Bank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

Table of ConTenTsINTRODUCTION 1

Objectives of Manual 2Structure of Manual 2

Money Services Business - Overview 4Typical Management Structure of an MSB 4Branches and/or Agents 5General Scope of the BSA Regulations 6Overview of Check Cashers 6

Basic Model of a Check Casher 6Overview of Currency Dealers or Exchangers 7Overview of Issuance, Sale, and Redemption of Money Orders/Travelers Checks 7

Issuer or Redeemer 8Sale of Money Orders/Travelers Checks for National Companies 8

Overview of a Money Transmitter 9Basic Business Model of a Money Transmitter 10Transaction Flow of a Money Transmitter 12

Overview of Principal and Agent MSB Relationships 13EXAMINATION OVERVIEW AND PROCEDURES FOR ASSESSING BSA COMPLIANCE 14

Risk-Based Approach to BSA Examinations 14Principal MSB Examinations Versus Agent MSB Examinations 15

Pre-Planning the BSA Examination Overview 17Information Available from FinCEN Database (Web CBRS) 18

Risk Assessment 19Identifying Specific Risk Categories 20

Product Risk 20Customer Risk 20Geographic Risk 21Operational Risk 22

Analysis of Specific Risk Categories 22Review of the MSB BSA/AML Risk Assessment 23Examiner Development of a BSA/AML Risk Assessment 24Developing a Risk-Based Examination Plan 26

BSA Examination Program Elements 27Transaction Testing 28

Table of Contents

Bank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

Examination Procedures 29Pre-Planning the BSA Examination 29Pre-Plan Procedures 29Risk Assessment 32Developing a Risk-Based Examination Plan 32Transaction Testing Plan 33

MSB Registration Requirements Overview 34MSB Agent List 35

Examination Procedures 37MSB Registration Requirements 37

On-site Examination and Interview of Appropriate Personnel Overview 38Interview 38

Examination Procedures 41On-Site Examination and Interview of Appropriate Personnel 41

Anti-Money Laundering Program Overview 43Developing a Risk-Based AML program The Four Pillars 44

1. Internal Controls 44A. Managements Risk Assessment 46

MSBs Updating of the Risk Assessment 46B. Control Environment 47C. Internal Control Activities 47D. Information and Communications 49E. Internal Control Monitoring 49F. Responding to Law Enforcement Inquiries and Requests 50G. Principal MSB Monitoring/Oversight Procedures 50H. Requirements for MSBs with Respect to Foreign Agents or Foreign Counterparties 51

2. Designation of BSA Compliance Officer 523. Independent Review 52

Timing of the Independent Review 53Documentation and Follow-Up 53

4. Training 54Examination Procedures 55

Anti-Money Laundering Program 55Risk Assessment 55Internal Controls 55

Principal MSB Monitoring/Oversight Procedures 56Additional Examination Procedure for Branch/Agent Monitoring/Oversight Based on Risk 57Requirement for MSBs with Respect to Foreign Agents or Foreign Counterparties 57

Table of Contents

Bank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

BSA Compliance Officer 59Independent Testing 59 Training 60Preliminary Evaluation 61

Recordkeeping Requirements Overview 62Recordkeeping Requirements 62Records to be Maintained for Issuance or Sale of Money Orders/Travelers Checks 62Records to be Maintained for Transmittals of Funds 63Records to be Maintained by Currency Dealers or Exchangers 65

Examination Procedures 68Recordkeeping Requirements 68Records to be Maintained for Issuance or Sale of Money Orders/ Travelers Checks 68

Additional Procedures Based on Risk 69Records to be Maintained for Transmittals of Funds 70

Additional Procedures Based on Risk 70Records to be Maintained by Currency Dealers or Exchangers 71

Additional Procedures Based on Risk 71Evaluating the MSBs Compliance with Recordkeeping Requirements 71

Record Retention Requirements Overview 72Examination Procedures 74

Record Retention Requirements 74Evaluating the MSBs Compliance with Record Retention Requirements 74

Currency Transaction Reporting Overview 75Aggregation of Currency Transactions 75Filing Time Frames and Record Retention Requirements 76CTR Back Filing 76

Examination Procedures 77Currency Transaction Reporting 77Transaction Testing 77

Additional Examination Procedures for Check Cashers Based on Risk 79Additional Examination Procedures for Issuance or Sale of Money Orders/Travelers Checks Based on Risk 79Additional Examination Procedures for Money Transmitters Based on Risk 80Additional Examination Procedures for Currency Dealers or Exchangers Based on Risk 80

Evaluating the MSBs Compliance with Currency Transaction Reporting Requirements 81

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vBank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

