Money Service Business Terms and Definitions
TERMS AND DEFINITIONS
Please note: The following terms and definitions are geared to U.S. Money Service Businesses
ANTI-MONEY LAUNDERING (AML) PROGRAM
A set of policies and procedures designed to mitigate the risk of an institution being used as a conduit for money laundering and other financial crimes. In the U.S., financial institutions, such as banks, security dealers and money service businesses are required by the Bank Secrecy Act to have such a program that, at a minimum, must contain:
- The development of internal policies, procedures and controls
- Designation of a Compliance Officer
- On-going training program for employees
- Independent audit function to test programs
BANK SECRECY ACT (BSA)
Enacted in 1970 as the primary U.S. anti-money laundering statute (Title 31, U.S. Code 5311-5355). The statute placed controls on financial institutions, and other businesses, to fight money laundering. The act, among other things, established a paper trail for currency transactions, such as Currency Transaction Reports (CTRs), Report of Foreign Bank and Financial Accounts (FBAR), and Currency and Monetary Instruments Report (CMIR). The USA PATRIOT ACT was enacted as an amendment to the BSA in 2001.
BANK SECRECY ACT (BSA) COMPLIANCE PROGRAM
See: Anti-Money Laundering (AML) Program
BSA EFILE
A secure network of FinCEN through which financial institutions electronically file various reports.
CURRENCY
Any form of banknotes or coins designated as legal tender in the U.S. or other countries.
CURRENCY TRANSACTION REPORT (CTR)
A report required by the Bank Secrecy Act to be filed for cash-in or cash-out currency transactions that exceed $10,000 for any one person in one business day. Financial Institutions, and other businesses, must file the CTR to the Financial Crimes Enforcement Network (FinCEN) within 15 days of the transaction.
CUSTOMER IDENTIFICATION PROGRAM (CIP)
A component of the compliance program that establishes the policies and procedures used to verify the identity of the customer.
COMPLIANCE OFFICER
A requirement of the Bank Secrecy Act, an institution must appoint an individual who is responsible for the implementation of, and oversees, the compliance program of the institution. The individual appointed must have the necessary knowledge, training and experience to effectively discharge their duties along with the necessary resources and authority.
FINANCIAL CRIME
The use of money or property in an illegal manner. Examples include money laundering, terrorist financing, identity theft, racketeering, tax evasion, and white collar crimes. The policies and procedures of financial institutions should address all forms of financial crimes.
FINANCIAL CRIMES ENFORCEMENT NETWORK (FinCEN)
An agency of the U.S. Dept. of Treasury that is tasked to safeguard the financial system from illicit use, combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.
FINANCIAL INSTITUTION
As defined by the Bank Secrecy Act 31 USC 5312(a)(2), a ‘financial institution’ includes both banks and ‘Non-Bank Financial Institutions’ (NBFI). NBFIs include, among other businesses, currency exchanges, check cashers, pawnbrokers, precious metal dealers, and monetary funds transmitters.
FOUR PILLARS
A colloquial reference to the four minimum requirements of a financial institution’s compliance program mandated in the Bank Secrecy Act (31 USC 5318(h)). The four ‘pillars’ are:
- The development of internal policies, procedures and controls
- Designation of a Compliance Officer
- On-going training program for employees
- Independent audit function to test programs
HIDTCA
An acronym for ‘High Intensity Drug Trafficking Areas’. There are currently 28 HIDTA’s, located in 48 states, as well as in Puerto Rico, the U.S. Virgin Islands, and the District of Columbia. Financial Institutions must take into account the risk associated with operating in a HIDTCA area.
HIFCA
HIFCA stands for ‘High Intensity Financial Crime Area’. These high risk areas were first announced in the 1999 National Money Laundering Strategy and were conceived as a means of concentrating law enforcement efforts in high intensity money laundering zones. Financial Institutions must take into account the risk associated with operating in a HIFCA are.
INDEPENDENT AUDIT / INDEPENDENT REVIEW
One of the four minimum requirements of a financial institution by the Bank Secrecy Act. The primary purpose is to determine the adequacy of the institution’s compliance program. The scope and frequency of the review is not defined by regulation other than to be commensurate with risk. The review may be conducted by any knowledgeable person so long as the reviewer is not the designated compliance officer or a subordinate of the compliance officer. The review should include testing of the internal controls, procedures, and systems to identify problems or weaknesses.
