FinCEN warns MSBs on agent oversight, foreshadowing greater scrutiny and potential penalties

The US Treasury is warning anew that both money services businesses and their designated agents must have full anti-money laundering programs and that the principal company is liable for any criminal or compliance-related agent missteps, likely foreshadowing broader regulatory scrutiny and penalties tied to agent oversight.

The Financial Crimes Enforcement Network (FinCEN) stated it is reiterating its stance on anti-money laundering (AML) program obligations for the principals of money services businesses (MSBs) to “understand and appropriately account for the risks associated with their agents,” as broadly set forth by FinCEN in 2004 guidance primarily focused on foreign agents and counterparties.

An MSB principal is “exposed to risk when an agent engages in transactions that create a risk for money laundering, terrorist financing, or other financial crime,” FinCEN stated in the succinct and terse five-page guidance that centers on what has historically been the weakest and most vulnerable part of remitter financial crime compliance programs, the far flung, diminutive and at-times poorly trained and easily manipulated agents.

In order to reduce exposure to such risks, MSB principal must have procedures “to identify those agents conducting activities that appear to lack commercial purpose, lack justification, or otherwise are not supported by verifiable documentation.”

The move by FinCEN to exhort guidance more than a decade old is likely a not so subtle nudge to MSBs of all stripes to review their own AML programs and agent oversight processes, said James Defrantz, principal at Hayward, CA-based Virtual Compliance Management Services and a former federal examiner, with positions at the Office of the Comptroller of the Currency, Federal Reserve and Office of Thrift Supervision.

FinCEN, like other regulators, tends to “telegraph what they are going to do” when new exam focal points arise, he said. “This is where FinCEN is going. The bureau is telling you right now. It is going right at these agents, looking more aggressively at them and the broader organization.”

In the guidance, FinCEN stated that the principal company must also implement “risk-based procedures” to monitor the agents’ transactions to ensure that they are legitimate.

As well, the agent company oversight procedures must ensure that, if the agents’ transactions trigger reporting or recordkeeping requirements, the principal files related reports, gets in touch with law enforcement and potentially even terminates non-compliant agents.


Risk factors that principals should consider when conducting agent monitoring include, but are not limited to:

  • Whether the owners are known or suspected to be associated with criminal conduct or terrorism
  • Whether the agent has an established and adhered to AML program
  • The nature of the markets the agent serves and the extent to which the market presents an increased risk for money laundering or terrorist financing (This does not mean that principals with agents providing services involving regions affected by conflict or terrorism cannot manage such risks, but rather that principals must take steps to account for and mitigate such risks)
  • The services an agent is expected to provide and the agent’s anticipated level of activity
  • The nature and duration of the relationship

When conducting monitoring of their agents, principals must, at a minimum:

  • Identify the owners of the MSB’s agents
  • Evaluate on an ongoing basis the operations of agents, and monitor for variations in those operations
  • Evaluate agents’ implementation of policies, procedures, and controls

State examiner partnerships critical

To ensure no firm falls through the proverbial cracks, FinCEN noted that it is working closely with its delegated examiner, the Internal Revenue Service’s Small Business/Self-Employed Division, as well as with state regulators, to better coordinate compliance and enforcement efforts and maximize resources tied to reviewing agents.

“One area of focus is how effectively principal MSBs are currently monitoring their agents,” according to the guidance. “FinCEN expects a principal to have information readily available to demonstrate that it has effectively developed and implemented risk-based policies, procedures, and internal controls to ensure adequate ongoing monitoring of agent activity.”

One state regulator is already on board.

In October, The Texas Department of Banking issued a supervisory memo to the license holders of MSBs to provide principals with best practices on how to best to document and monitor agents and authorized delegates.

These entities can pose substantial compliance risks to the parent organizations, with the regulator stating it would devote more exam resources to agent AML exams and compliance.

The Texas Banking Department highlighted various critical pieces of effective agent due diligence and monitoring, including documented approval by foreign regulators to engage in money transmission activities, evidence of initial and updated training and agent willingness to assist and transparency with AML independent testing requirements.

