Convenience Store as Money Services Business

Issue/Inquiry

The Bank, which is located in New Jersey, has a potential customer that owns a convenience store. The convenience store offers Money Gram and Western Union services. Would these services fall under the Money Services Business (“MSB”) category and, if so, what steps should be taken prior to opening such accounts to complete due diligence? Additionally, what would need to be done on an ongoing basis for such accounts?

Response Summary

Whether the convenience store is an MSB would depend on the business it conducts and the size of the transactions. A business is an MSB if it conducts more than $1,000 in business with one person in one or more transactions on the same day in one or more designated services (i.e., money orders, traveler’s checks, check cashing, or currency dealing or exchange), or provides money transfer services in any amount. An agent of an MSB may be exempted from these requirements. The convenience store would also have to obtain a New Jersey money transmitter business in order to sell payment instruments for a fee, such as money orders or traveler’s checks, or providing money transfer services. Bank due diligence would include the application of its CIP requirements, ensuring that the business is registered with the Financial Crimes Enforcement Network, Department of the Treasury (“FinCEN”) or with the appropriate state agency, as applicable, and conducting a BSA/AML risk assessment.

Response Detail

Money Services Business

Under Federal Treasury regulations, a business is considered a Money Services Business (“MSB”) and may have to register with FinCEN if its activities fall within any of the following definitions:

• Currency dealer or exchanger: A currency dealer or exchanger (other than a person who does not exchange currency in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions).
• Check casher: A person engaged in the business of a check casher (other than a person who does not cash checks in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions).
• Issuer of traveler's checks, money orders, or stored value: An issuer of traveler's checks, money orders, or, stored value (other than a person who does not issue such checks or money orders or stored value in an amount greater than $1,000 in currency or monetary or other instruments to any person on any day in one or more transactions).
• Seller or redeemer of traveler's checks, money orders, or stored value: A seller or redeemer of traveler's checks, money orders, or stored value (other than a person who does not sell such checks or money orders or stored value in an amount greater than $1,000 in currency or monetary or other instruments to or redeem such instruments for an amount greater than $1,000 in currency or monetary or other instruments from, any person on any day in one or more transactions).
• Money transmitter: Any person, whether or not required to be licensed, who engages as a business in accepting currency or funds denominated in currency, and transmits the currency or funds, or their value through a financial institution, a Federal Reserve Bank, or an electronic funds transfer network. 12 CFR §103.11(uu).

Not all MSBs are required to register, however. A business that engages in MSB activities solely as an agent for another MSB is not required to register. On the other hand, a business that engages in MSB activities both as an agent of another MSB and on its own behalf is required to register.

For example, a supermarket that sells money orders as the agent for the issuer of the money orders and performs no other MSB financial services is not required to register. This is true even if it acts as the agent for two or more MSBs. If it sells money orders as an agent for an MSB, but also provides check cashing or currency services on its own behalf in an amount greater than $1,000 for any person on any day in one or more transactions, it is required to register. 31 CFR §1022.380(a) – (f); 12 CFR §103.41; 12 CFR §103.11(uu); Registration and De-Registration of Money Services Businesses, FIN-2006-G006; FinCEN, Money Services Business Registration Fact Sheet (2014).

The Bank’s due diligence should determine the type of services being offered, the amount of the services, and whether any or all of them are being performed pursuant to an agent relationship with another MSB.

New Jersey Money Transmitters Act

Whether or not the convenience store must register as an MSB with FinCEN, it will probably be considered a money transmitter for the purposes of New Jersey law.

Under the New Jersey Money Transmitters Act (N.J.S.A. 17:15C-1 et seq.), a money transmitter license is required for any person to engage in any or all of the following activities in the state of New Jersey:

• The sale or issuance of payment instruments for a fee, commission or other benefit (payment instruments include checks, drafts, money orders, travelers checks or any other instrument or written order for the transmission or payment of money).
• The receipt of money for transmission, or the transmitting of money within the United States or to locations abroad by any and all means, including, but not limited to, payment instrument, wire, facsimile, electronic transfer, or otherwise, for a fee, commission or other benefit.
• The receipt of money for obligors for the purpose of paying obligors’ bills, invoices, or other accounts for a fee, commission, or other benefit paid by the obligor.

The fees and documentation that must be submitted to the New Jersey Department of Banking & Insurance when applying for a money transmitter license are extensive and include the following:

• A $700 license fee
• Audited financial statements demonstrating a $100,000 net worth (plus an additional $25,000 per agent, not to exceed $1,000,000)
• Corporate structure
• Personal information for each key shareholder with 25 percent or more of stock, executive officer, partner, owner, and each officer or manager to be in charge of the applicant’s activities in New Jersey
• Electronic fingerprint processing
• Business activities and history of operation

MSB Due Diligence

The federal regulators expect that banks opening and maintaining accounts for MSBs will apply the requirements of the Bank Secrecy Act (“BSA”) on a risk-assessed basis.

Registration with FinCEN, if required, and compliance with any state-based licensing requirements represent the most basic of compliance obligations for MSBs. An MSB operating in contravention of registration or licensing requirements would be violating federal and, possibly, state laws. As a result, it is reasonable and appropriate for a banking organization to insist that an MSB provide evidence of compliance with requirements, or demonstrate that it is not subject to such.

Based on existing BSA requirements applicable to banking organizations, the minimum due diligence expectations associated with opening and maintaining accounts for MSBs are:

• Apply the banking organization’s Customer Identification Program
• Confirm FinCEN registration, if required
• Confirm compliance with state or local licensing requirements, if applicable
• Confirm agent status, if applicable
• Conduct a basic BSA/Anti-Money Laundering (“AML”) risk assessment to determine the level of risk associated with the account, and whether further due diligence is necessary. “Interagency Interpretive Guidance on Providing Banking Services to Money Services Businesses Operating in the United States” (FIL-32-2005)

An effective risk assessment for an MSB would include a number of factors, and depending upon the circumstances, some factors may be given more weight than others:

• Purpose of the account
• Anticipated account activity (type and volume)
• Types of products and services offered by the MSB
• Locations and markets served by the MSB

The Bank may tailor these factors based on its customer base or the geographic locations in which it operates. The Bank should weigh and evaluate each risk assessment factor to arrive at a risk determination for each customer. The degree of due diligence should be commensurate with the level of risk assigned to the MSB customer, after consideration of these factors. If a risk assessment indicates potential for a heightened risk of money laundering or terrorist financing, the Bank will be expected to conduct further due diligence in a manner commensurate with the heightened risk. FinCEN, BSA/AML Examination Manual, Nonbank Financial Institutions – Overview.

Thereafter, the Bank would perform continuing BSA/AML due diligence based upon the risk assessed for the customer, such as whether the amount and volume of the transactions are in conformity with the Bank’s expectations, there are any unusual or unexplained transactions that cannot be related to its business, and the customer has maintained its registration with FinCEN and the New Jersey Department of Banking & Insurance, as applicable. If the customer is deemed high-risk, monitoring should be completed on, at least, a weekly basis, while monthly monitoring may be appropriate if a moderate-risk is assigned to the customer.

This entry was posted on Monday, December 7th, 2015 at 2:00 pm.