Table of Contents Table of ConTenTs INTRODUCTION 1 Objectives of Manual 2 Structure of Manual 2 Money Services Business - Overview 4 Typical Management Structure of an MSB 4 Branches and/or Agents 5 General Scope of the BSA Regulations 6 Overview of Check Cashers 6 Basic Model of a Check Casher 6 Overview of Currency Dealers or Exchangers 7 Overview of Issuance, Sale, and Redemption of Money Orders/Traveler’s Checks 7 Issuer or Redeemer 8 Sale of Money Orders/Traveler’s Checks for National Companies 8 Overview of a Money Transmitter 9 Basic Business Model of a Money Transmitter 10 Transaction Flow of a Money Transmitter 12 Overview of Principal and Agent MSB Relationships 13 EXAMINATION OVERVIEW AND PROCEDURES FOR ASSESSING BSA COMPLIANCE 14 Risk-Based Approach to BSA Examinations 14 Principal MSB Examinations Versus Agent MSB Examinations 15 Pre-Planning the BSA Examination — Overview 17 Information Available from FinCEN Database (Web CBRS) 18 Risk Assessment 19 Identifying Specific Risk Categories 20 Product Risk 20 Customer Risk 20 Geographic Risk 21 Operational Risk 22 Analysis of Specific Risk Categories 22 Review of the MSB BSA/AML Risk Assessment 23 Examiner Development of a BSA/AML Risk Assessment 24 Developing a Risk-Based Examination Plan 26 BSA Examination Program Elements 27 Transaction Testing 28 Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Table of Contents Examination Procedures 29 Pre-Planning the BSA Examination 29 Pre-Plan Procedures 29 Risk Assessment 32 Developing a Risk-Based Examination Plan 32 Transaction Testing Plan 33 MSB Registration Requirements — Overview 34 MSB Agent List 35 Examination Procedures 37 MSB Registration Requirements 37 On-site Examination and Interview of Appropriate Personnel — Overview 38 Interview 38 Examination Procedures 41 On-Site Examination and Interview of Appropriate Personnel 41 Anti-Money Laundering Program — Overview 43 Developing a Risk-Based AML program – The Four Pillars 44 1. Internal Controls 44 A. Management’s Risk Assessment 46 MSB’s Updating of the Risk Assessment 46 B. Control Environment 47 C. Internal Control Activities 47 D. Information and Communications 49 E. Internal Control Monitoring 49 F. Responding to Law Enforcement Inquiries and Requests 50 G. Principal MSB Monitoring/Oversight Procedures 50 H. Requirements for MSBs with Respect to Foreign Agents or Foreign Counterparties 51 2. Designation of BSA Compliance Officer 52 3. Independent Review 52 Timing of the Independent Review 53 Documentation and Follow-Up 53 4. Training 54 Examination Procedures 55 Anti-Money Laundering Program 55 Risk Assessment 55 Internal Controls 55 Principal MSB Monitoring/Oversight Procedures 56 Additional Examination Procedure for Branch/Agent Monitoring/ Oversight Based on Risk 57 Requirement for MSBs with Respect to Foreign Agents or Foreign Counterparties 57 Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Table of Contents BSA Compliance Officer 59 Independent Testing 59 Training 60 Preliminary Evaluation 61 Recordkeeping Requirements — Overview 62 Recordkeeping Requirements 62 Records to be Maintained for Issuance or Sale of Money Orders/Traveler’s Checks 62 Records to be Maintained for Transmittals of Funds 63 Records to be Maintained by Currency Dealers or Exchangers 65 Examination Procedures 68 Recordkeeping Requirements 68 Records to be Maintained for Issuance or Sale of Money Orders/ Traveler’s Checks 68 Additional Procedures Based on Risk 69 Records to be Maintained for Transmittals of Funds 70 Additional Procedures Based on Risk 70 Records to be Maintained by Currency Dealers or Exchangers 71 Additional Procedures Based on Risk 71 Evaluating the MSB’s Compliance with Recordkeeping Requirements 71 Record Retention Requirements — Overview 72 Examination Procedures 74 Record Retention Requirements 74 Evaluating the MSB’s Compliance with Record Retention Requirements 74 Currency Transaction Reporting — Overview 75 Aggregation of Currency Transactions 75 Filing Time Frames and Record Retention Requirements 76 CTR Back Filing 76 Examination Procedures 77 Currency Transaction Reporting 77 Transaction Testing 77 Additional Examination Procedures for Check Cashers Based on Risk 79 Additional Examination Procedures for Issuance or Sale of Money Orders/Traveler’s Checks Based on Risk 79 Additional Examination Procedures for Money Transmitters Based on Risk 80 Additional Examination Procedures for Currency Dealers or Exchangers Based on Risk 80 Evaluating the MSB’s Compliance with Currency Transaction Reporting Requirements 81 Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Table of Contents Suspicious Activity Reporting — Overview 82 Clearance Review - $5,000 Threshold 83 Systems to Identify, Research, and Report Suspicious Activity 83 Manual Transaction Monitoring 84 Transmittals of Funds Records 84 Money Orders/Traveler’s Checks Records 84 Currency Dealers or Exchangers Records 