We publish below the MTRA comment letter to FinCEN on the advanced notice of proposed rulemaking concerning banking services to money service business.
FinCEN Extends Comment Period on Rule Making to July 10, 2006
The Financial Crimes Enforcement Network (FinCEN) has extended the comment period on an advanced notice of proposed rulemaking designed to help the agency assess how to improve the relationship between banks and money-service businesses. The extension was a announced on May 9, 2006, the date the comments were originally due. The comment period was extended to July 10, 2006.
FinCEN received a number of comments, including a request from the Board of Directors of MTRA requesting extension of the comment period to allow wider distribution of the notice to money transmitters and also allow MTRA to prepare a comprehensive response. FinCEN also received complains from banks that regulatory scrutiny of money-service businesses requires them to sever their relationships with such businesses, despite supervisory guidance released on the subject last year. FinCEN determined it was appropriate to extend the comment period because it will not impede any imminent rulemaking and will allow additional interested parties to respond to the issues raised in the Advance Notice of Proposed Rulemaking.
Money Service business have encountered obstacles to creating or maintaining deposit accounts with banks. FinCEN is soliciting more facts, comments and recommendations to address the problem. MTRA is contacting its member states and also regulated money transmitters encouraging them to send their comments and recommendations to FinCEN. MTRA is also preparing a well documented comprehensive response.
IRS and States Join Forces to Combat Money Laundering
The Internal Revenue Service announced today agreements with 33 states and Puerto Rico to begin sharing Bank Secrecy Act (BSA) information. The agreements will allow the IRS and the participating states to share information and leverage their resources to ensure that money services businesses (MSBs) are complying with their federal and state responsibilities to register with the government and report cash transactions and suspicious activities.
“We already work cooperatively with over 40 states to combat abusive tax shelters,” said IRS Commissioner Mark W. Everson. “This new agreement will help the federal and state governments leverage resources while attacking illegal money laundering.”
The IRS and participating states will share enforcement leads and coordinate their efforts to make sure they are doing all the Bank Secrecy Act examinations on MSBs as required by law without overlapping efforts. The agreements will also help the IRS and the states present a united compliance front to MSBs and their representatives.
Along with Puerto Rico, the following states have signed partnership agreements with the IRS: Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.
Colorado, Hawaii, Montana, New Hampshire, New Mexico and Montana cannot enter into these agreements with the IRS because either state law prohibits them from doing so or they do not regulate the industry.
The information the IRS and the states may share under these agreements is limited to Bank Secrecy Act examination information, not tax information. The IRS has separate, long-standing agreements with the states for the exchange of tax information.
Kentucky Modernizes Money Transmission Statute
The Governor of Kentucky, Ernie Fletcher, signed into law on April 24, 2006, the Kentucky Money Transmitters Act of 2006 [KMTA]. The KMTA repeals the Kentucky Sale of Checks Act and requires that all persons engaged in the business of money transmission in Kentucky be either licensed as a money transmitter, or designated as an agent of a money transmitter. The bill was drafted from the model legislation outline of the Money Transmitters Regulators Association which Kentucky is a member state. The bill was further drafted with additions from other states’ money transmitters laws based on multi-state research, conversations with other state regulators, and input from the industry. The bill had the full support of the Kentucky Bankers Association, Kentucky Credit Union League, the Kentucky Retail Federation, and the national non-bank money transmitters. The KMTA requires that all licensees maintain a net worth of $500,000. The KMTA further requires that the licensee maintain a surety bond of $500,000, which can be raised to a maximum of $5,000,000 based on the discretion of the executive director of the Kentucky Office of Financial Institutions. Licensees must maintain a pool of permissive investments equal to the amount of the outstanding payment instruments. Next, licensees and agents under the KMTA will be required to comply with the reporting and recording requirements of FinCEN. Finally, the KMTA allows a licensee to share a copy of a Kentucky report of examination with a financial institution where the licensee has its account for the purpose of providing assistance with the financial institutions’ compliance with the Bank Secrecy Act. The KMTA was designated emergency legislation and therefore went into effect immediately upon the signature of Governor Fletcher on April 24, 2006. However, the KMTRA provides that current licensees under the Kentucky Sale of Checks Act have three months from the effective date of the bill to file a renewal license application. All current licenses under the Kentucky Sale of Checks Act will expire at midnight on September 30, 2006 with the new licenses being issued having an effective date of October 1, 2006. The failure to license as a money transmitter or designated as an agent of a licensee can now result in state prosecution [Class C felony]. This will assist the federal government in the prosecution of money changers, a/k/a hawalas, in this state since the KMTA will now support a prosecution under 18 U.S.C. section 1960, which was strengthened in the USA Patriot Act. A copy of the bill can be downloaded at http://www.lrc.ky.gov/record/06RS/SB123/SCS1.doc. For further information, one may contact Greg A. Jennings, General Counsel, Kentucky Office of Financial Institutions, at (502) 573-3390.
FinCEN Notice of Rule Making to Help MSB Access to Banking Services
The Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking seeking comments from both the money services business industry and the banking industry on the issue of money services businesses obtaining appropriate access to banking services. Today’s action is part of FinCEN’s ongoing efforts to address continued concerns about the ability of money services businesses to open and maintain accounts and obtain other services at banks and depository institutions as well as the caution of the banking industry in dealing with money services businesses.
“Money services businesses play an important role in America’s economy by providing valuable financial services to many Americans who do not, or cannot yet, take advantage of typical savings or checking accounts,” said Robert W. Werner, FinCEN’s Director. “It is critical for the health and safety of the U.S. financial system that MSBs obtain and maintain banking services and not be driven underground.”
Money services businesses have run across obstacles to creating or maintaining deposit accounts in banks. FinCEN, in conjunction with subcommittees of the Bank Secrecy Act Advisory Group, aimed to address these concerns and misperceptions by hosting a fact-finding meeting a year ago during which representatives from the money services business and banking industries, along with government regulators, came together to voice their concerns. Based on the facts and recommendations presented during this meeting, FinCEN and the federal banking agencies sought to clarify Bank Secrecy Act compliance expectations for the banking industry in interpretive guidance issued in April 2005. FinCEN also concurrently issued an advisory to MSBs emphasizing their Bank Secrecy Act regulatory obligations.
Despite these steps, FinCEN remains concerned that money services businesses may still face barriers to obtaining appropriate access to banking services. This Advance Notice of Proposed Rulemaking solicits updated facts concerning this situation as well as recommendations regarding the extent to which additional guidance or regulatory action under the Bank Secrecy Act might address these concerns.
Written comments may be submitted for 60 days after publication in the Federal Register