Audit Report 

OIG-05-050 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its 

Program to Register Money Services Businesses 

September 27, 2005 

Office of 

Inspector General 

Department of the Treasury 

Contents 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 1 

 to Register Money Services Businesses (OIG-05-050) 

Audit Report............................................................................................... 3 

 Results in Brief.......................................................................................... 4 

 Background .............................................................................................. 11 

 Findings and Recommendations .................................................................. 13 

 Indicators of Unregistered MSBs............................................................. 13 

 Contributing Factors and Causes for Unregistered MSBs ....................... 15 

 On-going and Planned Initiatives......................................................... 16 

 FinCEN Has Recently Taken Steps to Improve 

Oversight of IRS Examinations of MSBs................................................... 17 

 Absence of Enforcement Actions to Date for 

Non-compliance with Registration Requirement ....................................... 21 

 Other Challenges to Enhance Registration Program ................................... 23 

 Measuring the Benefit of Registration ................................................. 23 

 Guidance on Dollar Threshold for MSB Designation .............................. 24 

 Reliability of Publicly Available MSB Registration List............................ 25 

 Recommendations................................................................................. 26 

Appendices

 Appendix 1: Objectives, Scope, and Methodology .................................... 29 

 Appendix 2: Management Comments...................................................... 31 

 Appendix 3: Major Contributors to This Report......................................... 35 

 Appendix 4: Report Distribution.............................................................. 36 
Contents 

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Abbreviations

 

 BSA Bank Secrecy Act 

 DOJ Department of Justice 

 FBI Federal Bureau of Investigation 

 FTEs Full-time equivalents 

 FY Fiscal Year 

 FinCEN Financial Crimes Enforcement Network 

 IRS Internal Revenue Service 

 MLSA Money Laundering Suppression Act of 1994 

 MOU Memorandum of Understanding 

 MSBs Money Services Businesses 

 NBFI non-bank financial institutions 

 SB/SE Small Business/Self Employed 

 TIGTA Treasury Inspector General for Tax Administration 
OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General

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September 27, 2005 

William J. Fox 

Director 

Financial Crimes Enforcement Network 

The Money Laundering Suppression Act of 1994 (31 U.S.C. 5330) 

requires certain Money Services Businesses (MSBs) to register with 

the Secretary of the Treasury. At the time of the law’s enactment, 

it was generally believed that a national registration list would 

enhance federal oversight of the MSB industry’s compliance with 

the Bank Secrecy Act (BSA). Financial Crimes Enforcement 

Network (FinCEN) has primary responsibility for administering 

Treasury’s MSB registration program. The FinCEN issued the 

implementing regulations, and directs the BSA compliance 

examination process and supervisory enforcement efforts through 

delegated authority to the Internal Revenue Service (IRS). 

FinCEN regulation, 31 C.F.R. 103.11(uu), broadly defines MSBs to 

include five distinct types of financial services providers and the 

U.S. Postal Service: (1) currency dealers or exchangers; (2) check 

cashers; (3) issuers of traveler’s checks, money orders, or stored 

value cards; (4) sellers or redeemers of traveler’s checks, money 

orders, or stored value cards; and (5) money transmitters. Unlike 

commercial banks and thrifts, MSBs do not offer federally insured 

accounts such as savings or checking accounts. FinCEN’s final 

rule implementing the 1994 law became effective in September 

1999, and existing MSBs were required to register on or before 

December 31, 2001 (new businesses, which are established after 

that date and subject to the requirement, must register within 6 

months). Excluded from the registration requirement are U.S Postal 

Service outlets; agents of MSBs, unless engaged in money services 
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apart from their capacities as agents;1 businesses that conduct 

transactions under a dollar threshold; and issuers, sellers, or 

redeemers of stored value cards. 

As of January 2004 when we began our fieldwork, approximately 

16,100 MSBs had registered with FinCEN. As of January 2005, 

the number of registered MSBs reported on FinCEN’s website was 

approximately 22,000, an increase of 37 percent. 

