Does a credit union have to police Money Services Businesses?

Yesterday at my Bank Secrecy Act Seminar in Cleveland, Jim Furman, the CEO of Port Conneaut Federal Credit Union, asked me a question.  I’ve known Jim for many years and I’m privileged to be the credit union’s attorney.  I also know that when Jim asks a question, I’m going to be in for a treat.

His question was this:  does a credit union have to ask a potential Money Services Business whether it is duly licensed as a BSA requirement on the part of the credit union?  In other words, if a company has a member business account with the credit union and it’s bringing in a lot of third party checks that it has cashed for customers or exhibiting other behavior indicative of an MSB, does a credit union have to verify whether the business is licensed as such and then, if it isn’t, warn the MSB that it must be and if it persists in non-compliance, file a SAR?

As we discussed this concept together with the group, some of the BSA mainstay concepts come into play.  The Customer Identification Program and Member Due Diligence aspects of the credit union’s BSA policy will require it to ask questions about what the potential MSB member is doing.  If the member is taking 3rd party checks from its customers and then depositing these checks at the credit union, the credit union should review whether it wants to take 3rd party checks in the first place.  I would recommend that credit unions do not take 3rd party checks because the risk of fraud is too great. 

So even without checking with FinCEN, a credit union would be asking probing questions about the potential MSB.  The answers to these questions could easily put the MSB into High Risk Member territory and require even further due diligence on the part of the credit union.

In the end, however, Jim Furman was right in thinking that FinCEN does indeed have guidance specifically on point.  Check out:
http://www.fincen.gov/news_room/nr/html/20050426.html

At a minimum, if a credit union is dealing with an MSB or thinks it might be dealing with an MSB it must:

• Apply the banking organization’s Customer Identification Program;
• Confirm FinCEN registration, if required;
• Confirm compliance with state or local licensing requirements, if applicable;
• Confirm agent status, if applicable; and
• Conduct basic risk assessment to determine the level of risk associated with the account.

Moreover, if the credit union determines that the MSB is not duly registered under federal, state and local requirements and it should be, FinCEN is unequivocal:  “The guidance states that 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 requirements.”  There is no grace period here or a one time free pass.  If the credit union is dealing with an MSB or something that looks like an MSB, it must conduct its due diligence and file a SAR if any irregularities surface.  Thanks Jim!

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