We closed a MSB account when they did not provide an AML policy, do we need to file a SAR on this account or any MSB account if we close them for non-compliance?

From OCC AL 2004-7:

If a bank suspects that a customer is an unlicensed or unregistered MSB, it should file a SAR in accordance with OCC regulations and carefully consider the risks of providing services to such an entity. In addition to considering risk to its reputation, the bank should consider the type of activity in the account (e.g., cash transactions or international wires), patterns of activity (e.g., whether it reflects an ongoing fraud or other criminal activity), and the volume of activity and transaction amounts.

FDIC representatives at the ABA/MLES were asked the same question and, while their answer was somewhat less emphatic, agreed. By failing to register as required by law, an MSB is evading requirements imposed by the Bank Secrecy Act, a filing trigger under Treasury's SAR filing regulation.

The same OCC issuance suggests that a money transmitter's failure to obtain a license required by state law might also violate federal law:

In addition, 18 USC 1960 provides penalties for conducting an illegal money transmitting business. For purposes of 18 USC 1960, failure to register with FinCEN as required, or operating without a license in a state where such operation is punishable as a misdemeanor or a felony constitutes conducting an illegal money transmitting business.

However, you said that closure was prompted by their refusal to provide you with an AML policy, not a refusal to register. While the law requires them to have such a policy, it doesn't necessarily require them to give it to their bank.

Acknowledging that the next poster may say this is a "defensive" filing, I would say any decision you made to file was understandable. You asked for something they are required by law to have. Their refusal to provide it could reasonably lead you to the conclusion they don't have one; i.e. they have not complied with BSA.

NM Tiger.. did they refuse to provide the AML Policy?
Or did they just not have one, and maybe did not know how to go about writing one?
Does this MSB do any Western Union activity?

Customer response was "We are aware that when a check being cashed comes from the following: Money Laundering, Drug-Trafficking, Robbery and Terrorism. The authorities will be notified immediately."
Have copy of application that was sent for registration.

They are required to have an AML policy, and the examiners are expecting you to ensure that they do.
Their response is unacceptable I think.