Our audit objective was to determine whether FinCEN had 

adequate management systems and controls to ensure industry 

compliance with the statutory registration requirement. We 

conducted our fieldwork at FinCEN Headquarters in Vienna, 

Virginia, and met with representatives of the company originally 

contracted by FinCEN to begin the initial registration outreach 

campaign. We interviewed IRS personnel involved in administering 

the MSB compliance program. We also interviewed law 

enforcement officials from the Department of Justice (DOJ), the 

Federal Bureau of Investigation (FBI), a local U.S. Attorney’s Office, 

and the Department of Labor to gain insights into their respective 

supervisory and enforcement efforts with respect to the MSB 

industry. In addition, we contacted 15 state regulatory agencies to 

discuss their level of coordination with FinCEN, and we obtained 

information on MSBs licensed in their states to gauge the 

completeness of FinCEN’s list of registered MSBs. Furthermore, 

we contacted MSB trade associations to obtain their views on the 

federal registration requirement. A more detailed discussion of our 

audit objectives, scope, and methodology is provided in 

Appendix 1. 

Results in Brief

FinCEN faces several major challenges to better ensure that MSBs 

comply with the registration mandate. We found indicators that 

many MSBs required to register have not done so. We also found 

 

1

 By regulation, MSB principals are required to maintain a list of their agents, which is to be revised 

every January 1st to cover the preceding 12-month period. These agent lists are not filed with FinCEN, 

but MSB principals are required to make the lists available to FinCEN and other appropriate law 

enforcement agencies upon request. 
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that the IRS (FinCEN’s primary vehicle for examining MSBs) may 

not have sufficient resources to conduct timely MSB BSA 

examinations and, as of our audit period, there have been no 

enforcement action taken against MSBs. Furthermore, we believe 

that FinCEN needs to develop and track performance indicators to 

measure how registration is improving BSA compliance by the MSB 

industry, consider clarifying guidance regarding the dollar threshold 

for MSB designation, and continue efforts to address data quality 

issues with the publicly available MSB registration list. 

Indicators of Unregistered MSBs 

Approximately 16,100 MSBs had registered with FinCEN by 

January 2004, 2 years after the registration went into effect. 

Although by January 2005 the number of registrants increased 

over 36 percent to approximately 22,000, the number of MSBs 

that are subject to registration could potentially be much greater. 

As indicators of this condition: (1) a 1997 FinCEN-commissioned 

study estimated that there were approximately 122,000 business 

locations, excluding U.S. Postal Service outlets, engaged in one or 

more money services activities (i.e., check cashing, money 

transmission, money orders, travelers checks, and/or retail foreign 

currency exchange), which we consider to be a raw indicator of 

the size of the MSB industry only; (2) in 2000 a FinCEN consultant 

estimated the total around 100,000; (3) in fiscal year (FY) 2003, 

IRS identified 2,340 potentially unregistered MSBs from a one-time 

sample of nearly 9,500 entities from its non-bank financial 

institutions (NBFI) database; (4) our inquiries at 15 states identified 

404 state-licensed but unregistered MSBs; (5) representatives of 

trade associations we contacted opined that the number of MSBs 

subject to registration exceeded the approximately 16,100 

registered as of January 2004; (6) an IRS official estimated the 

total unregistered as being closer to 160,000; and (7) several law 

enforcement agencies with ongoing MSB money laundering cases 

indicated that failure to register was a common characteristic in 

these cases. 

FinCEN believes that a large part of the discrepancy between the 

number of MSBs registered and the estimated total number of 

MSBs is due to the requirement that not all MSBs must register. 

For example, agents of MSBs are not required to register unless 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 6 

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they are separately engaged in money services activities outside 

their capacity as agents. However, several reasons were cited for 

potential unregistered MSBs. First, FinCEN officials stated that 

they have devoted resources to exploring and analyzing this issue 

and the most important reason for non-registration by MSBs 

subject to the requirement is that there are entities that seek to 

avoid government regulation of any kind. Second, IRS 

representatives told us that some MSBs either abused or 

misunderstood the regulations and did not qualify for the 

registration exemption accorded MSBs operating as agents for 

principal MSBs. Third, law enforcement officials suggested that 

many small MSBs did not fully understand the implementing 

regulations due to language barriers and or the lack of financial 

proficiency. The latter arose when financial services were provided 

as an incidental service to the MSBs’ primary business, such as a 

food market or convenience store. 

