Regulators are cracking down on financial institutions with insufficient or non existent anti-money laundering (AML) programs. Between January and June of 2017, FinCEN brought two actions for AML violations against financial institutions, one resulting in a $184 million penalty.
According to the enforcement cases, faulty AML programs lead to a breakdown in reporting, including a lack of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). Both of these reports are integral to a comprehensive and efficient compliance protocol.
Anti-Money Laundering Regulation
AML regulation is enforced by the Financial Crimes Enforcement Network (FinCEN) in accordance with the Bank Secrecy Act (BSA) of 1970. The BSA outlines the systems, standards, and controls for financial institutions. Specifically, the BSA requires financial institutions to work alongside government agencies to prevent, detect, and prosecute financial crime.
Under the BSA, financial institutions are required to design, implement, and report on their AML efforts. The BSA was designed to encourage coordination and clear communication between financial institutions and enforcement agencies. To achieve this goal, financial institutions are required to follow protocol for record keeping and reporting.
This protocol includes:
- Keeping records of cash purchases of negotiable instruments
- Filing reports of cash purchases of these negotiable instruments (greater than $10,000 a day)
- Reporting suspicious activity potentially relating to money laundering, tax evasion, terrorist financing, identity theft, or other financial crimes
To accomplish these requirements, financial institutions keep detailed reports. The types of reports banks are required to file include:
- Currency Transaction Report (CTR): a report for cash transactions over $10,000 in one business day, whether as one transaction or a combination of cash transactions. The CTR is filed electronically with FinCEN.
- Monetary Instrument Log (MIL): a report for cash purchases of monetary instruments including money orders, cashier’s checks, or traveler’s checks between $3,000 and $10,000 in value. The MIL is kept on record for 5 years at the financial institution, ready to be produced if requested by examiner or compliance auditor.
- Suspicious Activity Report (SAR): a report of a cash transaction where the customer appears to be attempting to elude BSA requirements or commit a financial crime. In this case, the customer is not notified of the SARs and the report is filed with FinCEN.
These requirements are outlined in any comprehensive compliance program. For financial institutions, a compliance department oversees the processes to ensure nothing is overlooked.
Current AML Trends
At its core, AML is designed to promote transparency and increase communication. Both are vital for fighting financial crime. In recent years, regulators are cracking down on how financial institutions meet compliance requirements. US regulators are keeping a sharp eye on internal systems and processes, timely detection and reporting of potential suspicious activity, and the ways conduct can affect individual liability for employees.
The following areas of AML regulation are being scrutinized:
- Gaps in establishing and following adequate policies and procedures
- Failure to adapt AML programs to a specific business model
- Inadequate due diligence for opening new accounts and maintaining current accounts
- Subpar risk assessment of new customers and accounts
- Insufficient devotion of resources to an AML program
- Errors in identifying potential violations or failure to report them in a timely manner
Even though the BSA is over 30 years old, FinCEN is continuously monitoring new threats and updating their requirements to match the current landscape. Agencies are currently debating how to regulate digital currencies like BitCoin and how to work alongside FinTech startups who are disrupting the traditional banking model.
Tightening regulation is having several unintended consequences. For one, American non profits working abroad are finding it harder than ever before to access cash. When their headquarters in the US transfer funds for projects, this money is often held up or stopped entirely by regulation. These NGOs are facing delays and are even being forced to abandon projects entirely due to banking difficulties.
The money service business banking industry is also dealing with the negative fallout of increased regulation.
MSB Banking & AML
As they work to shore up their compliance programs, many financial institutions are shutting out entire industries. By excluding “risky businesses,” banks can eliminate perceived risk, rather than manage it. Unfortunately, the MSB industry was labeled “risky” by FinCEN’s 2013 list of “risky businesses.” This 2013 publication has since been dubbed Operation Choke Point and the list has been rescinded. Many of the named industries, however, are still dealing with the fall out.
When banks shut down MSB bank accounts, money service businesses are left with an ever dwindling pool of financial institutions. Since a bank account is crucial for providing alternative financial services, unbanked MSBs face business closure. One way to combat this trend of derisking is to maintain and document a robust compliance program. Many MSB bank accounts are still terminated without explanation, despite adequate compliance. What can MSBs do to guard against derisking?
MSB Compliance & Banking Solution
National Check and Currency was formed to solve this very problem. To guard against derisking, NCC uses a network of MSB friendly banking partners to provide reliable and redundant banking services to their MSB clients. As a result, clients can enjoy peace of mind. If one bank decides to shed risk, there are multiple banks waiting to step in and provide banking continuity.
NCC also provides expert MSB compliance services to help clients detect and prevent financial fraud. Every MSB receives a state of the art POS system for vetting customers and collecting data points on every transaction. This information is then immediately shared with the financial institution and any other check cashing locations. At any point in time, the business owner can see a birds eye view of the entire business. From there, you can drill down to the smallest details of each transaction.
Your NCC team works around the clock to ensure you are implementing new requirements well before they become formal regulations. You stay a step ahead of FinCEN and in compliance with all applicable rules and regulations. This comprehensive approach helps you maintain a strong banking relationship so that you can enjoy supported MSB services. These banking services include extended deposit times, rapid deposit turnaround, armored cash logistics, and money wire between accounts.
Discuss your options with an MSB expert and open your real MSB bank account today.