Thread Options
#2213848 - 05/16/19 10:52 PM Closing Tier II MRB - Reason for SAR
TryingtoComply Online
Diamond Poster
Joined: Apr 2013
Posts: 1,827
The West
We recently discovered a Tier II MRB that provides payroll services to other MRBs. We are closing the account as the customer was not truthful when answering our screening questions at new accounts. So, my questions are:

Would you file a SAR?
If yes, what reason would you indicate?
Would you consider this a "Marijuana Terminated" SAR?

My concern is that the customer is not directly involved with marijuana~~~but, they provide services to MRBs.
_________________________
TryingToComply
CRCM

Return to Top
BSA/AML/CIP/OFAC Forum
#2213853 - 05/17/19 11:45 AM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
Pat Patriot Act Offline
Gold Star
Pat Patriot Act
Joined: Apr 2009
Posts: 450
Quote:
Would you file a SAR?


If there were identifiable transactions with an MRB that exceeded the $5,000 threshold a SAR would is required.

Quote:
If yes, what reason would you indicate?


In this specific case, "Suspicious EFT/wire transfers" seems appropriate.

Quote:
Would you consider this a "Marijuana Terminated" SAR?


FinCEN's guidance (FIN-2014-G001, footnote 7, pg. 4) indicates the following: "In such circumstances where services are
being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without
distinguishing between “Marijuana Limited” and “Marijuana Priority.”"

While the sentence quoted does not address "Marijuana Terminated" the same logic applies. FinCEN's Regulatory Help Center will instruct you to file a standard SAR if you inquire about whether you should include "Marijuana Terminated" in an indirect MRB SAR.
_________________________
CFE, CAMS

Return to Top
#2213901 - 05/17/19 03:40 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
TryingtoComply Online
Diamond Poster
Joined: Apr 2013
Posts: 1,827
The West
Thanks Pat Patriot,

I have already prepared the SAR. But got stuck when trying to decide how to classify it.

Further research indicates that the beneficial owner established this account to act as a payroll service provider for MRB-related businesses, which included his own companies and others, all of which were established as LLCs to conceal the true type of business.
_________________________
TryingToComply
CRCM

Return to Top
#2214002 - 05/20/19 03:42 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
ColoradoAML Offline
100 Club
Joined: Mar 2018
Posts: 240
For the first question, would you file a SAR, I might not depending on the facts. If you've identified transactions that are derived from an illegal source, it seems like yes, but FinCEN has given guidance to myself and others that says they do not expect a SAR for transactions involving a business or person that is ancillary to a direct MRB. I don't file for cases like HVAC companies providing services to MRBs, landlords collecting rent, employees receiving payroll, etc. I think it may largely depend on how you've defined Tier II MRB and whether you are inclined to reach out to FinCEN to get the same guidance in writing. Based on the customer not being truthful with you, I would probably be more inclined to file.

For the last question regarding "Marijuana Termination" if I filed the SAR, I would include it. I will point out though that our regulator has given the opinion during our recent exam that they don't believe we should be using any of the language in this guidance if we are not intentionally providing services to MRBs. I believe it's based on the first sentence in the guidance, "The Financial Crimes Enforcement Network (“FinCEN”) is issuing guidance to clarify Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to marijuana-related businesses." They stated that FinCEN uses these terms to determine how many FIs are providing services to MRBs. For what it's worth, I disagree with that interpretation and still intend to file a marijuana termination SAR if we find and kick out an MRB.

After reviewing, this all looks terribly unhelpful because I think you're current course is correct, and I'm just adding a bunch of grey area to confuse things, but I do think that whatever you decide to do in answer to all these questions is probably justifiable.

Return to Top
#2214388 - 05/24/19 08:10 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
TryingtoComply Online
Diamond Poster
Joined: Apr 2013
Posts: 1,827
The West

Just attended a seminar where the presenter took a hardline approach to bank customers providing products/services to MRBs. I know many BSA officers that do not file SARs when a customer receives payment for products/services from an MRB. However, this presenter's opinion is that the funds came from an illegal source and that it's money laundering, so a SAR should be filed.

I don't believe it's money laundering, but am interested in others thoughts on this. I think we are all struggling with this. Actually, these situations are worse to deal with than having an MRB as a customer. We just say no to the later.
_________________________
TryingToComply
CRCM

Return to Top
#2214390 - 05/24/19 08:42 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
ColoradoAML Offline
100 Club
Joined: Mar 2018
Posts: 240
I actually agree, this seems like money laundering to me. If we were to substitute heroin or meth for marijuana it seems plain that this is a case where a SAR would be required. My only reason for not filing is because FinCEN said not to bother, our regulators have signed off on that, and law enforcement has expressed that they're not interested because there are enough "real" bad guys out there that they're not going to spend their time going after landlords and HVAC companies.

