Anti-Money Laundering (AML) and Money Service Business

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The Bank Secrecy Act (BSA) requires all Money Service Businesses (MSBs) to establish and maintain an effective and robust written Anti-Money Laundering (AML) program that is designed in its capacity to reasonable prevent the entity from being misused for Money Laundering and terrorist financing activities. This guidance is for both principals and their agents.

Furthermore, FinCEN has solidified its guidance pertaining to “Money Service Businesses” (MSB) principal-agent relationships, and consistent with the purposes of the Money Remittances Improvement Act to encourage coordination between Federal and state regulators on such issues.

No matter what, each MSB remains independently and wholly responsible for implementing adequate AML program requirements.

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Under 31 CFR § 1022.210, an MSB’s AML program must, at a minimum:

  • Incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the BSA and its implementing regulations
  • Designate a person to assure day to day compliance with the program and the BSA and its implementing regulations
  • Provide education and training of appropriate personnel concerning their responsibilities under the program, including training in the detection of suspicious transactions to the extent that the money services business is required to report such transactions under the BSA
  • Provide for independent review to monitor and maintain an adequate program

An MSB principal is exposed to risk when an agent engages in transactions that create a risk for money laundering, terrorist financing, or other financial crime. In order to reduce exposure to such risks, for example, the MSB principal must have procedures in place to identify those agents conducting activities that appear to lack commercial purpose, lack justification, or otherwise are not supported by verifiable documentation.

The principal must implement risk-based procedures to monitor the agents’ transactions to ensure that they are legitimate. The procedures must also ensure that, if the agents’ transactions trigger reporting or recordkeeping requirements, the principal handles the information in accordance with regulatory reporting and recordkeeping obligations. In addition, the MSB principal should implement procedures for handling non-compliant agents, including agent contract terminations.

Accordingly, principals are required to develop and implement risk-based policies, procedures, and internal controls that ensure adequate ongoing monitoring of agent activity, as part of the principal’s implementation of its Anti-Money Laundering program.

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When conducting monitoring of their agents, principals must, at a minimum:

  • Identify the owners of the MSB’s agents
  • Evaluate on an ongoing basis the operations of agents, and monitor for variations in those operations
  • Evaluate agents’ implementation of policies, procedures, and controls

As is true for all industries FinCEN regulates, FinCEN expects MSB principals and agents to tailor their AML programs to reflect the risks associated with their particular business services, clients, size, locations, and circumstances. AML risks can be jurisdictional, product-related, service-related, or client-related.9

Principals must periodically reassess risks associated with their agents and update the principals’ programs to address any changing or additional related risks. Principals must also take corrective action once becoming aware of any weaknesses or deficiencies in their AML programs. MSB principals and agents are required to conduct reviews with a scope and frequency commensurate with the risks of money laundering or other illicit activity such principal or agent faces. A principal must conduct internal and/or external independent testing to ensure there are no material weaknesses (e.g., inadequate training) or internal control deficiencies (e.g., monitoring agents). In addition, the testing must factor in products and services provided to determine if the procedures are sufficient to detect and report suspicious activity.

Risk factors that principals should consider when conducting agent monitoring include, but are not limited to:

  • Whether the owners are known or suspected to be associated with criminal conduct or terrorism
  • Whether the agent has an established and adhered to AML program
  • The nature of the markets the agent serves and the extent to which the market presents an increased risk for money laundering or terrorist financing (This does not mean that principals with agents providing services involving regions affected by conflict or terrorism cannot manage such risks, but rather that principals must take steps to account for and mitigate such risks)
  • The services an agent is expected to provide and the agent’s anticipated level of activity
  • The nature and duration of the relationship

FinCEN recognizes that an agent may enter into contracts to offer services with more than one principal or may provide additional services on its own. In such situations, principals are encouraged to share information with other eligible financial institutions through participation in the 314(b) voluntary information-sharing program.10

FinCEN reminds MSB principals that the culture of an organization is critical to its compliance, as has been highlighted in FinCEN’s Advisory to U.S. Financial Institutions on Promoting a Culture of Compliance.11 The general principles set forth in the advisory illustrate how MSBs may improve and strengthen organizational BSA compliance at both the principal and agent levels.

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