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The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) hasissued the first comprehensive study of money services businesses and their potentialvulnerability to money laundering. The study, commissioned by FinCEN and conducted by theconsulting firm of Coopers & Lybrand, provides an in-depthexamination of this industry’s size, services, geographic and transaction attributes.
The term "money services businesses" was coined by FinCEN to describe thosebusinesses and their authorized agents who provide services of money transmission, checkcashing, currency exchange, and the issuance, sale and redemption of money orders andtraveler’s checks. FinCEN estimates that, overall, money services businesses handletransactions valuing approximately $200 billion per year through approximately 160,000locations nationwide.
The study was used to help FinCEN formulate three proposed anti-money launderingregulations which were announced in May of this year by Treasury Secretary Robert Rubin.The regulations are particularly significant in light of Treasury’s experience withthe New York Geographical Targeting Order (GTO), in which certain licensed moneytransmitters in the New York metropolitan area and their agents were subject to reportinformation about the senders and recipients of all cash-purchased transmissions toColombia of $750 or more.
The GTO caused an immediate and dramatic reduction in the flow of narcotics proceeds toColombia through New York money transmitters. In response to the results achieved throughthe GTO, President Clinton asked Treasury to look for ways to translate into a permanentsolution the benefits realized through this interim measure. The three proposed rules seekto achieve this goal.
"The recent success of the New York GTO clearly illustrated the need for permanentregulatory measures," said Raymond W. Kelly, Treasury Under Secretary forEnforcement. "The information we are asking for under these regulations is needed toprevent and detect money laundering in the money services industry."
One of the regulations proposes to permanently reduce - from $10,000 to $750 -- thethreshold for money transmitters to report remittances purchased in cash for anyinternational destination. This change is based largely on the experience of the New YorkGTO, which confirmed that the money transmitting industry is particularly subject to abuseby organized money launderers. The Coopers & Lybrand study indicates that the whilethe industry remits $11 billion annually, the average money remittance is approximately$300, therefore Treasury does not believe the rule would have an adverse impact onlegitimate commerce.
Treasury also proposes to register all qualifying money services businesses in acentralized database. This registry will be available to law enforcement and appropriatefederal and state regulatory agencies. Registered money services businesses will berequired to maintain and make available updated lists of their authorized agents, andcertain large agents will be required to register independently. It is a federal crime tooperate a money services business without complying with applicable federal or statelicensing or registration requirements. The proposed registration rule includes within thedefinition of "money services business" issuers, sellers, and redeemers (forfunds) of stored value, commonly called electronic money or e-money.
In addition, Treasury proposes to extend the suspicious activity reporting requirement,already in place with respect to banks, to money transmitters and issuers and sellers ofmoney orders and traveler’s checks. Because customers of this subset of moneyservices businesses do not maintain account relationships comparable to banks, it is oftendifficult for these businesses to know their customers well enough to identify suspiciousactivity. In recognition of this fact, the proposed rule lists as guidance to the industrya number of specific indicia of suspicion culled from historical money launderinginvestigations.
"It is a challenge, first to accurately define, then to craft appropriateanti-money laundering rules for this important but diverse and little understood segmentof the financial services industry," said Stanley E. Morris, Director of FinCEN."We need to hear the concerns of the industry to ensure that the regulations areworkable. The proposed rules are intended to make life difficult only for money launderersand their accomplices, not the industry."
FinCEN hosted a public meeting today in New York to give members of the financialservices industry an opportunity to discuss these three proposed regulations. An earliermeeting was held at FinCEN. Additional meetings will take place in San Jose, CA on August1 and Chicago on August 15.
In order to provide industry with an opportunity to attend these meetings and thenformulate their comments, the comment period to respond to these proposals has beenextended from August 19 to September 30, 1997.