Several months ago I requested an MSB to provide the bank with a copy of an independent BSA review of their operation. The MSB is fairly small and they have said that since there is only a few employees, no one is truly independent. I checked around a bit and could find no vendors in the area that would be willing to go into the MSB and complete the review. There were several from out of state, but a few fees were quoted in the $5,000 to $10,000 range, plus travel expenses! (Heck, I'd complete the review for a $1000!). At any rate, last week they brought me a copy of a request letter from the IRS regarding an upcoming review. It was similar to what the bank would receive prior to an exam, but obviously much smaller. One of the items that was NOT asked for was an independent review although I did look up the new MSB Exam procedures issued in December, 2008 and sure enough it looks like the IRS examiner should be looking at an independent review. The owner of the MSB has asked me if I would accept a copy of the IRS report as my independent review(?) I can't imagine the IRS would allow the final report to be shared (similar to a bank's exam report). Any thoughts of this request and if allowed would it prove due diligence on the part of the bank to "know what their MSB is up to (aka, be sure to know your MSB customer)?".
As always, any responses would be appreciated.
If the MSB is fairly small, why in the world are you even asking for a copy of an independent review. Are they engaged in risky behaviour? Most banks don't bother with this level of EDD for small MSBs. There are no regulatory requirements that a MSB have an independent review similar to banks.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
There may not be any regulatory requirements for an MSB to have an independent review, but the new (December 9, 2008)BSA/AML Examination Manual for MSBs states on page 52 under the "Independent Review" section:
"The MSB AML program must provide for an independent review of the program in order to assess effectiveness".
The term "must" seems powerful to me, as in, "not optional".
I think the point, though, is that the financial institutions that services the MSB does not necessarily need to see a copy of an independent review as the bank is not who the MSB needs to answer to. It is not our place to enforce regulatory requirements, only to mitigate our own risk in servicing them. As such, if they pose very little risk, then the mitigation factors might be minimal and not include things like copies of independent testing or examination findings.
That aside, I can share with you what we do. We service a small number of MSB relationships and three of these we have deemed 'high risk' with additional due diligence performed. They too were subject to an IRS examination and they did supply us with a copy of the findings of their exam. While only one of the stores was officially examined (all three are owned by the same family), they extended their resolutions to cover all of their stores and provided us with their program changes.
The rest of the MSB relationships we currently service are subject to varying degrees of due diligence based on the risk they expose us to. We have not requested documentation beyond an registration/licensure and AML program from any except our highest risk customers.
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In order to discover who you are, first learn who everybody else is. You're what's left. -A Fortune Cookie
I worked with a bank that handled many MSBs and we always required an independent audit. For the smaller MSBs we used our own form that we sent to them. Someone other than the Compliance Officer had to complete the review. We had check cashers with only 2 employees where we used this method.
As for the IRS review, it is worthless for BSA coverage. I was told by MSBs themselves that the IRS rep. came in and sat and talked and actually reviewed nothing!! Then they left and wrote up a report. I also found per my own visitations, that things like OFAC were never addressed by the IRS. So relying on those reports is ineffective.
Originally Posted By: WaterfallAs for the IRS review, it is worthless for BSA coverage. I was told by MSBs themselves that the IRS rep. came in and sat and talked and actually reviewed nothing!! Then they left and wrote up a report. I also found per my own visitations, that things like OFAC were never addressed by the IRS. So relying on those reports is ineffective.
I think this, as with examiners who review financial institutions, largely depends on the individual conducting the exam. We found the IRS review results invaluable in forcing our MSB relationship to come into full compliance with the regulation.
Similar to how our exams have gone, our MSB was required to submit certain documents prior to the onsite exam. When they were unable to satisfy the requirements the examiner took a variety of educational tools and resources to the MSB when the store visit portion was performed and did a complete write up on what would be followed up on (the MSB was given one month to provide the required docs).
Thanks to the examination we no longer encounter any resistance at all from our MSB customer when we request documentation from them. Now that they have been educated and brought into compliance, they are one of our easier customers to deal with.
I think their exam was more thorough than our banks last state exam.
That said, if we had not been satisfied by what the exam yielded, other steps would have been taken. However, we are not their regulator, so we do not take it upon ourselves to act as such. Rather, we document what they have in place and based on their level of risk, determine if we will continue the relationship.
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In order to discover who you are, first learn who everybody else is. You're what's left. -A Fortune Cookie