85 Automated Monitoring 85 Identifying Underlying Crime 86 Law Enforcement Inquiries and Requests 86 SAR-MSB Decision-Making Process 87 Timing of a SAR-MSB Filing 89 SAR-MSB Filing on Continuing Activity 90 SAR-MSB Quality 90 Prohibition of SAR-MSB Disclosure 91 Safe Harbor 91 Examination Procedures 92 Suspicious Activity Reporting 92 Review of Policies, Procedures, and Processes 92 Evaluating Suspicious Activity Monitoring Systems 92 Manual Transaction Monitoring 92 Automated Transaction Monitoring 93 Evaluating the SAR-MSB Decision-Making Process 93 Transaction Testing 94 SAR-MSB Reporting 94 Testing the Suspicious Activity Monitoring System 94 Additional MSB Examination Procedures for Issuance or Sale of Money Orders/Traveler’s Checks Based on Risk 95 Additional Principal MSB Examination Procedures for Money Transmitters Based on Risk 95 Additional Examination Procedures for Currency Dealers or Exchangers Based on Risk 95 Evaluating the MSB’s Compliance with Suspicious Activity Reporting Requirements 97 Foreign Bank and Financial Accounts Reporting — Overview 98 Examination Procedures 99 Foreign Bank and Financial Accounts 99 International Transportation of Currency or Monetary Instruments Reporting — Overview 100 Examination Procedures 101 International Transportation of Currency or Monetary Instruments Reporting 101 Additional Examination Procedures Based on Risk 101 Bank Secrecy Act/Anti-Money Laundering Examination Manual for v Money Services Businesses Table of Contents Evaluating the MSB’s Compliance with International Transportation of Currency or Monetary Instruments Reporting 101 Developing Conclusions and Finalizing the Examination — Overview 102 Examiner Determination of the MSB’s BSA/AML Aggregate Risk Profile 102 Examination Procedures 103 Developing Conclusions and Finalizing the Examination 103 Supporting Workpaper Documentation 104 Preparing the BSA Report of Examination 105 Closing Conference 106 Handling Initial Notification of and Response to Violations 106 APPENDIX A – BACKGROUND 107 Role of Federal and State Government Agencies in the BSA 110 FinCEN 110 Internal Revenue Service 110 Money Laundering and Terrorist Financing 111 Money Laundering 111 Terrorist Financing 112 Criminal Penalties for Money Laundering, Terrorist Financing, and Civil Penalties for Violations of the BSA 114 APPENDIX B – BSA LAWS AND REGULATIONS 115 APPENDIX C – RISK MATRIX 118 APPENDIX D – SAMPLE REQUEST LETTER AND DOCUMENTS FOR MSBS 124 APPENDIX E – FINCEN SAR QUALITY GUIDANCE 126 APPENDIX F – SAR SUPPORTING DOCUMENTATION GUIDANCE 131 APPENDIX G – SAMPLE MSB INTERVIEW QUESTIONS 134 APPENDIX H– GUIDANCE FOR MSBS WITH FOREIGN COUNTERPARTIES OR AGENTS 141 APPENDIX I – CHART OF RECORDKEEPING REQUIREMENTS 148 APPENDIX J – RECORDS COMMONLY FOUND AT MSBS 151 Bank Secrecy Act/Anti-Money Laundering Examination Manual for v Money Services Businesses Introduction InTroduCTIon This 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 Traveler’s Checks; • Money Transmission; • Check Cashing; and • Currency Exchange or Dealing. 1. 31 CFR 103. 56(b)(8) and 103.125(c). State regulators may also examine MSBs for compliance with certain BSA requirements, possibly including compliance with the AML program requirement, as elements of a more comprehensive list of compliance requirements imposed under state law. These requirements, however, will vary widely from state to state. 2. Under 31 CFR 103.11(uu) MSBs include each agent, agency, branch, or office within the United States doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities: (1) currency dealer or exchanger; (2) check casher; (3) issuers of traveler’s checks, money orders or stored value; (4) sellers and redeemers of traveler’s checks, money orders or stored value; (5) money transmitters; and (6) the U.S. Postal Service, except with respect to the sale of postage or philatelic products. A person offering a financial service specified in (1) through (4) above, who does not offer that service in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions is not included in the definition of MSB. Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Introduction objectives of Manual The objectives of this manual are to: • Provide guidance to BSA examiners that enhances their ability to perform risk- based BSA examinations of MSBs; • Provide a resource to enhance the consistency of BSA examination procedures; • Provide a summary of BSA compliance requirements and examination practices to the MSB industry; and • Facilitate the efficient allocation of examination resources between federal and state BSA regulators. structure of Manual In order to effectively apply resources and ensure compliance with BSA requirements, the manual is structured to allow examiners to tailor the BSA examination scope and procedures to the specific risk profile of the MSB under examination. The manual consists of the following sections: • Introduction • Examination Overview and Procedures for Assessing BSA Compliance • Appendices The overview sections provide narrative guidance and background information on each topic; each overview is followed by examination procedures. The “Examination Overview and Procedures” sections serve as a platform for the BSA examination. These sections address legal and regulatory requirements of the AML program centered on the effectiveness of the MSB’s AML program and the MSB’s compliance with the recordkeeping and reporting requirements of the BSA. Not all of the examination procedures will be applicable to every MSB. The specific examination procedures that will need to be performed depend on the BSA/AML risk profile of the MSB, the quality and quantity of independent testing, the MSB’s history of BSA compliance, and other relevant factors. Within each section, the manual provides examination procedures for the examiner to follow, varying according to the risk profile identified during the pre-planning of the examination and the current examination findings. The examiner should perform the additional procedures outlined within each section to the extent necessary based on the risks identified. For example, if the examiner determines that a money transmitter may not have appropriate policies and procedures to ensure the reporting of all transactions requiring currency transaction reporting (e.g., no review of automated reports for Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Introduction currency transactions that exceed the reporting threshold), the examiner may decide that it is appropriate to sort transaction databases for a selected period of time to determine if transactions are being reported when required. The manual empowers the examiner to decide what examination procedures are necessary to evaluate whether the MSB’s AML program is adequate to ensure compliance with requirements of the BSA. This guide includes procedures for principal and agent MSB examinations. Some procedures pertain only to principal MSB examinations, where other procedures pertain only to agent MSB examinations or to both. Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses Money Services Business – Overview Money services business - overview Typical structure of an Msb MSBs can range from large sophisticated chains with interstate operations facilities that focus on providing a range of financial services such as check cashing and money transmission to small one-owner storefront operations that provide a few financial services, such as check cashing as an auxiliary service to its primary retail store operations. The business and management structure, as well as the overall risk profile, of an MSB can vary based on the size and complexity of the MSB. Some MSBs may engage in several different types of MSB-defined activities simultaneously. Some MSB-defined activities require more recordkeeping and reporting under the BSA than others do. MSB chains may maintain several organizational levels to conduct business. Each level is authorized to approve certain size transactions. The number of authorization levels may vary depending on the dollar amounts of customer transactions and the number of branches. The principal employees can include the following (characteristics special to specific types of MSBs are discussed later): • Director/Manager/Owner — Oversees the entire operation of the MSB. The manager may approve the largest currency transactions and may also be responsible for maintaining the internal control and records of the operations. • Store Manager/Supervisor — Reviews daily teller work and reconciliations. The supervisor may approve medium-size transactions (for example, between $3,000 and $5,000), and often receives shipments of currency to and from the correspondent bank or other currency supplier. In addition, the supervisor may be charged with ensuring all transaction information required by federal and state recordkeeping requirements is obtained. • Teller — Responsible for conducting all transactions and reconciling the total currency transactions to the teller’s beginning and ending cash balances. The teller usually will have the lowest authorization for conducting currency transactions. The teller is the MSB’s front line employee who should be aware enough of BSA regulations to perform duties such as securing information when appropriate from individuals conducting transactions that will trigger recordkeeping or currency transaction reporting requirements. • BSA Compliance Officer — Responsible for implementing and monitoring the day-to-day BSA compliance and internal controls of the program. In a small business with only a few employees, the BSA compliance officer may execute all the tasks himself or herself. In a small business, duties may have to be Bank Secrecy Act/Anti-Money Laundering Examination Manual for  Money Services Businesses