Best Practices for Banking MSBs

1. Best Practices for Banking MSBs Anti-Money Laundering Association Chicago, Illinois May 15, 2009 Michelle Hassen-Hemerley – Corus Bank First Vice President, BSA/AML Officer

2. INTRODUCTION • MSB Definition • FinCEN Registration & Acknowledgment • Deciding Your Bank’s Policy • New Account Due Diligence • Enhanced Due Diligence • Ongoing Monitoring • Reminders • MSB Guidance Resources

3. MSB DEFINITION • A business is an MSB if it conducts more than $1,000 cash activity with one person in one or more transactions on the same day in one or more of the following services: • Money orders and/or traveler’s checks • Check cashingand/or payday lending More

4. MSB DEFINITION • Currency Dealer/Currency Exchanger • Stored Value Cards OR • Money Transfer services in any dollar amount

5. FINCEN REGISTRATION • Registration with FinCEN NOT required if: • The business is “solely an agent,” or • The business NEVER goes over $1,000 limitation (except for money transmitters), or • The business is solely an issuer or seller of stored value cards & does no other MSB activity • NOTE: Registration must be renewed by 12/31 of the second calendar year from the date of initial registration and renewed every 24 months by 12/31.

6. NEW REGISTRATION FORM • Revised MSB Registration Form 107 dated 8/08 • Available at www.msb.gov • As of January 1, 2009, the MSB must use the new form or the form will be sent back to them and they will not be registered • As of January 1, 2009, the MSB must complete all required fields or the form will be sent back to them and they will not be registered

7. LETTER OF ACKNOWLEDGMENT • Per FinCEN, the list of registered MSBs on FinCEN’s website is NOT definitive proof • Obtaining a copy of the IRS Letter of Acknowledgment is the only proof • The IRS Letter has the “Date of Notice” and “Date of Filing” but does not list an expiration date • Review IRS Letter to ensure customer registered the correct activity

8. Best Practices for Banking MSBs Deciding Your Bank’s Policy

9. THINGS TO CONSIDER • Assume you have MSBs (not always obvious) • Risk rate based on the MSB’s activity • Analyze your monitoring systems capabilities • Decide the approach for monitoring the activity • Determine the potential FTE impact

10. Best Practices for Banking MSBs • New Account • Due Diligence

11. INITIAL ACCOUNT OPENING • Obtain the following documents: • Identification in accordance with CIP • Confirmation of FinCEN Registration • Confirmation of License with (DFPR) Department of Financial & Professional Regulation • Adequate BSA/AML Compliance Program • Confirmation of Money Transfer Agent Status • Annual Financial Report submitted to DFPR • On-site visit (if brand new store)

12. COMPLIANCE PROGRAM REVIEW • Requirements of Compliance Program • BSA/AML Policies & Procedures • Designated Compliance Officer • Training • Independent Test Note: The Compliance Officer cannot be the same person that conducts the Independent Test

13. ACCOUNT OPENING AND CLOSING • Do not open account if the owner cannot provide all required documentation including an adequate Compliance Program • Send Anti-Money Laundering Questionnaire and call to discuss requirements if the Compliance Program is not adequate • Run all owners through OFAC list • Terminate relationship if poses too much BSA risk

14. New Account Due Diligence For Secondary MSBs Best Practices for Banking MSBs

15. SECONDARY MSB ACTIVITY • Some banks define any business conducting MSB activity as an MSB even if registration not required • Obtain standard CIP for opening account • If registration required, obtain Compliance Program or signed Anti-Money Laundering Questionnaire • If registration not required, obtain signed MSB Activity Certification • Some banks obtain collateral for businesses cashing third-party checks to reduce risk

16. Best Practices for Banking MSBs Enhanced Due Diligence and Ongoing Monitoring

17. ASSESSING THE MSB’s RISK • Questions to ask: • Are MSB services primary or secondary? • How long has the MSB been in business? • Is the MSB an agent of a well known MSB? • Have SARs been filed on the MSB? • Have any subpoenas been received related to MSB? • Does the MSB have a compliance program?

18. MONITORING THE MSB • Customer Due Diligence – All MSBs • Review Cash • Review Wires • Review Money Orders • Review Large Checks Deposited • Enhanced Due Diligence • Conduct analysis of all services provided • Conduct detailed on-site visit

19. ANNUAL REVIEW • Obtain and review account documentation • Re-calculate risk analysis of each MSB • Perform onsite visit for high-risk MSBs • Obtain IRS Letter of Acknowledgment and State License • Obtain or review Compliance Program or AML Questionnaire

20. Best Practices For Banking MSBs Reminders, Challenges, and Opportunities

21. REMINDERS • Complete SARs on MSB customer’s customers • If you have knowledge of unusual or suspicious activity – you should file a SAR • You can’t know for sure if the MSB is filing a SAR because it is confidential • Can ask the MSB for a copy of the CTR filed by the MSB to be sure they are filing when necessary. • Obtain and review compliance programs for now…. Potential legislative changes

22. INITIAL CHALLENGES • Discovering the “not so obvious” existing MSB customer • Overcoming customer concerns with long term customers while enforcing new policies • Language barriers • Training issues on the importance of watching for MSBs and follow-up

23. OPPORTUNITIES • Help customers understand the FinCEN registration requirements and the AML responsibilities • Give branch employees the tools and knowledge to help educate the customers • Inform customers of endorsement standards for third-party checks and 3 year risk of return

24. Best Practices For Banking MSBs New MSB Exam Manual Best Practices For Banking MSBs Best Practices For Banking MSBs

25. NEW EXAM MANUAL • Ensures that examinations are consistent and examiners are using the same guidelines • Contains specific examinations procedures for CTRs, SARs, recordkeeping, AML Compliance Program – similar to Bank BSA Exam Manual • Appendices contain helpful information • Sample interview questions (Appendix G) • Chart of recordkeeping requirements (Appendix I) • Records commonly found at MSBs (Appendix J)

26. RISK ASSESSMENT • MSB should identify and assess money laundering risks associated with their unique combination of products, services, customers, geographic location • MSBs not “required” to create written risk assessment but “encouraged” to document risk assessment in writing • If no written risk assessment, examiner will determine MSB’s risk profile (Don’t want that!) • Appendix J contains a Risk Matrix to assist MSBs

27. Best Practices For Banking MSBs MSB Guidance Resources

28. WEBSITES AND HOTLINE • www.msb.gov (Now at FinCEN.gov – Guidance for your MSB customers (materials in 9 languages) • www.FinCEN.gov • FinCEN Regulatory Helpline: 800-949-2732 for BSA/MSB policy and interpretation of BSA regulations • www.cia.gov • www.occ.treas.gov • www.treas.gov

29. MSB RULINGS AND GUIDANCE • Interagency MSB Guidelines for bankers • (FinCEN Advisory Issue #38, 4/6/2005) • FinCEN Guidance 2007-G006 (12/3/07) – Clarifies that owners of Privately Owned ATMs are not MSB service providers • FinCEN Ruling 2002-2 – Definition of a Payday Lender adds Payday Lending to the list of MSB activities • FinCEN Guidance 2006-G005 (3/31/06) – Clarifies that a business that cashes its own paychecks is NOT an MSB check casher

30. Best Practices for Banking MSBs • Questions?