SAR Data Assists IRS in MSB Registration Outreach and Education

By IRS SB/SE Stakeholder Liaison-BSA/Special Programs

In the May 2007 issue of The SAR Activity Review (Issue 11), FinCEN published findings from a comparative analysis of depository institution SAR filings on potentially unregistered MSBs. FinCEN continues to analyze these SAR filings monthly to identify potential unregistered MSBs and refers lists of entities to the IRS SB/SE Stakeholder Liaison (SL) Bank Secrecy Act (BSA)/Special Programs Team for outreach and education. This analysis is not initiated specifically for examination purposes. Rather, the lists of potentially unregistered MSBs are used to reach out to individual businesses and targeted geographic locations for educational purposes. This article is a follow up to the May 2007 article and reflects what has been learned through outreach efforts.

IRS outreach results based on the analysis of potentially unregistered MSB for August 2007 to December 2007 are illustrated in the table below.




Unable to Contact

?Unable to Contact? includes entities with mail returned undeliverable or entities that IRS BSA specialists could not contact by telephone. Of the 1,059 potentially unregistered entities, 371 or 35% of the entities, could not be contacted. Of these, 47 letters were returned as undeliverable. The number of entities that could not be contacted suggests that many entities within the MSB industry are small and/or relatively new businesses susceptible to bankruptcy, business closures, and/or product and service shifts. This type of outreach is relatively new to FinCEN and the IRS. As we continue to streamline the analysis and outreach process to contact potentially unregistered MSBs in a timelier manner, we believe this percentage will decline.

Registered MSB or Contact Resulted in Registration

A total of 238 (22.5% of the entities) were already registered as MSBs or registered after the specialists guided them through the registration process during the contact.

Many MSBs are small, independently owned businesses offering money services as secondary business activities and many businesses may lack knowledge and understanding of the BSA filing and recordkeeping requirements. Although costly, focused outreach to individual entities can have a lasting impact on this segment of the MSB industry. In particular, specialists found a need to educate check cashers in the following situations:

1. Some businesses have general policies limiting check cashing to under $1,000 for any one person on any one day, but the businesses will cash tax refund checks and economic stimulus checks during tax season. Often, these checks are more than $1,000, making the businesses cashing these checks subject to BSA requirements for MSBs.
2. Some businesses accept checks for payments of products and services and provide customers with differences in cash. These businesses are defined as MSBs if customers receive more than $1,000 back in cash or monetary or other instruments in one day.

On several occasions, MSBs received guidance from banks about registration requirements. Although banks often assist MSBs in complying with registration requirements, specialists identified the following examples where there was a misunderstanding of MSB registration requirements:

1. Some banks require MSBs to register when they are not required to do so, which results in processing and storing of inaccurate registration data. For example, some banks require businesses that only cash checks of less than $1,000, or that offer money services only as agents, to register.
   
   According to the MSB definition, businesses only cashing checks of less than $1,000 are not MSBs and are, therefore, not required to register. Similarly, businesses that are solely agents of other MSBs are not required to register. [Reference 31 CFR 103.11(uu) and 103.41(a)(2)]
   
   
2. Some banks incorrectly require MSB customers to register each ?doing business as? (DBA) name, location and/or branch where customers provide money services. As a result, one MSB files several registration forms when the regulations require only one form.
   
   MSBs are not required to register each DBA name (Item 4 on Form 107). MSBs are also not required to separately register each location or branch. Form 107 instructions specifically state, ?An MSB should not separately register each of its branches.? An MSB should list the number of its branches in Item 25 on Form 107.
   
   
3. Some banks require customers to verify registration compliance. Accordingly, MSBs provide original registrations to these banks and assume the banks are filing registrations for them. Yet, the bank assumes the registrations are copies. As a result of miscommunication, the registrations are not properly filed with the U.S. Department of the Treasury.
   
   According to FinCEN guidance released in April 2005, MSBs are expected to provide confirmation of their FinCEN registration, if required, as well as their state licensing status, if applicable.
   
   
4. In some instances, banks have suggested that their MSB customers not cash checks of more than $1,000, and MSBs misconstrue this instruction to mean they are prohibited from cashing checks of more than $1,000. Specialists found that when businesses learn that the $1,000 threshold applies only to the MSB definition and not to business practices, they are willing to comply with registration and other BSA requirements.
   
   
5. Although FinCEN has issued guidance for banks and MSBs about maintaining relationships, some banks will not continue relationships with businesses offering check cashing, money orders, or money transfers.

Not Required to Register

A total of 387 (36.5% of the entities listed) were verified as offering money services solely in an agent/principal relationship and are therefore not required to register. IRS specialists found that in addition to banks, some companies issuing money orders and money transfers are incorrectly directing their agents to register. According to the BSA, businesses acting solely as agents of another MSBs are not required to register.

Examination Referrals

On occasion, entities refused to talk with specialists or to register when feedback from the entity indicated a registration requirement. These situations are referred to the IRS BSA Policy office for BSA examination consideration. Sixty-three, or 6% of the total, were referred for examination consideration.

Encounters with Law Enforcement

Specialists contacted a few business owners who faced criminal actions for not complying with the laws. One specialist was subpoenaed to testify at the individual?s money laundering trial. The specialist?s testimony helped the Assistant United States Attorney prove the defendant had sufficient BSA knowledge, and as a result, the defendant was convicted of 23 criminal counts for his role in a money laundering scheme.

Note: In March 2005, FinCEN and the Federal banking agencies (FBAs) issued guidance addressing the provision of banking services to MSBs, reiterating the AML compliance obligations for MSBs and assisting banking organizations in appropriately assessing and minimizing the risks associated with their MSB customers. FinCEN continues to work to address the issues and challenges facing the MSB industry as part of its regulatory efficiency and effectiveness initiatives. More information on these initiatives can be found on the FinCEN website at: http://www.fincen.gov/statutes_regs/bsa/bsa_effectiveness.html

Excerpted from SAR Activity Review Issue 14, page 15