Questions and Answers on MSBs

In each issue of the SAR Activity Review, representatives from the financial services industry offer insight into some aspect of compliance management or fraud prevention that presents their view of how they implement the BSA within their institution. Although the Industry Forum provides an opportunity for the industry to share its views, the information provided in the Industry Forum may not represent the official position of the regulators.

In this issue, David Wittman of First Data Corporation/Western Union provided the following information.

1. Although there are new regulations that have been issued requiring Money Services Businesses to report suspicious activity for transactions occurring after January 1, 2002, can an MSB report transactions before then and how?

The government has always encouraged voluntary reporting of suspicious activity. Some of the national MSBs, including the leading money transmission services, money order and traveler's checks issuers, and currency exchange providers have already developed sophisticated internal systems to detect suspicious activity and have a long record of cooperation in assisting law enforcement in the effort to prevent money laundering. Until the Suspicious Activity Report form for MSBs is finalized, we use the Suspicious Activity Report form revised June 2000.

2. Are MSBs that report suspicious transactions prior to January 1, 2002 afforded the same .safe harbor. protection as banks?

We rely on 31 USC 5318(g)(3), which provides that any financial institution that reports possible violations of law will not be liable for such disclosure.

3. Based on a customer's account activity, banks can monitor their customers' accounts for unusual or suspicious transactions. Money transmitters do not have an account or on-going relationship with many of their customers. How can they determine whether a customer's transaction activity is unusual or suspicious?

Many of the leading Money Service Businesses have already developed sophisticated programs to detect suspicious activity. Key components of these programs include .Know Your Customer. principles such as requiring identification of specific information about large transactions including the purpose of the transaction and the relationship between the sender and payee. Other tools include transaction activity reports which help detect possible structured activity or suspicious transactions. Additionally, over the past several years, these businesses have increased training and communication to their employees and sales outlets on detecting and reporting suspicious activity.

4. Most money orders and some traveler's checks are purchased anonymously (since there is no requirement to verify the purchaser's identity) nor is the payee information recorded on the instrument at the time of purchase. Additionally, some money orders are sold through third-party sales outlets. Absent being able to identify the purchaser or payee, or having visibility to the purchase of the instrument, how can a money order or traveler's check issuer identify suspicious activity?

Some issuers have implemented automated monitoring systems on the clearing and reconciliation side. Specifically, these types of programs identify groups or series of items that appear to have been deposited together at a particular bank or financial institution. These items are then generally reviewed manually to determine if they may have been purchased by the same individual at different locations, were purchased by different individuals and were deposited into a single account, or if the items appear to have unusual markings or are otherwise suspicious.

Excerpted from SAR Activity Review Issue 2 , page 38