In the wake of the recent terrorist attacks in Paris and Brussels, money services businesses in the U.S. face the prospect of even more scrutiny and regulations from the federal government.
After the 9/11 terrorist attacks, the federal government adopted many new regulations on financial services businesses such as MSBs, including the USA Patriot Act passed by Congress in 2001, which targeted terrorist financing and money laundering. In more recent years, the regulatory environment has continued to change as new threats emerge.
Last June, for example, the U.S. Treasury Department released its list of new risk assessments for money laundering and terrorism to keep up with new technology, including mobile messaging applications, online banking and virtual currency.
In the meantime, MSBs are trying to ensure their compliance procedures are up-to-muster to meet the latest regulatory requirements and protect the public from harm.
“It’s discipline,” said Edward D’Alessio, executive director of Washington, D.C.-based Financial Service Centers of America, a trade association for financial service centers and MSBs. “When you have a lack of compliance in following policies and procedures, or anything, it could lead to someone messing up, it could lead to exposing the company, exposing the customer — even exposing the country — to terrorism or some type of financial crime.”
When the Patriot Act was enacted in 2001, few people would have imagined an online service such as Venmo, which allows users to move money via PayPal. The Office of Foreign Assets Control within the Treasury Department now red flags key search terms that may indicate terrorist activity.
Compliance can be costly for MSBs. While companies like MoneyGram and Western Union can easily absorb those expenses, smaller companies struggle with paying for training or compliance personnel.
Trade associations such as FiSCA provide resources and forums for MSBs so the businesses can share information on how they’ve addressed past threats, swap procedural anecdotes and discuss internal policies. Government regulators also attempt to provide guidance to financial institutions, such as the recent risk assessments released by the Treasury Department of vulnerabilities and threats based on more than 5,000 cases. The department reported that terrorist groups, thanks to the new safeguards put in place, are finding it more difficult to use MSBs to transfer or launder money. As a result, terrorist groups are turning toward less efficient methods for cash smuggling, such as a centuries’ old method called “hawala,” an informal off-the books ledger system used in the Middle East and Russia that relies heavily on family or regional connections that depend on trust between the players.
The amount of information to sort through can be daunting, but at least one expert said MSBs shouldn’t just rely on an analyst’s report or a news article summary to keep track of government regulations. John Byrne, executive vice president at the D.C.-based Association of Certified Anti-Money Laundering Specialists, recommends financial services businesses read the policies and interpret them based on their own individual situations.
Even after reading the policies and mandates, MSBs aren’t guaranteed “regulatory comfort,” Byrne said. Illicit transactions can still happen, despite following all of the federal rules, and because of that some MSBs feel less incentive to spend time and resources when it comes to compliance. “MSBs struggle with how much is enough,” Byrne said.
That’s why Byrne and other members of his association are gathering in June in Washington D.C. for a policy summit to exchange notes. Byrne wants honest and candid conversation that won’t necessarily solve 100% of the problems but hopefully will lead to improvements.
Four years ago, the U.S. Department of Justice joined with MoneyGram to establish an anti-money laundering program. MoneyGram’s materials stress their obvious goal of creating a culture of compliance. The items on their monitoring checklist ensure employees review transactions, carefully read over sales reports and electronic filings, and preserve records up to five years old. The latter coincides with the government’s desire for MSBs to preserve records so they can better track illicit activities of any kind.
“If you’re following the basics, it doesn’t matter if a person is trying to engage in drug trafficking, just plain financial fraud or something else,” D’Alessio said. “The steps are the same.”
However, MSBs should pay attention based on the product or service that’s being offered. For example, cashing a paycheck, benefit or settlement check isn’t a high risk because usually the amounts average only between $350 to $500 per transaction, D’Alessio said. On the other end of the risk spectrum are money transmission/remittances, prepaid cards and commercial check cashing, where transactions can involve thousands of dollars. Having an effective policy, coupled with training and an independent review, is essential.
“The basic pillars of the Bank Secrecy Act and Patriot Act are what provides your pillars for effective combating of money laundering,” D’Alessio said. The Bank Secrecy Act of 1970 requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering.
MoneyGram’s AML checklist to ensure compliance includes keeping track of new hires, and flagging any suspicious activity such as noting transactions of more than $10,000 by a single customer in a day. MoneyGram and Western Union are the country’s two major money transmitters and have established major compliance programs, which serve as role models for the entire industry, according to D’Alessio. Western Union officials said they are spending more money on technology to better protect consumer data.
“Western Union’s business is based on trust, and, therefore, the company places the highest priority on compliance to counter illegal activity, while investing in resources to help keep bad money out of the system and comply with local laws and regulations,” Western Union spokeswoman Rachel Rogala said. “In fact, more than 20% of the company’s workforce alone is engaged in compliance measures, reinforcing Western Union’s organizational commitment to uphold regulatory guidelines,” the spokeswoman said.
D’Alessio reiterated that MSBs have become accustomed to the scrutiny, particularly in the 15 years since 9/11. Federal mandates have created more responsibilities in terms of documentation for MSBs to protect their business and the general public. D’Alessio said the pitfalls are “simply not following through,” which includes instances when employees fail to finish training or managers do not complete internal evaluations.
Freelance writer Ashok Selvam contributed to the writing and research of this article.