INTEGRATION
The third of the three stages of typical money laundering where laundered funds are placed back into the financial system and given the appearance of legitimacy.
INTERNAL CONTROLS
The policies and procedures designed to detect money laundering and other financial crimes.
KNOW YOUR CUSTOMER (KYC)
Policies and procedures to determine the true identity of a customer.
KNOW YOUR EMPLOYEE (KYE)
Policies and procedures to screen employees for the purpose of detecting background information that may suggest risks relative to the employee. Employees can be conduits for financial crimes being committed. Basic KYE minimum policies would require criminal and credit background checks.
LAYERING
The second of the three stages of typical money laundering process. Layering involves disguising illegal funds through multiple and/or complex financial transactions.
MONETARY INSTRUMENT LOG
A report required by the BSA for purchases of money orders and other monetary instruments for amounts between $3,000 – $10,000 for one person in one day. The log must contain specified information on the transaction and the person conducting the transaction. The log is not filed with any agency but must be maintained for five years. A similar log must also be maintained for money transmissions between $3,000 -$10,000. This would also include electronic bill payments.
MONEY LAUNDERING
The process of taking funds from illegal or illicit activities and making the funds appear legitimate. The process typically entails three stages: Placement, Layering, and Integration.
MONEY SERVICE BUSINESS (MSB)
In 1999, the Bank Secrecy Act was revised to designate certain Non-Bank Financial Institutions (NBFI) as ‘money services businesses’. Check Cashers, Foreign Currency Exchangers, and issuers or sellers of money orders that conduct transactions for any of these services in excess of $1,000 for any one person in one business day is a MSB and must register as such with FinCEN. Anyone that provides money transmission services, regardless of the amount, is a MSB. Money Service Businesses must comply with the requirements that the Bank Secrecy Act mandates for MSBs. There are many nuances to the definition of a MSB and the information above is only a partial definition.
MONEY TRANSMISSION
A type of MSB that accepts currency from one person and transmits the currency to another person and/or location by any means.
OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
A part of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries, terrorism-sponsoring organizations, terrorists, international narcotics traffickers, and others based on U.S. foreign policy and national security goals. OFAC publishes lists of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. It is illegal to conduct a wide range of financial transactions for a sanctioned country, entity, or person and as such financial institutions must screen the parties of a transaction against the OFAC sanctions list.
PLACEMENT
The first of the three stages of money laundering. Placement is the movement of illicit funds into the financial system by various means.
PREPAID ACCESS
Access to funds that have been paid in advance via a card or other electronic device or vehicle. One example is commonly known as a prepaid debit card, also referred to as a stored value card.
RISK ASSESSMENT
A means of evaluating financial institutions’ risks of being used in money laundering and other financial crimes. It is required that the AML policies and procedures of a financial institution must be risked based. Therefore, such institutions must evaluate its risk based on its products and services, customers, geographical location and inherent operational risk.
SMURFING
A method of structuring transactions by money launderers that involves the use of multiple individuals to conduct financial transactions on their behalf in order to disguise the aggregate amount of the transactions and/or the true beneficiary of the transactions.
STRUCTURING
An Illegal method used to avoid various financial transaction reporting thresholds. It involves the act of splitting cash deposits or withdrawals into smaller amounts, or purchasing monetary instruments to stay under a currency reporting threshold. Money launderers use structuring to avoid triggering a filing by a financial institution. Structuring is a common example of an activity that would result in the filing of a Suspicious Activity Report.
SUSPICIOUS ACTIVITY REPORT (SAR)
Financial Institutions, and others, are required by the BSA to report transactions that are suspicious relative to possible financial crimes. Money Service Businesses must report suspicious transactions of $2,000 or more. There is no regulatory requirement to file a SAR for cashing negotiable instruments; however, a voluntary SAR may be filed for any transaction in any amount. SARs must be filed within 30 days of the transactions being deemed suspicious.
TERRORIST FINANCING
The providing a financial support to groups or individuals that encourage, plan or engage in terrorism. Terrorist financing differs from money laundering in that the source of funds may be either legitimate or, as in money laundering, illegitimate.
USA PATRIOT ACT
An acronym for “The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act”. Enacted in 2001 after the September 11th attacks, this act made significant changes in the anti-money laundering field with more than 50 amendments to the Bank Secrecy Act.
WILLFUL BLINDNESS
The purposeful act of ignoring facts or circumstances in an attempt to avoid liability of wrongdoing.