We have an MSB which is registered with FINCEN but has been operating without a permit from our State Board of Collection Agencies per our state's Check Cashiers Act. The state has shut down this business for operating without a permit.

Do we have to prepare a SAR on this?

It depends. If you determine operating without a state permit to be suspicious activity, then maybe you do need to submit a SAR. Do the transactions conducted by the MSB appear to be suspicious? Do they appear to be circumventing reporting requirements?

Unfortunately, there is no "yes" or "no" answer. You need to look at the total picture, determine if the activities are suspcious, then decide to file...or not to file.

The Interagency Guidance on MSBs gives the most specific direction regarding SAR filing I know of:

Given the importance of the licensing and registration requirement, a banking organization should file a suspicious activity report if it becomes aware that a customer is operating in violation of the registration or state licensing requirement.

I repeat it here verbatim because a reasonable analysis of the regulations requiring SAR filing would not necessarily indicate that violation of a state law would be reportable.

If the State has shut down the establishment - what purpose would the SAR serve?
The authorities have the knowledge they need.

MagicCity,

that was my thought as well - but I wanted to bounce it off the board. Thanks for the feedback.

A bank should have its blinders on regarding outside events and SAR filings. If it detects suspicious activity, but that suspicious activity has stopped, it does not matter why it stopped, it is still required to file the SAR.

The AmSouth decree lists a number of instances where the bank did not know of the suspicious activity until criminal or civil proceedings involving its customers were already under way. Each of those instances is cited as an example of where the bank failed to file a SAR as required by law.

In the instant case, it was apparently the state that detected the unlicensed operation. However, if the unlicensed MSB has been used to conduct illegal activity prior to its discovery law enforcement would still be interested. Even if there is a basis for believing the state regulatory agency notified law enforcement, that has no effect on the bank's responsibility to do so. The language quoted above is explicit and unqualified.

The only acceptable reason for not filing a SAR is because the law does not require it, not because the activity has ceased or because law enforcement was already aware of it.

thanks Ken - that makes sense.

We are closing this customer's account based on the fact that they are operating without a permit from the state to be a check cashing store. The customer wants us to provide them a letter as to why -

Any suggestions or regulatory cites to include in this letter?

We are closing your account because you failed to obtain a license for your money service activities as required by state law.

You have the right to close his account because you don't think his tie goes with his suit if you want to - you don't owe him a legal explanation with a citation to law or regulation. Don't wax philisophical, just do it and go on to what's next.

The MSB guidance does suggest that your policy should indicate the circumstances under which you would close an account, but noncompliance is sort of a gimme.