Treat Them as an MSB?
Answer by John Burnett, BOL Guru Guru Bio
Question: We have a customer that has a home equity line of credit. They run a check cashing business with it by bringing in the checks and applying them as a payment, then doing a large advance from the loan to take back to the store to use in cashing checks. I regularly file CTRs on them, but do I still need to treat them as a MSB even though they do not have a business deposit account? Do I need to have them fill out questionnaires just like I would do on a deposit account?
Answer: Whether or not your customer is an MSB depends on your customer's actions at the store, not the type of account it uses to clear the checks it accepts. If its check-cashing activity rises to the levels defining an MSB, it should be registered with FinCEN. Its check-cashing activity may also require it to obtain a license from, or register with, the state. Your customer's activities create the same level of risk and monitoring responsibility for you, regardless of the fact that you are allowing the customer to use a HELOC as an unconventional clearing account. You should be applying extended due diligence to the customer's activities and transactions.
It's likely that your primary monitoring efforts are directed at deposit accounts and any automated monitoring tools are probably similarly-focused. I strongly recommend that you shut down your customer's ability to deposit third-party checks to the HELOC and demand that a deposit account be opened for the purpose, if you wish to continue doing business with them. Also, remember that it's probably easier to monitor your customer's activities if you hold all of its business accounts. I think you have two possible routes: either make your customer open a deposit account and run all of the business's activity through it or require that it take its business elsewhere. You probably cannot demand that the HELOC be paid out, but at least you can prevent its further abuse by this business.
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