Last month we had the pleasure of sponsoring and attending the third annual Secure Cash and Transport Association (SCTA) conference in Chicago. One of the sessions at the conference was presented by Alan Cox, of the Financial Crimes Enforcement Network (FinCEN). He is the Acting Associate Director of the Liaison Division for FinCEN. In this role, he oversees major activities at FinCEN to combat money laundering, terrorist financing, and other forms of illicit activity.
FinCEN is a bureau of the treasury that writes anti-money laundering rules, anti-terrorist financing rules, and collects data through those rules, analyzes and reports data to law enforcement. The data it collects is some of the most important data law enforcement has in combatting illicit money flows.
FinCEN has been pushing new requirements and enforcement actions for those deemed to be money transmitters. This has had implications for the CIT industry as well as the banking and ATM industry.
Speaking to a gathering of armored car operators, banks, insurers, ATM cash providers, and many others involved in the vital cash-in-transit and cash servicing industries at this year’s SCTA Conference, Cox had a strong call to action for the group:
Comply with AML Requirements or Face Significant Enforcement Actions
Cox’s speech came exactly one year since FinCEN had issued its guidance related to money transmitters, specifically as it relates to currency transporters, but he noted that the industry appears to still be grappling with some of the rules and guidance.
He directed specific attention to a recent enforcement action FinCEN took in relation to guidance it had issued related to virtual currencies. In a nutshell, there was rule change that came out in 2013 specifying that cash movement, or anything that acts like cash, must comply with AML reporting requirements. Nearly two years later, earlier this year, FinCEN issued a penalty against Ripple Labs of $700,000. According to Cox, Ripple Labs agreed that they willfully disregarded AML registration requirements, program rules, and reporting rules to FinCEN. He repeated and stressed the fact that FinCEN’s guidance went to that industry in 2013 and it took an enforcement action in 2015. He urged attendees to take a look at the statement of facts related to that enforcement action.
One of the key things that relate to that enforcement action was not only the fine but that Ripple Labs was required to hire an external auditor to monitor their compliance every two years and report back to FinCEN. They also had to do a 3 year lookback of suspicious activity.
In other words, there were serious consequences for willfully disregarding the rules.
What You Need to Know
According to Cox, a person or business is not exempt if they are moving money from one person to another person or from one location to another location, by any means. The guidance does very specifically provides an exemption for a currency transporter if you’re moving money from one person to the same person at a different location or from one person to an account of that same person.
In general terms, this is the road map to gain an EXEMPTION under the AML rules:
When currency transporters are acting under contract and direction of federally regulated financial institution:
- the shipment involves the physical transportation of currency or other value that substitutes for currency by a currency transporter, without the currency transporter acquiring more than a custodial interest in the valuables transported, and
- the shipper is a Federal Reserve Bank, or a federally regulated bank or a person registered with and functionally regulated by the SEC or the CFTC that is subject to CIP regulations.
Under this exemption FinCEN will consider the transportation to be part of the financial institution’s activities and will consider the financial institution to be responsible for AML compliance with respect to the transportation.
In all other scenarios, the currency transporter will be deemed a money transmitter under FinCEN’s regulations.
FinCEN interprets this language strictly, says Cox. It looks to this language to determine who falls under the definition of a money transmitter and as a result, currency transporters may fall under the definition of a money transmitter.
Why is this coming up now?
Armored car services are participating in a dynamic and changing environment. Banks are subcontracting out a lot of activities so while banks themselves are required to report suspicious activities and are heightenly aware of their requirements, the transparency in transactions is gone when those activities move to the armored carrier. Because of the increased usage of third parties and increased combination of cash and electronic transfers, FinCEN looked deeply into what it was requiring of the armored car drivers and found that armored drivers are no longer solely acting on behalf of the bank. This is the primary reason for the rule changes in 2011 and clarifications that were made last year.
Again referencing the Ripple Labs and specifically the timing between FinCEN’s issuing of guidance and its dramatic enforcement action nearly two years later, Cox noted that one year ago FinCEN issued a ruling that provided more clarity to the original 2013 rulings and exemptions. The guidance helped clarify that currency transporters who engage in an activity that is not exempt must register with FinCEN and follow the rules.
Exemptions are Limited
Cox stressed the fact that the exemption for armored carriers today is VERY narrow. For example, these activities do NOT fall in the exemption:
- The currency transporter delivers currency or other value that substitutes for currency to the vault of another currency transporter or a third party, so that the transportation is completed by another person; or, the currency transporter takes delivery into its vault from another currency transporter or a third party, and completes the transportation;
- The currency transporter subcontracts with another currency transporter or a third party to pick up and/or deliver the shipment, or the currency transporter itself acts as a subcontractor for another currency transporter for the pick-up and/or the delivery of the shipment;
- The currency transporter combines the physical transportation of currency with other means of transmission, such as an electronic transmittal of funds; or,
- The currency transporter takes more than a custodial interest in the currency or other value that substitutes for currency transported at any point of the transportation, such as by depositing the currency or monetary instruments that it is transporting into its own operating account at a bank, or by utilizing the currency transported to purchase a negotiable instrument, and then transporting the negotiable instrument.
In all of these cases, FinCEN is interpreting that a currency transporter is taking more than a custodial interest in the funds and therefore must:
- Register with FinCEN as a money transmitter
- Assess money laundering risks involved in its non-exempt, non-excepted transactions
- Implement an anti-money laundering program to mitigate risks
- Maintain recordkeeping, reporting and transaction monitoring for activities
Exceptive Relief
There is also exceptive relief which applies only to situations in which:
- the shipment is wholly domestic (that is, the whole shipment originates and ends within the United States); AND
- the currency transporter never takes more than a custodial interest in the currency or other value that substitutes for currency at any point of the transportation, AND
- the shipper is acting on behalf of the currency originator, AND EITHER
- the currency transporter picks up the shipment from a financial institution and the same currency transporter physically transports it to the currency originator at the specified destination; OR
- the currency transporter picks up the shipment from the currency originator and the same currency transporter physically transports it to a financial institution, for final credit to the currency originator’s account with that financial institution.
Warning issued. Are you in compliance?
Penalties, fines, imprisonment. Cox described serious and significant penalties for lack of compliance with FinCEN’s guidance concerning AML compliance for armored carriers whose activities fall within the scope of these rules.
For information about Money Service Businesses and the requirements and guidance issued by FinCEN please click here.