliance

In addition to KYC, FinCEN is in charge of outlining and implementing all Federal regulation for check cashers, including The Bank Secrecy Act (BSA). The BSA is a set of laws that govern the compliance programs of check cashers and other money service businesses.

The BSA requirements for check cashers outlined by FinCEN are numerous and include:

  1. Proper MSB registration and renewal
  2. Keep and maintain a complete MSB agent list
  3. MSB suspicious activity reporting (SARS)
  4. Establish a written Anti Money Laundering (AML) program
  5. Conduct independent AML program reviews
  6. Currency transaction report
  7. Record keeping for the transmittal of funds
  8. Record keeping by prepaid access providers
  9. Record keeping for purchases of bank checks, bank drafts, cashier’s checks, money order, or traveler’s checks for $3,000+
  10. Foreign located MSBs must designate person in the US as an agent to accept service of legal process, including BSA compliance
  11. Record retention requirements

As part of their BSA obligations, check cashers must design, implement, and keep records for an Anti-Money Laundering program. AML rules are meant to help check cashers detect and report suspicious activity, ideally before it balloons into a large scale financial fraud, money laundering, or terrorist financing.

Potential Downfalls of Check Cashing Compliance Regulation

Check cashing compliance is a double-edged sword. While AML regulation is designed to stop financial crime, it has an unintended negative impact on legal, compliant check cashing businesses. In 2013, for example, FinCEN published a list of risky businesses, aimed at helping financial institutions mitigate their risk.

This list named check cashers, payday lenders, and other money service businesses as “risky” and lead to indiscriminate derisking by banks across the United States. This list has since been dubbed, Operation Choke Point. OCP shows how Federal regulation can have harmful effects for an entire industry and shut down even fully compliant check cashing businesses. Now, a check casher needs to prove his or her compliance beyond a reasonable doubt and enforce a comprehensive AML program.

NCC’s Check Cashing Compliance Solution

National Check and Currency understands the intricacies of check cashing compliance. Furthermore, NCC has a robust compliance department that helps keep MSB clients compliant. NCC has former Federal agents, financial regulators, and law enforcement officials on their side to help money service business clients stay compliant.

One benefit of proven check cashing compliance is NCC’s ability to recruit multiple banking partners. These redundant financial institutions provide banking continuity through an exclusive network of redundant check cashing banks.

NCC’s director of banking, Mark Ochab, is a former Federal Agent with hands-on experience fighting financial crime. Mark and NCC’s compliance department help NCC stay ahead of the curve as regulations are handed down.

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