Suspicious Activity Reporting Overview 82Clearance Review - $5,000 Threshold 83

Systems to Identify, Research, and Report Suspicious Activity 83Manual Transaction Monitoring 84

Transmittals of Funds Records 84Money Orders/Travelers Checks Records 84Currency Dealers or Exchangers Records 85

Automated Monitoring 85Identifying Underlying Crime 86Law Enforcement Inquiries and Requests 86SAR-MSB Decision-Making Process 87Timing of a SAR-MSB Filing 89SAR-MSB Filing on Continuing Activity 90SAR-MSB Quality 90Prohibition of SAR-MSB Disclosure 91Safe Harbor 91

Examination Procedures 92Suspicious Activity Reporting 92Review of Policies, Procedures, and Processes 92Evaluating Suspicious Activity Monitoring Systems 92

Manual Transaction Monitoring 92Automated Transaction Monitoring 93

Evaluating the SAR-MSB Decision-Making Process 93Transaction Testing 94 SAR-MSB Reporting 94

Testing the Suspicious Activity Monitoring System 94Additional MSB Examination Procedures for Issuance or Sale of Money Orders/Travelers Checks Based on Risk 95Additional Principal MSB Examination Procedures for Money Transmitters Based on Risk 95Additional Examination Procedures for Currency Dealers or Exchangers Based on Risk 95

Evaluating the MSBs Compliance with Suspicious Activity Reporting Requirements 97Foreign Bank and Financial Accounts Reporting Overview 98Examination Procedures 99

Foreign Bank and Financial Accounts 99International Transportation of Currency or Monetary Instruments Reporting Overview 100Examination Procedures 101

International Transportation of Currency or Monetary Instruments Reporting 101Additional Examination Procedures Based on Risk 101

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vBank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

Evaluating the MSBs Compliance with International Transportation of Currency or Monetary Instruments Reporting 101

Developing Conclusions and Finalizing the Examination Overview 102Examiner Determination of the MSBs BSA/AML Aggregate Risk Profile 102

Examination Procedures 103Developing Conclusions and Finalizing the Examination 103Supporting Workpaper Documentation 104Preparing the BSA Report of Examination 105Closing Conference 106 Handling Initial Notification of and Response to Violations 106

APPENDIX A BACKGROUND 107Role of Federal and State Government Agencies in the BSA 110

FinCEN 110Internal Revenue Service 110

Money Laundering and Terrorist Financing 111Money Laundering 111Terrorist Financing 112

Criminal Penalties for Money Laundering, Terrorist Financing, and Civil Penalties for Violations of the BSA 114

APPENDIX B BSA LAWS AND REGULATIONS 115APPENDIX C RISK MATRIX 118APPENDIX D SAMPLE REQUEST LETTER AND DOCUMENTS FOR MSBS 124APPENDIX E FINCEN SAR QUALITY GUIDANCE 126APPENDIX F SAR SUPPORTING DOCUMENTATION GUIDANCE 131APPENDIX G SAMPLE MSB INTERVIEW QUESTIONS 134APPENDIX H GUIDANCE FOR MSBS WITH FOREIGN COUNTERPARTIES OR AGENTS 141APPENDIX I CHART OF RECORDKEEPING REQUIREMENTS 148APPENDIX J RECORDS COMMONLY FOUND AT MSBS 151

Table of Contents

Introduction

Bank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses

InTroduCTIonThis Bank Secrecy Act/Anti-Money Laundering Examination Manual for Money Services Businesses provides guidance to examiners for performing Bank Secrecy Act (BSA) examinations.

As the administrator of the BSA, the Financial Crimes Enforcement Network (FinCEN) has delegated authority to the Internal Revenue Service (IRS) to examine the anti-money laundering (AML) program of money services businesses (MSBs). 1

An effective AML program requires sound risk management; therefore, the manual also provides guidance on identifying and controlling risks associated with money laundering and terrorist financing. The manual contains an overview of AML program requirements, BSA/AML risks and risk management expectations, sound industry practices, and examination procedures. The development of this manual was a collaborative effort of the IRS, state agencies responsible for MSB regulation, the Money Transmitter Regulators Association (MTRA), the Conference of State Bank Supervisors (CSBS), and FinCEN, a bureau of the U.S. Department of the Treasury. The goal is to ensure consistency in the application of the BSA requirements.

The manual focuses on the following types of MSB activities2:

Issuance, Sale, and Redemption of Money Orders;

Issuance, Sale, and Redemption of Travelers Checks;

Money Transmission;

Check Cashing; and

Currency Exchange or Dealing.

31 CFR 103. 56(b)(8) and 103.125(c). State regulators may also examine MSBs for compliance with certain BSA requirements, possibly including