The SAR Activity Review Issue 12 - FinCEN

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Unlicensed money transmitters (businesses engaged in the money transmission
business without a license where such licensing is required and without
having established a valid authorized representative relationship) face no such
requirements from state level regulators and are a significant SAR compliance
risk. Unlicensed money transmitters face none of the state licensing barriers to
entering business. Unlicensed money transmitters are a substantial compliance
risk to our financial system and our society in general.
Certainly, within the wide array of licensed money transmitters there are varying
degrees of SAR compliance risk. But the fact that a money transmitter possesses
a state issued license is a significant indicator of reduced compliance risk.
Different types of state-licensed money transmitters face different types of SAR
compliance issues. Medium-to-large state licensed money transmitters have
sophisticated software compliance systems used to detect patterns of suspicious
activity in their enormous databases of transmission-related information.
These are almost exclusively back office systems as the medium to large state
licensed money transmitters have very little face-to-face contact with customers.
The customer interaction is almost exclusively conducted by the authorized
representative of the licensed money transmitter. Accordingly, it is entirely
appropriate and expected that the authorized representative will be required
to, and will, file SARs concerning suspicious activity that is apparent due to the
particularities of any specific transaction.
Authorized representatives are often not engaged in money transmission as
their main line of business, so they will not usually be as sophisticated as the
licensed money transmitter which they represent. This lack of sophistication
will not stop them from recognizing suspicious activity in the interaction with
the customer. Suspicious activity that occurs in the actual transaction is largely
obvious and apparent.
Smaller state-licensed money transmitters face a different set of problems. They
are often burdened with detecting both the face-to-face related suspicious activity
and the more nuanced suspicious activity detectable through transaction review
after the face-to-face customer exchange is concluded. After a certain level of
volume is achieved, back office suspicious activity detection will be very difficult
without either a sophisticated compliance software system or substantial resources
to devote to the project. This is a significant problem for small money transmitters
as the cost and difficulty of obtaining and maintaining a compliance software
system may be too great for their business to bear. This would be a fair issue for a
bank or state or federal regulator to focus on in reviewing a small licensed money
transmitter’s business. Is its SAR compliance system sufficient given the volume
of money transmissions it conducts?
Language and cultural concerns are another set of issues that affect a money
transmitter’s SAR compliance. Small-to-medium sized money transmitters’
businesses, and authorized delegates of large money transmitters, are often