The Director of FinCEN characterized one purpose of registration as 

“knowing who are MSBs and where they are located.” In this 

regard, the Director told us that the registration program has not 

yet been successful at achieving this goal. For example, agents of 

MSBs are not required to register (unless separately engaged in 

money services activities outside their agency capacity) and while 

principals are to maintain lists of agents, agents often change from 

one MSB principal to another. 

FinCEN officials told us they are considering the need to issue a 

Notice of Proposed Rule-Making to expand the definition of MSBs 

for registration purposes. One change under consideration is 

addressing the current complex distinction between MSB agents, 

who are currently not subject to the registration requirement, and 

MSB principals. 

As a recent and significant action that could result in improved 

compliance by the MSB industry with the registration requirement, 

FinCEN and the federal banking agencies jointly issued 

interpretative guidance in April 2005 to clarify the requirements 

for, and to assist, banking organizations in appropriately assessing 

and minimizing risks posed by providing banking services to MSBs. 

Among other things, the guidance advises banking organizations 

that it is reasonable and appropriate to insist that MSB customers 
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provide evidence of registration or demonstrate that they are not 

subject to the registration requirements. 

IRS MSB Examinations 

The Secretary of the Treasury delegated to IRS examination 

authority of the MSB industry for BSA compliance, including 

registration.2

 IRS conducts onsite examinations throughout the 

country. In this regard, IRS selects MSBs for examinations from an 

IRS database of approximately 81,000 NBFI. IRS examination 

officials told us that the examinations were identifying unregistered 

MSBs. However, the IRS was not tracking the actual numbers of 

unregistered MSBs identified from its BSA examination program or 

referring unregistered MSBs to FinCEN for penalty consideration. 

IRS had not yet established an expected or desired cycle for MSB 

examinations. Based on the current number of examinations 

completed each year, we estimate it could take IRS as much as 24 

years before all 81,000 businesses currently in its NBFI database 

are examined for BSA compliance, including registration. It should 

be noted that for FY 2006, IRS requested funding to add 60 

full-time equivalents (FTEs) to augment revenue agent positions, 

specifically for BSA compliance. 

In terms of FinCEN’s management oversight of IRS’s BSA 

examinations, we found that FinCEN was only obtaining limited 

information as to IRS’s BSA examination program during our audit 

period. Quarterly IRS reports provided to the FinCEN consisted 

largely of examination activity data, such as the number of 

completed examinations. Not included in these quarterly reports 

was analytical information, such as examination findings, the 

number of unregistered MSBs or other non-compliance found, 

whether emerging non-compliance risks existed, or whether there 

were common attributes among unregistered MSBs. 

 

2

 Examples of other BSA requirements include developing and implementing an anti-money laundering 

program, filing certain reports such as Suspicious Activity Reports, and record keeping for certain types 

of transactions. 
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Plans are underway for FinCEN’s newly established Office of 

Compliance to work more closely with the IRS, including the 

specific sharing of information concerning institutions identified as 

having BSA deficiencies or violations. Among other things, FinCEN 

executed a Memorandum of Understanding (MOU) with the IRS in 

April 2005 that is expected to dramatically improve the sharing of 

information between the bureaus.3

 FinCEN officials stated that 

they are also working with the IRS to improve its BSA examination 

procedures, examiner training, and examination targeting.

Enforcement Actions 

 

We also found that FinCEN had not taken any enforcement actions 

against MSBs for failure to register. This was due to several 

factors, which include: (1) the MSB regulatory agencies (e.g., IRS 

or the states) had apparently made few referrals to FinCEN of noncompliance with the registration requirement and the few made 

contained insufficient information to pursue an enforcement action; 

and (2) a concern by FinCEN that an indiscriminately aggressive 

enforcement approach against unregistered MSBs could drive them 

underground, thus undermining a principal goal of the registration 

program to promote transparency through compliance. 

