NONBANK FINANCIAL INSTITUTIONS

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NONBANK FINANCIAL INSTITUTIONS
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The Headline Test!!

• Strictly my opinion!!
• In many respects, BSA/AML compliance is one of
  the most difficult statutory and regulatory
  compliance requirements. Much of this area is
  extremely grey, extremely subjective. When in
  doubt, use the headline test. Ask yourself
  this simple question
• How would the following headline look on
  tomorrows front page Justice Department
  launches investigation of Institution XXX for
  engaging in ongoing (insert situation here) with
  individual/corporation suspected of (insert
  egregious transgression here). Announcement
  follows lax examination by (insert your name
  here)!!

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OBJECTIVES

• Define Nonbank Financial Institutions (NBFI) and
  Money Services Businesses (MSB)
• Identify AML risks related to NBFIs and MSBs
• Understand basic NBFI and MSB regulatory
  requirements
• Discuss the due diligence for NBFI and MSB
  customers

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What is an NBFI ?

• NBFI is not formally defined
• Generally means financial institutions which are
  non-depository
• Most NBFIs are examined by IRS

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NBFI EXAMPLES

• Casino or Card Club
• Brokers or Dealers in Securities
• Insurance Companies
• Vehicle Dealers
• Pawnbrokers
• Travel Agents

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NBFI Examples (cont.)

• Finance Companies
• Dealers in Precious Metals, Stones, or Jewels
• Real Estate Closing and Settlement Services
• Financial Service Intermediaries such as
  Investment Advisors
• Money Service Businesses

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MONEY SERVICES BUSINESS (MSB)

• A Subset of the NBFI Universe
• Defined as
• Money Transmitters
• Currency Dealers or Exchangers
• Check Cashers
• Issuers, Sellers, or Redeemers of
• Travelers Checks
• Money Orders
• Stored Value
• US Postal Service (Money Orders)

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NBFI Risks

• Cash Intensive Nature
• Customer Base
• Limited or Inconsistent Records
• Agency Status

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NBFI Risks (cont.)

• Primary vs. Ancillary Services
• Difficult to Detect
• Relatively Unregulated Entities
• Frequently Unaware of Regulations
• Quick Entry or Exit
• Often Unaware of OFAC Requirements

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AML Requirements

• Most must have a written BSA/AML policy and
  procedures to establish
• Internal controls
• BSA Officer
• Ongoing BSA training
• Independent testing

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MSB Regulatory Requirements

• Must register with FinCEN (other than agents)
• Must be licensed in accordance with state/local
  laws
• Must file CTRs (can not exempt customers)
• Must file SARs
• Are subject to OFAC requirements

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NBFI/MSBs Exemptions

• Banking Institutions
• Can not exempt MSBs from CTR filing
• Can exempt MSB if the 50 rule applies
• Can exempt tribal casinos (limited)

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Identifying NBFIs or MSBs

• Due Diligence at Account Opening
• Determine all products and services offered
• Expected business transactions
• Ongoing Account Monitoring
• Actual business transactions and Account activity
• Review of Cash Letter Items and NSF checks
• Periodic visitation of business

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Due Diligence on MSBs

• Banking Institutions
• are not responsible for examining
• their MSB or NBFI customers.

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QUESTIONS?