Money services businesses (MSBs) are heavily regulated in the United States, both by federal law and by statutes in 49 of the 50 states. A money service business is a company that offers financial services such as money orders, traveler’s checks, check cashing, the exchange or dealing of currency, money transmission, and others. MSBs are regulated by the Bank Secrecy Act, which is administered by the Financial Crimes Enforcement Network, or FinCEN, at the United States Department of the Treasury.

Under FinCEN regulations and pursuant to the USA Patriot Act, MSBs need to register with FinCEN and adhere to a number of different record keeping, reporting, and anti-money laundering requirements. In addition, 49 of the 50 states have also implemented MSB regulation that largely mirror the federal requirements. An accomplished compliance attorney can help walk you through the process of setting up a money service business.

Registration Requirements

Under the Banking Secrecy Act (BSA,)  when setting up a money service business, MSBs need to register with FinCEN. This registration must be filed on the BSA e-filing system within 180 days from the date on which the MSB is established. This an important deadline to keep in mind, because for many MSBs, the company is created long before they start actually engaging in business.
The registration goes beyond simply naming the company or paying a simple fee.

It involves giving FinCEN a lot of very important information about the MSB, such as the type of business in which it is engaged, financial institutions and bank accounts through which the transactions may be taking place, the ownership or control of the MSB, and the number of different branches and/or agents which are operating in the United States. Extra care should be taken throughout the registration process to ensure that all deadlines are met, and all information provided to FinCEN is accurate and does not need to be corrected later.

Record-Keeping Requirements

When setting up a money services business, it is important to keep a number of different records in an easily retrievable format, some of them at a particular physical address location for a period of at least five years. The type of information that needs to be kept varies, but it includes supporting documentation for the MSB registration, such as estimates of the expected value of the business over the next year, a list of all the agents which are operating in the United States, a copy of the original registration form, as well as copies of currency transaction reports (CTR), suspicious activity reports, and information that is garnered through the Know Your Customer and Customer Identification programs.

MSBs must adequately store these records in an appropriate location from which they can be retrieved, as required by law. The needs for record keeping systems may vary depending on the site of the money service business, the nature of the transactions in which they are engaging, and the volume of transactions per day or per year.

Reporting Requirements

Money service businesses are required to report certain types of transactions to FinCEN, including any suspicious activity, and transactions that are valued over a certain threshold amount.

These requirements include providing currency transaction reports to FinCEN about any transaction or set of aggregate transactions that amount to more than $10,000 on behalf of the same person during the business day. The currency transaction reports must include information about the parties involved, taxpayer identification, as well as verification of the customer’s identity.

In addition to currency transaction reports, MSBs must file suspicious activity reports anytime the MSB knows or has a reason to suspect that a transaction is related to illegal activity, or has been designed to hide or disguise money which is derived from illegal activities.

AML Requirements

Money service businesses are required to have an anti-money laundering compliance program in place. This can be a substantial regulatory burden on MSBs, as they are treated as financial institutions. Other aspects of federal regulation, such as economic sanctions, do not mandate a compliance program, although they are recommended.

The Anti-Money Laundering (AML) compliance program must enable the company to identify the underlying purpose of a given transaction and verify certain information about the parties involved. Federal regulators require this to ensure that the United States financial system is not used unlawfully or by bad actors to disguise illicit flows of money.

The needs of an AML compliance program largely depend on the nature, size, and volume of transactions that are being handled by a given MSB, but there are some minimum requirements regarding what information needs to be identified and which records need to be kept. A bank that handles thousands of transactions per day may require a sophisticated AML compliance program that integrates interdiction software that can identify and flag the names of parties, and screen them against different lists.

Alternatively, an MSB that has a very limited number of customers and parties that are participating in a transaction may not need sophisticated software. A compliance officer, or compliance staff, may be able to appropriately identify and evaluate potential money laundering concerns and other compliance issues. An attorney can review a company’s AML compliance program to ensure that it meets the legal requirements, is suitable and efficacious for the types of transactions the business will be handling, and does not waste company resources with unnecessary elements.

Benefits of Contacting an Attorney

Setting up a money service business can be complicated and not following the proper regulations can have unintended consequences. A lawyer will have detailed knowledge about FinCEN regulations and will be able to guide you. If you are in the process of setting up a money service business, and you have questions about how to proceed, please get in touch with a knowledgeable compliance attorney.