At our June 2005 exit conference on this audit, FinCEN officials 

again stressed the importance of striking an appropriate balance 

between education/outreach versus aggressive enforcement to 

obtain compliance. FinCEN officials also told us that their approach 

to enforcement was changing, as reflected by the MOU with the 

IRS as well as similar MOUs that have been executed to date with 

30 states and Puerto Rico to obtain more complete and current 

information about BSA deficiencies and violations. The FinCEN 

officials indicated that going forward they would use the 

 

3

 The MOU with the IRS is similar to the MOU FinCEN entered into with the five federal banking 

agencies in September 2004. Pursuant to a congressional mandate, we reviewed FinCEN’s Office of 

Compliance and the level of cooperation being achieved under this MOU. As discussed in our March 

2005 report, we found that the level of cooperation at the time was satisfactory as of the time of our 

review but it was early in the life of the MOU. However, we also reported that the MOU with these 

agencies, as with the MOU with the IRS, contained no provision or consideration for noncompliance by 

the parties to the agreement (i.e., no penalty). (TERRORIST FINANCING: Status Report on the 

Establishment of the Financial Crimes Enforcement Network Office of Compliance; OIG-05-030). 
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enforcement actions available to them for non-registration, when 

appropriate. 

As a general observation, by not taking enforcement action when 

appropriate, FinCEN runs the risk that the MSB industry may 

perceive that registration is unimportant and there is no penalty for 

non-compliance. 

Other Challenges to Enhance Registration Program 

We noted other areas where FinCEN could improve the registration 

program. These areas relate to (1) measuring how registration is 

improving BSA compliance by the MSB industry, (2) guidance on 

the dollar threshold for meeting the definition of MSB, and (3) the 

reliability of the publicly available MSB registration list. 

In concert with planned and ongoing program enhancements, we 

believe that FinCEN should develop and track specific performance 

indicators as to how the MSB registration program is enhancing 

federal oversight of the MSB industry or raising the level of 

industry compliance with the BSA. These performance indicators 

could be useful to FinCEN managers in determining where to 

expend its resources to obtain the best results to improve the MSB 

industry’s compliance with the BSA, including registration. While 

identifying and developing such performance measures can be 

difficult, there needs to be some level of gauging the effectiveness 

of the registration program. Currently, without such measures, 

FinCEN cited several anecdotal benefits, such as how the MSB 

registration assists banking organizations in meeting enhanced 

customer due diligence procedures required by the USA PATRIOT 

Act; provides law enforcement with a legal basis to pursue a 

criminal proceeding, such as asset seizures; and results in a higher 

overall level of industry BSA compliance. 

Businesses whose daily money services transactions are less than 

$1,000 per day per person are generally not considered to be an 

MSB and are therefore not subject to the registration requirement. 

As with the agent exemption, the dollar threshold is also difficult to 

verify other than through an onsite examination. We believe that 

the related guidance, as currently written, is unclear and could be 

misinterpreted, and therefore may result in some businesses not 
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knowing whether they meet the definition of a MSB subject to 

registration. 

Furthermore, data quality problems with the publicly available 

FinCEN MSB registration list (at www.msb.gov) limit its usefulness 

to banking organization due diligence purposes. We found, for 

example, over 1,000 duplicate registrants as well as registrants 

that had gone out of business. In this respect, FinCEN cautions on 

its website that the list is intended only as general reference for the 

public and should not be treated as definitive or determinative of an 

MSB’s registration status, and that FinCEN is working with the IRS 

to address the data quality problems. 

Recommendations 

As discussed above, FinCEN has taken or planned a number of 

actions to improve the registration program. As further actions, we 

are making three recommendations that FinCEN (1) develop and 

track performance indicators that measure how registration is 

enhancing BSA compliance by the MSB industry, including 

registration; (2) develop and implement a strategy to take 

enforcement actions when appropriate, including working with the 

IRS and the states to ensure timely and quality referrals of 

unregistered MSBs are made; and (3) assess the need to clarify 

guidance on the dollar threshold for designation as an MSB. 

Management Response

In its written response, FinCEN management generally concurred with 

our recommendations. FinCEN management commented the response 

that: 

• The importance of an effective federal registration system is 

underscored by recent challenges faced by the MSB industry in 

securing appropriate access to banking services. 

• FinCEN is reexamining the current distinction in the registration 

requirement between principals and agents. It has begun the 

process of drafting a proposal to modify the current registration 

system to require all locations providing these services to register. 

