NCUA Chairman Debbie Matz issued a supervisory letter to credit unions warning them of the risks of serving money services businesses and expressed concerns about the vulnerabilities of cooperatives that may not have the capabilities to manage high cash flow volumes and to meet regulatory requirements.
This letter comes more than a month after the $3.6 million North Dade Community Development Federal Credit Union of Miami Gardens, Fla., admitted on Nov. 25 that it violated Bank Secrecy Act requirements. The cooperative also failed to comply with the USA Patriot Act regulations for five years by improperly handling transactions from known high-risk areas such as Mexico, Central America and the Middle East.
According to a civil assessment order issued Nov. 25 by the U.S. Dept. of Treasury's Financial Crimes Enforcement Network, as a result, the credit union received a $300,000 fine. The anti-money laundering failures occurred from 2009 to 2014 and involved 56 money services businesses, FinCEN said.
MSBs include transactional businesses such as check cashers, prepaid card providers, foreign currency dealers, money transmitters, and money orders and travelers checks issuers. These businesses can range in size from large international money transmitters to small independent grocery stores that offer check-cashing services, according to Matz's letter.
The NCUA warned that larger MSBs might present off-balance-sheet risks by generating significant transaction volumes that could overwhelm smaller credit unions. Credit unions with only a few million dollars of assets, for example, could end up processing billions of dollars' worth of money services transactions. What's more, some MSBs even raise heightened risks of money laundering for drug cartels and terrorist groups, Matz wrote. Without mentioning North Dade Community Development FCU, the letter also noted authorities are slapping substantial fines on financial institutions that fail to meet all compliance requirements of the Bank Secrecy Act.
"NCUA and the Financial Crimes Enforcement Network are particularly concerned about the vulnerability of credit unions that do not have sufficient scale, internal controls and compliance programs to perform the necessary due diligence on MSBs and manage high volumes of cash flows," Matz wrote.
As part of the initial due diligence process, the NCUA expects credit unions to perform the required customer identification program procedures. Credit unions are also expected to confirm that member MSBs are registered with FinCEN and that they are in compliance with state or local licensing requirements.
Additionally, credit unions must verify the member MSBs' agent status and conduct a Bank Secrecy Act/ Anti-Money Laundering risk assessment to document the level of risk associated with the account and whether greater due diligence is necessary, according to NCUA's letter.
"To ensure compliance with the BSA regulations, credit unions are expected to assess the risks posed by each individual MSB account on a case-by-case basis, monitor and report any unusual activities, and implement appropriate controls to manage any risk exposure," Matz wrote. "Each credit union needs to know and understand each MSB member's business model and customer base. While many MSBs provide services to individuals, some MSBs provide services to other MSBs. This added layer of anonymity between the credit union and the transactions originator could pose additional complexity in identifying suspicious activities."
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