Last week, I attended a BSA/AML training session in Louisville where some of the bankers in attendance complained to the FinCEN representative that repetitive filings on unregistered MSBs were being ignored. Three days later FinCEN announced this enforcement action against an MSB that failed to register after repeated warnings, failed to establish an AML program, and structured transactions. Ironically, the MSB is in Louisville. (It wasn't "cause and effect;" the gestation period for an enforcement action is a lot longer than 3 days.)

Although I have no knowledge specific to this case beyond that obtained by reading the order, my assumption is that the order's existence refutes the idea that SARs on unregistered MSBs are going into a black hole.

In the alternative, consider the possibility that this MSB was located without the depositary bank filing SARs for structuring and failing to register. Do you think that the bank's failure to recognize the situation might be criticized in its next on site examination?

In terms of negative press for the bank, whether a national story on an obscure legal requirement ever appears in local media depends on what a reporter trips over. If the story is picked up by the local media, do you also think the reporter might be astute enough to find out where these folks bank and be kind enough to mention the bank in the article too? The questions would be simple: "Did your bank know they were an MSB?" "If so, did your bank document the account appropriately based on your regulator's written guidance?" (Remember, the bank would not be able to defend itself to the reporter by saying it filed SARs.)

A $25,000 penalty will sound like a pittance to bankers jaded by penalties in the millions. However, this was levied against a one office operation with 3 employees. I'm confident it will get a lot of play within the MSB industry. In the banking industry, its best use may be as an enclosure for letters sent to unregistered MSBs.

BSA's "reputation risk" for banks attaches to what you don't find. It also attaches to who you continue to do business with after you do find it.

Amen

Great link, and update. Thanks for posting

Ken,

I attended the Louisville seminar also. THANK YOU very much for posting this!! This will go a long way with "making christians" out of more reluctant customers.

There was also a case back in May involving the Frosty Food Mart in Tampa, FL. That link takes you to the FinCEN CMP document. There is also a FinCEN press release.

Frosty is a mom & pop convenience store that is also an MSB. The case wasn't about non-registration, but about operating without an adequate AML program. AR.

With respect to the Frosty action, what is the bank expected to do with regard to the adequacy of the MSB's AML program? We don't want to review the program and critique it since if we say it is OK and an examiner disagrees we could be criticized. Do we ask that the MSB provide to us a copy of an independent examination? I require this for my few commercial check cashing customers but don't think that a "Mom & Pop" would have the resources to do the same. So, once again, aside from ensuring that the Mom & Pop has the necessary FinCEN and (possibly) state registration, reviewing the activity for possibly suspicious activity, what else can we do?

Frosty's case I think was a bit extreme in that they did not file numerous CTRs.
So it was not the written program but the execution of it.
In the past when I had MSBs I would count the number of CTRs filed in the prior quarter - when I visited the location - and compare it mentally to the known volume of the business and occasionally request a CTR - a spot check, so to speak, on a particular check.
I agree with you that we should not be 'approving' their policies.

The key to controlling AML risk in your money services businesses is your customer due diligence. The federal bank regulators put out some guidance on due diligence, and enhanced due diligence for MSBs back in April 2005.

Reviewing an MSB's AML program is part of the enhanced due diligence that you would do if your initial due diligence indicated a higher level of AML risk in the account. It could be that the mom & pop shop won't have the expertise or resources to develop an AML program. If the AML risk is genuinely high, then you'll have to ponder your options regarding the account, and that doesn't necessarily mean closing the account. AR.

devsfan,
At the time the Frosty order was issued, my opinion is that the depositary bank could have been subject to public crucifixion under then current FDIC examination procedures. That's assuming that they did not realize their customer had no AML program and the bank was not filing repetitive SARs.

The issue today is whether the guidance linked by AnonRegulator would allow the bank to be evaluated differently. Magic City's informal test would have allowed the bank to figure out that this customer was handling a great deal of money and should have a sophisticated program regardless of the fact that it was a simple sole proprietorship. However, how far the bank should go in documenting the MSB; i.e. should it require copies of its AML program and an independent examination, is a function of the bank's risk assessment based on criteria set out in the Guidance.

If a bank identifies an MSB as high risk, I do believe it should have copies of their policies and procedures and require independent examinations by firms from an approved list of vendors. If the MSB qualifies as lower risk, documentation requirements can be ratcheted downward to the point where the bank only supplements its standard CIP and enhanced due diligence requirements with evidence of licensure and registration.

If a bank had a "Frosty" today (a known MSB with fragrant, publicized compliance violations), I think the key issue is whether an independent evaluator thought your risk assessment was adequate. Hindsight would be employed and I wouldn't like your chances.

Alternatively, if the bank did discover the absence of an AML program and filed SARs with every rising sun, my observation would be: "Filing SARs doesn't keep your name out of the newspaper. Give them the boot."

That one was a Freudian typo...I'm not that clever.