We have a customer that we have identified as a MSB. We have seen checks payable to individuals, Goverment checks payable to individuals. He has not registered as a MSB. We filed a SAR on him.

We filed a follow-up letter and now he has come in the bank and is threatening to move his business. Has a considerable amount of money with our bank.

He indicates that he is not cashing these checks for people but they are using these checks to buy furniture from him and also using the checks to pay for layaway items. So what he is saying is they come in with a government check for $2000 and they buy furniture for $1200 and he gives them $800 in cash back.

My thought if he gives them more than $1,000 cash back then this would classify them as a MSB, wouldn't it?

What should we do in a situation like this.

We have one of these furniture store customers and examiners were very plain on how we had to handle them.

They expected us to periodically go to their store and look for invoices to match every check they deposited of $1,000 or more to prove that they didn't cash the check. That's next to impossible so we required they register as an MSB.

Sounds like an MSB to me - one who just does not want to register.
But what volume of checks are we talking about?
Does he have normal activity otherwise, such as credit card payments and cash.
Does he order cash from the bank to fund these transactions?

I agree with Magic. There are some people who just dont want to cooperate. We have had some of the same problems here but we have buckled down and sent out some serious letters giving options to comply or suffer closure of the account. If it is any kind of high risk, and it sounds like it is, I would ask myself if the considerable amount of funds in the account are going to cover the penalties that might be assessed in the future. If he his that kind of customer who threatens, then let him walk. Just thinking of the hassle of CIP issues alone would want to make me stay where I am and comply. If you want to PM me, I will be happy to share my MSB info with you.

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...if he gives them more than $1,000 cash back then this would classify them as a MSB, wouldn't it?

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I agree, it's about the amount of cash crossing the counter.

You might want to make certain that he understands this is not about bank policy; any other bank he goes to will notify him of the same requirements and perhaps he should ask around before he makes his move. Beyond that, the decisions are largely his. If he doesn't register you can 1) file SARs in perpetuity (I would not) or 2) suggest that he has hit on the solution, he can close the account or you will close it for him.