MSBs and the Panama Papers: Red flags can aid remitters in uncovering transactional ties

*special contributor report*

By Sarah Beth Whetzel
BSA/AML subject matter expert at Palmera Banking Solutions
May 26, 2016
Originally published here. Republished with kind permission.

Anti-money laundering (AML) Officers in money services businesses (MSBs) may be wondering if the news of the Panama Papers have anything to do with their day-to-day operations. They do have an effect on MSBs, albeit a smaller one than traditional institutions.

There are a few steps that your MSB can take today to identify and mitigate risks associated with not only the Panama Papers but other offshore havens.

While traditional institutions have the most exposure, and therefore the most steps to take regarding this news, MSBs (money transmitters, specifically) have inherently higher risk but less exposure. Let me explain the three elements inherent in an MSB that provide an increased risk.

First, if an individual or a corporation is going to venture outside the banking route to a non-traditional funding source, such as an MSB, there is a greater risk that they are trying to further obfuscate the trail of funds.

Second, MSBs are not required to collect more than a customer’s identifying information as it relates to CIP verification. Due to the short-term relationship structure with customers, MSBs are not required to perform ongoing CDD/EDD for customers.

Traditional institutions are required to comply with CDD/EDD requirements (customer/enhanced due diligence) which can assist an institution in identifying higher risk customers and therefore frame the next steps to take with regard to offshore haven activity.

MSBs are not required to do this, and due to their unique, short-term type relationships with customers, they may not be able to conclusively say whether or not a customer is engaged in suspected illicit activities.

For example, a traditional financial institution engages in a relationship with a customer and collects/stores/updates information with regard to their industry or PEP (politically exposed persons) status. Some of the larger MSBs will most likely be monitoring for PEPs, however, the use of industry codes are not standard across the industry.

In a traditional institution, a new customer who is an attorney (gathered from the industry code of the account opening documents) may be considered higher risk and would therefore drive a different type of monitoring approach than a new customer who is a tailor.

Lastly, most MSBs have identified areas or agents located in areas that are higher risk. The criteria used to establish a geographic area as high risk typically involve fraud, drug, or terrorist activity. Countries known to be offshore havens are an often forgotten area of risk for MSBs.

This short article is meant to bust the assumption that the news of the Panama Papers and MSBs are not related and therefore would not affect an MSBs’ day-to-day operations.

Offshore red flags for MSBs

The various channels of sending/receiving funds through an MSB will determine the risk exposure. Not all channels are addressed, but the steps below should guide the MSB to uncovering some unique risk exposure in their operational environment.

Red flags for MSBs looking to identify and mitigate risks associated with offshore havens:

  • 1) High dollar (single and aggregate) funds sent from a US customer (based on address) to an offshore haven such as St. Lucia, Lebanon, Panama, Barbados, Seychelles, Antigua & Barbuda, Cayman, and Macau. (For a comprehensive list, please see and utilize the download list, however, for our purposes here please use the rankings in the column “Secrecy Score.” The calculated FSI and Global Scale Weight skew the usefulness of this list as it pertains to MSBs.)
  • 2) High dollar (single and aggregate) funds sent to an individual that appear to be unrelated. Since most MSBs require an ID that matches the name of the receiver, most receivers will most likely not contain a business name.
  • 3) High dollar (single and aggregate) funds sent to an individual that appear to have a business address (input by the sender). A Google search could provide further information on whether or not the location provided is a business (or in a business bldg.) or a residence.
  • 4) The sending party is a business (this would most likely occur through the online channels) sending high(er) dollar funds offshore.
  • 5) The sending party has an address located in an offshore haven and is sending high dollar (single and aggregate) funds to an individual or a trust in the US, which is then transferred to a bank account, not picked up in person.
  • 6) If your MSB utilizes a PEP screening program, evaluate their activity in light of the tax advantages looking for offshore haven indicators.
  • 7) Simple name searches looking for law firms (lawyers, attorney, ‘&’, etc.) for senders can be used as another filter when evaluating high dollar transactions.
  • 8) If your MSB is aware of offshore activities, please consider utilizing the ICIJ’s link to confirm parties associated with the Panama Papers. This type of ‘peripheral information’ does not determine the guilt of the parties. Rather, it can provide a better context to view the transactions performed through the MSB.
  • 9) Investigations that do not lead to a SAR-MSB filing should have a thorough write-up to show the efforts taken. Non-SAR filings are just as important as SARs.

Risk assessment aftershocks

From the various steps above there is a trickle-down effect on an MSB’s AML Program:

1) Update your MSB’s risk assessment for geography, products and customers to accurately reflect what you uncovered in the steps above. Even if you uncovered customers or activities that increase your risk, you have mitigated it by identifying it. Further mitigation comes in the form of new (enhanced) procedures and processes which should also be listed as a mitigant in your risk assessment.

2) Document any actions taken even if they did not produce any SAR-MSBs. Memos to file are your ally and can be used to strengthen your risk assessment.

3) It is difficult for regulators to find fault with a well-documented effort, especially if it is taken as a pro-active step (before any grand jury subpoenas are served).

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