More paperwork is side effect of terrorism
Five easy steps to comply with anti-money laundering rules
By William Philbrick
You may not think of yourself as a terrorist, but the government can’t just take your word for it - especially if you own a "money service" business.
Terrorists need money to continue waging terror, so keeping money out of their hands means success in the war on terror. By money, of course, I mean cash – not credit cards, checks, or promissory notes, but difficult to trace, liquid currency that can be used to buy guns and explosives.The government needs to make certain the money service you’re business provides doesn’t finance the next 9/11 or other illegal activities, so Congress strengthened the U.S. Bank Secrecy Act after 9/11 to fight money laundering by terrorists as well as drug traffickers and other criminals. You may think it’s ludicrous that your business should have to comply with the regulations, but the government does not discriminate.
Just as your grandmother may get a pat-down and be forced to take off her shoes going through airport security, your money service business may have to comply with anti-money laundering regulations even if it is apparent that you are not a terrorist and are not unwittingly helping terrorists.
So what is a money service business? And what does it take to comply with the federal law? The law says a money service business is one that cashes checks, transmits money issues, exchanges foreign currency, or issues money orders, traveler’s checks, or stored value items like gift cards. (Retailers that offer gift cards but not other money services are excluded.)
In other words, virtually any retail business is a money service business, including your local grocer, bar or drug store. Banks, of course, and other financial service companies must also comply, along with stockbrokers, financial advisors, and others that sell stocks and other securities.
Regulatory requirements
All businesses that provide money transfer services must register with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), if it conducts more than $1,000 in money services business activities with the same person on the same day. An agent of another money service business, such as a grocery store that sells a bank’s traveler’s checks, is not required to register.
In addition to registering, each business must establish an anti-money laundering program, and audit its effectiveness. Failure to follow the law could result in potentially damaging fines and even jail time.
Enforcement to date has been lax – many employers aren’t even aware the law exists – but that could change, so you should be aware that failing to register, filing an incomplete registration form, or providing false information on that form can trigger a $5,000 a day penalty, in addition to criminal penalties, including fines and imprisonment.
Fortunately, compliance isn’t too time-consuming. Here are the steps one should take to comply:
Step 1: Register. To register, the business owner must complete a five-page form (FinCen Form 107, which is available at www.MSB.gov, www.FinCEN.gov or www.IRS.gov), and submit it to the IRS Computer Center in Detroit. The form can be filled out quickly and does not require very detailed information. Renewal is required every two years. Companies must re-register if they transfer more than 10 percent of their equity interest, or increase their number of "agents" by more than 50 percent. Agents are employees who are authorized to provide money services for your business.
New money service businesses must register within 180 days of starting their business.
Step 2: Prepare an agent list. An agent list needn’t be filed with the registration form, but must be available at the location reported on the form. In addition to each agent’s name, the list must include the agent’s address, telephone number, types of money services each provides, the year the person became an agent, and the name and address of any depository institution where the agent has an account for business funds. The business must also include a list of the months during which the money services for the business exceeded $100,000.
Step 3: Establish an anti-money laundering program. A compliance officer should be appointed to spearhead development of an anti-money laundering program and to take responsibility for compliance with the regulations.
Federal regulations detailing what should be included in the program are ambiguous, and say it should be "tailored to their operations."
A logical place to begin, though, is to perform a risk assessment, which includes a review of all company activities, products and services relating to money services. Based on the risk assessment, the company should develop written policies and procedures, and internal controls. It should also document requirements for record keeping, reporting and training.
The Financial Crimes Enforcement Network says the level of sophistication of the associated internal controls should be appropriate for the size, structure, risks and complexity of the money services business.
Step 4: Audit and test the program regularly. A review and test can be carried out by an accounting firm or other independent consultant, or by an internal officer or employee. Any internal employee can conduct the review, except the compliance officer or anyone who reports directly to the compliance officer.
The audit should include a "fair and unbiased appraisal" of each element of the anti-money laundering program. It should also include testing of internal controls, systems and procedures to identify weaknesses and problems, as well as recommendations for corrective action.
The review should take place "on a periodic basis." Regulations are ambiguous about what this means, but for most businesses an annual review is sufficient. For some, a review every two years is sufficient. The scope and frequency of the review should depend on the company’s risk assessment, which should take into account the company’s products, services, customers and geographic locations, according to federal regulations.
The person conducting the review should document the scope of the review, procedures used, testing, findings and recommendations for corrective action, if any.
Step 5: Report suspicious activities. In many ways, reporting suspicious activities is the most important step in the compliance process. All of the time spent complying with the Bank Secrecy Act would be wasted if terrorists could still get away with using your business to launder money.
The law requires that businesses report transactions of $2,000 or more that are suspicious ($5,000 or more if suspicious activities are identified by issuers of money orders or traveler’s checks during a review of clearance records). A transaction is considered suspicious if it:
• Involves funds derived from an illegal activity
• Is designed to evade requirements of the Bank Secrecy Act
• Serves no apparent lawful purpose or business purpose
• Involves use of the money services business to facilitate criminal activity
Suspicious activities can be subtle, but some are not too difficult to single out. Some recent examples include a teenager coming in with bags of cash to transfer to Miami, a former CPA receiving extensive money transfers from many different people, and a customer attempting to bribe an employee not to report a specific transaction.
Money service businesses that become aware of any activity that meets one or more criteria for being suspicious must file a suspicious activity report within 30 days. The three-page TD F 90-22.56 form requires basic information, plus a written explanation of what raised suspicions.
Failure to comply may result in civil fines of up $25,000 when the transaction involves less than that amount, or the amount involved in the transaction, up to $100,000. In addition, a criminal penalty can result in a fine, imprisonment of up to five years or both.
More paperwork is an unfortunate consequence of terrorism. But if a little paperwork can help keep funding out of the hands of terrorists, most would agree that it’s worth the inconvenience.
William Philbrick, CPA/ABV, MST, CVA is a senior vice president and director of tax and valuation services with Greenberg, Rosenblatt, Kull & Bitsoli, P.C., Worcester’s largest accounting firm. He can be reached at wphilbrick@grkb.com.
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