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FinCEN extends its jurisdiction over foreign MSBs
Finally, after almost two years of discussions, FinCEN, the division of the Department of the Treasury dealing with financial crimes, in its administrative function over the Bank Secrecy Act, enacted a new regulation that extends its coverage outside of the borders of the United States.
On July 21st, FinCEN published in their Official Newsletter the new regulation called “Definitions and other regulations related to money service businesses” (MSBs).
This new regulation is divided into several parts. The first focuses on the definition of MSBs, which is based on activities previously established by FinCEN and concludes that this definition should also apply for foreign businesses that perform the same activities regardless of where they are located or how often they conduct business.
Another issue is related to the way to extend its jurisdiction to foreign companies. For this it states that businesses that fall under the definition of MSBs that do business with the United States in any way (substantial or completely) will have to comply with several requirements:
1. Register as an MSB with FinCEN. For this purpose, and in order to facilitate this registration, the online reporting program that has been used for cash transaction reports as well as for suspicious activities is now extended to these businesses to complete the registration.
2. As an integral part of registering with FinCEN, the company should register agents as well.
3. Designate an agent who resides in the United States to serve as a contact between FinCEN and the MSB. This person will accept legal notices and other documents related to the Bank Secrecy Act. This agent should provide an address to receive these notices and keep precise records.
4. Upon registering as an MSB in the United States, the MSB automatically has the obligation of establishing policies and procedures that not only comply with the requirements established by their own country but that also comply with the requirements established for MSBs in the United States.
5. Within these special procedures is the reporting of cash transactions of more than ten thousand American dollars (US $10,000). In the same way, they should report suspicious activities as defined by the laws of the United States.
6. Another important factor that applies to foreign MSBs is that they are subject to audits under Title 31 carried out by FinCEN, who has authorized the Internal Revenue Service (IRS) to conduct inspections on the implementation of anti-money laundering programs (AML) by the MSBs.
Other points have to do with different types of money businesses. One development is that there is no more talk of currency exchange businesses, but they have eliminated the term “currency” to make the activity more general. It does not include only activities involving exchanging physical money but also the exchange of money through other instruments that have a monetary denomination that aren’t always tangible, especially now with all of the instruments in stores each day that have monetary value without necessarily being money.
Clarifications have finally been made about each of the types of operations possible for MSBs: Foreign currency exchange companies, check cashing companies, and companies that issue or sell money orders.
FinCEN also mentions “stored value”, instruments of stored value (like prepaid cards, etc) and assigns them a category independent of other financial instruments like traveler’s checks and money orders.
They have also elaborated on the definition of money transfer businesses, and expanded it to include businesses that transfer not only money but also funds or any other element of value that can substitute money.
This new regulation certainly turns out to be very ambiguous and, at first glance, it generates a series of doubts about its practical application. While it is true that for the government of the United States the fight against money laundering is important, and in many cases money service businesses have served as instruments to this effect, trying to regulate financial operations worldwide through MSBs will be complicated.
The United States is a multicultural country and has business relations with more than 150 countries of the 196 in the world. Western Union reports money transfers to more than 200 countries in the world (there are actually a number of countries that belong to other countries but they are generally seen as independent countries) which implies that the MSBs of 200 countries, if they have any relation with the United States (permanent or transient), will have to comply with this regulation. This is improbable especially considering that in many countries there is not a local regulation for these activities.
Another important aspect to consider is if FinCEN, who has delegated authority to the IRS to conduct reviews of these businesses, is prepared to respond to all of the reviews that would come if this regulation was entirely accepted. In practice it is clear that the staff that is available to carry out the reviews of money service businesses outside of the United States is insufficient and could hardly claim to extend its capability outside the borders.
The scope and coverage of this regulation in practice also generates doubts about its actual coverage. Are these companies obligated to inform FinCEN about all of their internal operations that aren’t related to business with the United States? Are IRS officials familiar with the financial culture of countries that barely appear on the map? In practice it is normal for us as consultants to sit down and explain to them why certain types of activities that in the United States constitutes a suspicious activity, in other countries are normal practices. This implies that we should create a single global concept about suspicious activities.
But let’s move on from the idea that every country will comply with this regulation and instead think about a practical setting where a money transfer business in Beijing that sells some money to a company in California detects a suspicious activity and presents their suspicious activity report like this:
在過去一周中的個人存在我的生意，不想被發現，當我們詢問您的
Does this mean that we’re now facing a multilingual organization? Or can we conclude that another of the requirements for this regulation is that English is mandatory?
Not to mention whether we are prepared to receive and analyze suspicious activity reports, since in 2010 they received more than 700,000 suspicious activity reports and almost half corresponded with money service businesses. If we remember the nature of this report, which is being able to detect and prevent criminal activities that could constitute terrorism, money laundering or any other form of crime, it is impossible to think that they are actually capable of analyzing 300,000 suspicious activity reports from the United States, and even more impossible that they can investigate all the reports that come from abroad. Not to mention the setting of sanctions when a business in the Congo, for example, fails to present their cash transaction reports. Will FinCEN fix the corresponding fine? And if not, doesn’t that constitute a practice unequal from an American business that commits the same offense and is fined?
In conclusion, it must be stressed that the purpose of this regulation is good, but the means are certainly not the best. FinCEN owes many answers that should have been studied and reviewed before publishing this regulation. The result of these types of ambiguous regulations is always the same, the application is subject to the interpretation of each individual agent on shift, which might not be the best interpretation.
Our firm is specialized in Money Service Businesses. We have been working hand in hand with many companies in this sector in the United States, Latin America and Europe for 8 years. Please contact us if you have any comment or if you have any questions regarding our company and our services.
About the Author
Juan C. Villa, CAMS, FIBA AML/CA
Certified Anti-Money Laundering Specialist
FIBA Certified Associate – Anti-Money Laundering
AML Compliance Solutions, Inc.
5201 Blue Lagoon Dr. Suite 964 Miami, FL 33126
Toll Free 855-AML-TEAM (855-265-8326) Fax Toll Free 888-538-1199
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