On December 8, 2004, the U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN") issued interpretive Guidance requiring Money Services Businesses that use overseas agents to move funds in and out of the United States to establish, as part of their anti-money laundering procedures, appropriate measures to address the risks of money laundering and terrorism financing posed by relationships with foreign parties. Businesses are expected to be fully compliant with this Guidance within six months from the December 8 announcement.

"Money Services Businesses" are defined by the Bank Secrecy Act regulations and include the following: (1) currency dealers or exchangers; (2) check cashers; (3) issuers of traveler’s checks, money orders, or stored value; (4) sellers or redeemers of traveler’s checks, money orders, or stored value; and (5) money transmitters. The Bank Secrecy Act regulations currently require Money Services Businesses to develop and maintain anti-money laundering programs to prevent those businesses from being used to facilitate money laundering and the financing of terrorist activities. FinCEN’s recent Guidance explains that a Money Services Business utilizing foreign agents or counterparties must also include, as part of their anti-money laundering program, processes and procedures that identify and minimize the risk of doing business with entities that facilitate the movement of funds into and out of the United States. At a minimum, those processes and procedures must address:

  • Conducting due diligence on foreign agents and counterparties. Such due diligence must include procedures to identify the owners of the foreign agents and counterparties, and must also evaluate the operations of the foreign agents and counterparties on an ongoing basis. As with any transaction, conducting due diligence on foreign business partners is necessary from both business and legal standpoints. From a legal perspective, the activities of potential business partners can have deleterious effects on a company, especially if the business partner engages in illegal or corrupt practices. While no amount of due diligence can absolutely ensure that business partners will operate within the confines of the law and will conduct themselves under high ethical standards, due diligence can reduce the likelihood that a business partner will engage in prohibited practices.

  • Risk-based monitoring of foreign agents and counterparties. In addition to due diligence on foreign agents and counterparties, Money Services Businesses are also required to establish and maintain procedures for "risk-based" monitoring of those entities. Such procedures should permit Money Services Businesses to identify material changes in an agent’s or counterparty’s "risk profile," such as a change in ownership or business. This risk-based monitoring should also identify suspicious transactions such as unusual wire activity, bulk sales or purchases of sequentially numbered instruments, multiple purchases or sales that appear to be structured, and illegible or missing customer information.

  • Taking corrective action or terminating relationships as necessary. Finally, Money Services Businesses are required to establish policies and procedures to implement corrective action or to terminate a relationship with a foreign agent or counterparty if that entity presents an unreasonable risk of money laundering or terrorism financing, or if that entity demonstrates repeated or willful lapses in compliance in the Money Services Business’ procedures or requirements.

This article is presented for informational purposes only and is not intended to constitute legal advice.