Due Diligence on MSB Customers

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Question:

In the answer given by Ryan Rasske on "AML Requirements Upon Identifying an MSB", he stated, "It is up to the bank to conduct the proper due diligence on their MSB customers and ensure they are complying with the law." We are in the process of determining what our responsibility is as a bank to ensure that our customers are complying with the law. What specifically do we need to be doing to be sure that we are using "proper due diligence"?

Answer:

You are asking the million dollar question that everyone wants answered regarding MSB’s. Unlike banks, registered MSB’s are not heavily regulated to ensure they are complying with the Bank Secrecy Act. The government has instructed them to implement a BSA compliance program and then placed the responsibility of monitoring these programs on you and me. There is no concrete answer on how best to conduct MSB due diligence or how far we need to go, but here are some possible suggestions: Create a “Due Diligence” form for each MSB to complete (asking them to explain in detail their business, products offered, and type of customers they service); Gather and review all their policies and procedures pertaining to BSA; Test these procedures (e.g. conduct an independent test yourself or hire a third-party company) to ensure they work and meet the minimum BSA requirements; Provide training materials to MSB’s in order to expand their knowledge of BSA/AML. Ideally, all the information gathered through your due diligence will help create a clear understanding of the activity occurring within their bank account held at your institution and some sort of comfort level of their BSA compliance.

First published on BankersOnline.com 1/17/05