MSB agents most vulnerable to fincrime failings

Moreover, if agents falter, it can be the principal company paying the price, at the state and federal levels.

Although principals and agents may “contractually allocate responsibility for developing policies, procedures and internal controls, both the principal and its agents remain liable under the rules for the existence of these respective policies, procedures, and controls,” FinCEN stated.

It’s no surprise that FinCEN and IRS AML are giving the agent population more scrutiny as they have historical been the most vulnerable component of remitter compliance programs, and been the centerpiece of many high-profile enforcement actions, DeFrantz said.

“Agents are typically working at smaller mom-and-pop shops or even working for multiple MSBs at the same time and are more worried about profits and looking for some extra fee income by doing a favor for someone” than staying up on the latest compliance training and trends in their day-to-day lives, he said.

Agent oversight has been at the heart of some of the largest financial crime compliance-related penalties against remitter industry heavyweights MoneyGram and Western Union.

Last month, MoneyGram paid $13 million settle an investigation by U.S. states stemming from customer complaints that scam artists duped them into wiring funds via the money transfer service.

That fracas followed prior problems tied to fraud and AML. In 2012, MoneyGram was hit with a $100 million monetary penalty by the US Department of Justice for widespread failings in its AML and fraud programs.

The key issue related to agents actively scamming individuals in “secret shopper” and other frauds and the company not terminating them, even though they knew about the problems, because these were also highly profitable agent portals.

That bled over into 2014, when FinCEN levied a $1 million individual penalty on Thomas Haider, who oversaw MoneyGram’s AML and fraud prevention program during a six-year period in which the money transfer service processed thousands of transactions for agents involved in fraud scheme.

Western Union has also not been spared major penalties tied to AML programs and agent actions. The company paid $94 million in 2010 to settle charges by investigators in Arizona and other states that it, and its agents, were not doing enough to stop human traffickers and drug gangs in the Southwest Border.

Western Union facing new AML, agent scrutiny

In a move roughly coinciding with an annual report detailing agent issues, Western Union stated last month it had appointed Jacqueline Molnar as its chief compliance officer, leading all of the company’s global AML/CFT, sanctions and consumer protection programs chiefly on the strength of her ability to better monitor scattered agents.

“Jacqueline has been instrumental in bringing key enhancements to our global compliance program, including global employee training, know your customer processes, sanctions screening and agent oversight,” Western Union said in a statement.

Molnar has been with Western Union since 2013 when she joined as deputy chief compliance officer. She has been in compliance and legal roles in some capacity for the better part of two decades.

In its annual report also released last month, Western Union stated that it is involved in a US probe tied to money laundering and reviewing whether any individuals tied to the company knew about potentially illicit gaming transactions involving other countries.

The US Attorney sought records for Western Union transactions for 33 agent locations in Costa Rica, according to calvinayre.com. The feds subsequently ordered the seizure of all moneys sent to two Costa Rican agents over a 10-day period in March 2014.

The feds also sought details regarding transactions involving 43 Nicaraguan agents between October 2008 and October 2013, as well as transactions sent to Nicaragua and Panama between September and October 2013, and from the US to the Bahamas, Peru, the Dominican Republic and Haiti between September 2013 and January 2014, according to the publication.

The feds advised Western Union that their investigation suspected the company was aware of gaming transactions sent to Costa Rica, Panama, Nicaragua, Haiti, Philippines, Vietnam, the Dominican Republic, Peru and the Bahamas, yet “failed to take proper steps to stop the activity.”

Western Union has stated in company reports that it is also a target of the investigation and warned shareholders that, should the feds’ investigation lead to charges against the company, it could be subject to “significant fines, damage awards or regulatory consequences” that could have a “material adverse effect” on the company’s finances.

Interestingly, if FinCEN’s expected initiative to examine and penalize agents comes to fruition, it could result in an industry culling that forces weaker agents out, leaving individuals with a true understanding and commitment to compliance, Defrantz said. “At the end of the day, it might make the MSB sector better in the long run and help remitters keep bank accounts.”