By Carmina Hughes and Gina Masi
Sigue Corporation, a leading money service business operating through more than 7,000 agents throughout the country, recently entered into a deferred prosecution agreement with the Department of Justice for having significant deficiencies in its anti-money laundering program. In the DOJ’s view, these AML program deficiencies provided a gateway for Sigue’s agents to launder drug money through Sigue. The deferred prosecution agreement is both a blessing and a curse for the money service business industry. On the one hand, it provides much-needed government guidance for MSBs. On the other, the agreement sets the compliance bar at an even higher level than had been previously recognized.
The agreement notes that Sigue cooperated with investigators and had undertaken a number of remedial actions to address program deficiencies such as:
- Implementing a risk-based AML program;
- Enhancing its internal controls;
- Implementing an approval and review process for agents;
- Enhancing its transaction monitoring system to identify potential suspicious activity relating to repetitive behavior for both the originator and benefactor of the funds; and
- Issuing a multiple SAR policy to prevent repeat offenders from transacting business at Sigue.
The question for MSBs is whether these actions now constitute new minimum standards for all MSBs, regardless of size and business model.
Adequately addressing money laundering and terrorist financing risks for MSBs can be a daunting task, especially for an institution with a far-flung agent network. The risk of an anomalous transaction used to finance a terrorist act creates a heavy burden on the MSB to detect and prevent those transactions. The clear message of the Sigue case, however, is that MSBs must design and implement steps to mitigate the inherent geographic, product, and transaction risk, in spite of their lack of knowledge of a known customer base. Because MSBs have no “customers” to risk assess, it is essential that their agents be subjected to a comprehensive risk assessment that translates into enhanced transaction monitoring, where appropriate.
Under the Bank Secrecy Act, an MSB must develop, implement, and maintain an effective risk-based AML program that is reasonably designed to prevent the MSB from being used to facilitate money laundering or terrorist financing and to ensure compliance with applicable BSA recordkeeping and reporting requirements. While Sigue had reported instances of suspected money laundering, DOJ, for the first time, cited a duty on Sigue’s part to not simply report instances of structuring but to identify, report and prevent a money laundering scheme. One of the most significant statements in the deferred prosecution, particularly for the MSBs with the agent business model, was “[i]n addition to the authorized delegates, the government maintains that Sigue could also be held criminally liable for the illegal acts of their authorized delegates.”
The prospect of criminal prosecution of an MSB for the acts of one its agents is sobering, to say the least. The question unanswered by the Sigue case is whether this responsibility would be mitigated if it had an adequate AML program.
U.S. financial institutions have been struggling to comply with AML regulations. Many institutions have experienced severe penalties, and loss of public confidence and shareholder value due to AML deficiencies. Criminal and regulatory enforcement actions are often viewed as a gauge of regulatory AML expectations.
The Sigue matter raises questions that other MSBs should begin to evaluate when assessing their AML programs. Will the Sigue matter be embraced as the new AML industry standard for MSBs, or more importantly, be cited by DOJ and the regulators to other MSBs as the new minimum standard? Will the new standard be applied to all MSBs or just those that are comparable in size and business model to Sigue? Or will a sliding scale be imposed beginning with smaller, domestic MSBs being required to do less than the larger, international money transmitters? These questions, most likely, will not be answered in any written statements. As a result, the changing industry standards and regulatory expectations must be monitored closely. The Sigue case at a minimum suggests that MSBs should have:
- A risk-based AML program;
- A comprehensive risk assessment of their agents, products, geographies and transactions;
- A “know your agent” acceptance process as well as a risk-based periodic review process;
- Transaction monitoring system and SAR analytics to identify trends of suspicious activities relating to senders, receivers and agents;
- A robust investigative protocol to assist in analyzing the suspicious activity including activity that may be related to possible terrorist financing, and other criminal violations; and
- A training program.
It remains to be seen if the playing field for MSB’s has shifted. A shift towards greater scrutiny by regulators or law enforcement seems to be inevitable. And the challenge could become that MSB’s will now have to design and implement AML programs similar to those of fullservice financial institutions. Carmina Hughes is executive director and Gina Masi is a director at Daylight Forensic and Advisory. |