On March 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued guidance on anti-money laundering (“AML”) compliance obligations for money service businesses (“MSBs”) and their agents. MSBs are defined as the U.S. Postal Service and each of six distinct types of financial services providers: (1) dealers in foreign exchange; (2) check cashers; (3) issuers and sellers of traveler’s checks or money orders; (4) providers of prepaid access; (5) money transmitters; or (6) sellers of prepaid access. FinCEN’s guidance is intended to clarify the AML compliance obligations of MSBs that operate in principal-agent relationships with domestic agents. This most recent FinCEN guidance is a must read, not only for MSBs, but for financial institutions that provide banking services to MSBs as well.
The Currency and Foreign Transactions Reporting Act of 1970 (commonly referred to as the “Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government agencies in detecting and preventing money laundering. Pursuant to this affirmative obligation, a financial institution must establish and maintain an effective written AML program reasonably designed to prevent the financial institution from being used to facilitate money laundering and the financing of terrorist activities.
In March 2013, the Department of Justice initiated an investigation into those MSBs that it thought posed higher AML risks (commonly referred to as “Operation Choke Point”). Although the investigation primarily centered on payment processors and payday lenders, Operation Choke Point caused many banks to terminate relationships with MSBs due to perceived increased regulatory and compliance risks. Over the past two years, FinCEN has attempted to mitigate the impact of Operation Choke Point by issuing guidance that seeks to clarify AML obligations of both MSBs and banks. This most recent guidance from FinCEN is best understood as a further effort to reassure financial institutions that they may provide banking services to MSBs without undue regulatory and compliance risks.