I'm also interested in hearing others' opinions.

Return to Top
#2214487 - 05/29/19 01:22 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
Pat Patriot Act Offline
Gold Star
Pat Patriot Act
Joined: Apr 2009
Posts: 450
Quote:

Just attended a seminar where the presenter took a hardline approach to bank customers providing products/services to MRBs. I know many BSA officers that do not file SARs when a customer receives payment for products/services from an MRB. However, this presenter's opinion is that the funds came from an illegal source and that it's money laundering, so a SAR should be filed.

I don't believe it's money laundering, but am interested in others thoughts on this. I think we are all struggling with this. Actually, these situations are worse to deal with than having an MRB as a customer. We just say no to the later.


Well, there is an argument to call almost any transaction involving an MRB money laundering. If you look at the federal domestic money laundering statute (18 U.S. Code § 1956(a)(1)(A)), there are two general prongs: promotional, tax evasion, concealment, and structuring. The promotional aspect indicates it's considered laundering if it "promote[s] the carrying on of specified unlawful activity."

Historically, what can be included in the "promotional" set of transactions has been a matter of debate, with some rulings indicating that routine expenses for what would otherwise be a legitimate business qualify while other rulings indicating that such routine transactions funded by predicate crime(s) isn't enough.

But, it's not our role as SAR filers to be overly concerned about jurisprudence and law enforcement discretion. Until FinCEN and the US DOJ issue joint guidance indicating that "promotional" laundering must go beyond routine transactions, the "by the letter" read of the federal money laundering statute and BSA regulations support the interpretation that ancillary MRB activity is subject to SAR filing once dollar thresholds are met.
_________________________
CFE, CAMS

Return to Top
#2214541 - 05/29/19 07:00 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
TryingtoComply Online
Diamond Poster
Joined: Apr 2013
Posts: 1,827
The West
So.....we are supposed to be filing on the utility companies, etc? While I appreciate your letter of the law distinction, this does get a little ridiculous at some point.
_________________________
TryingToComply
CRCM

Return to Top
#2214646 - 05/30/19 09:08 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
Pat Patriot Act Offline
Gold Star
Pat Patriot Act
Joined: Apr 2009
Posts: 450
Quote:
So.....we are supposed to be filing on the utility companies, etc? While I appreciate your letter of the law distinction, this does get a little ridiculous at some point.


I'm not suggesting that filing a SAR on a utility company is useful. And I agree that the whole issue of MRB right now is ridiculous. And perhaps regulators would accept a defense that the transactions involving [insert ancillary MRB here] are immaterial to the promotion of the illegal activity on part of the direct MRB. In other words, you'd make the argument that, while necessary for any business operation, having electricity does not specifically facilitate the sale of marijuana and therefore should not be filed upon. Whereas, something like purchasing hydroponics equipment is not a standard expense and *does* facilitate the growth and subsequent sale of marijuana; and therefore, would be subject to filing.

Trouble is, when you start building such a defense against the letter of the law, then your opening yourself up to criticism for misinterpreting the jurisprudence and failing to file. Is it worth the risk? Not my call, but *probably* in many circumstances.
_________________________
CFE, CAMS

Return to Top
#2214649 - 05/30/19 09:22 PM Re: Closing Tier II MRB - Reason for SAR TryingtoComply
Justin Case Offline
Platinum Poster
Justin Case
Joined: May 2002
Posts: 971
first lily pad on the right
We define Tier II as companies that generally do not touch marijuana but are specifically focused on providing products and services to Tier I MRBs and the marijuana industry in general. For Tier IIs, we would file a SAR for "suspicion concerning the source of funds" since the funds would be derived from a federally illegal activity. We would not use the marijuana terms in the narrative. We would close the accounts.

We define utility companies and the like as "Incidental MRBs" because they may, in the normal course of business, provide services to MRBs but the majority of their income is not derived from these sources. We wouldn't file SARs using the FinCEN MRB terms in the narrative. Essentially these entities are treated the same as any other regular entity.

These are the definitions we came up with to help us with the confusion and lack of official guidance around these businesses.

We just completed a targeted BSA exam and there were no findings or issues around our MRB program.
_________________________
CAMS

Return to Top

Moderator:  Andy_Z