Friday, November 14, 2014


The latest FinCEN request to banks*, to continue to serve the MSB industry, in the face of their AML/CFT obligations,  places the banks in the unenviable position of policing a sector of the non-bank  financial industry that has been the source of continual and sustained risk. Honestly, I do not blame any bank that decides to close all its existing accounts of foreign MSBs; Here's why.

Foreign money service businesses, especially in the countries of the developing world have many potentially serious issues:

(1) They are frequently used by both money launderers, and terrorist financiers. This is a sad fact of life; laundrymen know that many MSBs are storefront operations, poorly run, and who would consider  accepting dirty money, to earn a handsome profit.
(2) They exist in jurisdictions where regulatory agencies are either non-existent, or unable or unwilling to enforce AML/CFT laws. Therefore, the MSB has no reason to have an effective compliance program.
(3) They may be actually owned, or controlled by, criminal elements; Look at Mexico.
(4) They are not like licensed financial institutions, the licensing requirements are often minimal, and corrupt government agencies, once paid off, are usually eager to qualify individuals who are unacceptable as NBFI operators.
(5) If a client cannot go to a bank in his or her jurisdiction, to send larger amounts of funds, it is often because their dodgy business is not wanted at legitimate financial institutions.
(6) MSBs in many countries are known for dysfunctional AML programs. Can we really expect US banks, who are held to best practices standards, to risk accepting money from them ?

The FinCEN Statement, which asks American banks to use a risk-based approach on MSBs, and to avoid blanket account closings, is expecting far too much of them. How can you tell an American bank to incur repeated expenses, to send staff members to foreign MSBs that are bank clients, over and over again, to monitor and review their compliance effectiveness ? The costs, including the use of dedicated human resources, would be prohibitive. One would actually be forced to consider permanent posting, of bank staff, on site, to be an effective solution.

Is it wrong to cancel all foreign MSB accounts at your bank ? I respond that it is simply the exercise of the same risk-based program that FinCVEN suggests the banks follow. The risk levels presented by foreign MSBs range from high-medium, to totally unacceptable. You do not need the business so badly, that you should risk serious civil penalties for AML/CFT violations.

*FinCEN Statement on Providing Banking Services to Money Service Businesses

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