According to FinCEN, an enhanced registration requirement, 

coupled with the development of a better system for tracking 
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registration, are critical steps to enhancing the effectiveness of the 

federal registration system. 

• FinCEN has and will continue steps to enhance the ability to 

oversee MSBs. For example, FinCEN established the Office of 

Compliance in 2004 to support and oversee the BSA examination 

process. FinCEN also entered into the MOU with IRS to facilitate 

information sharing so as to identify MSBs and other financial 

institutions that are not in compliance with the BSA. Similar 

information sharing agreements have been executed with 33 states 

to date. Additionally, FinCEN is also working with the IRS to 

strengthen its examination processes. 

• FinCEN has transitioned its approach to enforcement to ensure 

that civil money penalties are assessed against MSBs that 

willfully disregard the requirements of the BSA. FinCEN noted, 

however, that a balanced approach in the use of civil 

enforcement authority is still essential to prevent businesses 

from operating “underground.” FinCEN is working closely with 

the IRS – and soon with state regulatory agencies – to enhance 

the referral of appropriate cases for potential enforcement 

action. 

The complete text of FinCEN management’s response is provided in 

Appendix 2. 

OIG Comment

The OIG believes FinCEN’s planned management corrective actions 

adequately meet the intent of the recommendations if properly 

implemented. 

Background 

In the early 1990s, Congressional hearings surfaced a growing 

concern over an emerging group of businesses known as money 

service businesses that were being used in money laundering 

schemes. Yet, it was viewed that, unlike commercial banks, the 

MSB industry was neither uniformly regulated nor regulated at the 

federal level. As a result, Congress included as a part of the 
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Money Laundering Suppression Act (MLSA) of 1994 certain 

amendments to the BSA, which included requiring certain MSBs to 

register with the Secretary of the Treasury. The implementing 

regulation was issued in August 1999,4 and existing MSBs were 

required to register on or before December 31, 2001. New MSB 

businesses established after that date and subject to the 

requirement must register within 6 months. Registrants must also 

renew their registration every 2 years. 

The implementing regulation defined the term money services 

businesses to include entities that transmit money; cash checks; 

issue, sell, or redeem traveler’s checks, money orders, or stored 

value cards; and deal or exchange currency. All money 

transmitters are defined as MSBs; whereas other types of entities 

are subject to a minimum $1,000 transaction threshold per day per 

person in one type of activity before being defined as a MSB. 

Many MSBs are not required to register. MSBs exempted from 

registration include U.S. Postal Service outlets, branch offices of 

MSBs, and agents of MSBs.5

 For example, Western Union serves 

as a lead or principal MSB with over 200,000 agents worldwide. If 

they are solely Western Union agents or agents of other MSBs, 

they are not required to register with FinCEN. 

FinCEN was established in April 1990 by Treasury Order 105-08 as 

the BSA administrator, and thus responsible for the federal MSB 

registration program. This included promulgating the implementing 

regulations, maintaining oversight of the registration process, and 

supervising MSBs for overall BSA compliance. FinCEN, however, 

does not directly examine MSBs for compliance, but instead the 

examination authority is delegated to the IRS. The actual 

registration processing of MSB registration forms has also been 

delegated to the IRS and is administered at the IRS computing 

center in Detroit, Michigan. Processing includes collecting and 

maintaining registration forms filed by MSBs. 

 

4

 The timeliness of issuing the implementing regulations was the subject of a February 1998 GAO report 

entitled Money Laundering: FinCEN Needs to Better Communicate Regulatory Priorities and Timeliness, 

GAO/GGD-98-18. 

5

 See 31 CFR §103.41(a)(2) pertaining to agents, 31 CFR 103.41(a)(1) for the other types of MSBs 

that are not required to register. 
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Besides federal registration, section 407 of the MLSA tasked the 

National Conference of Commissioners on Uniform State Laws to 

develop a uniform model statute for licensing MSBs. The idea was 

to have federal registration working in concert with uniform state 

licensing statutes. An official for the state uniform law group 

advised us that a model licensing statute had been developed, but 

that as of 2004 only three states had adopted it. We found that 

state licensing requirements varied widely as to which types of 

MSBs were covered. Some states required federal registration as a 

condition to obtaining a state license, while at least four states 

currently do not license MSBs. 

Although the federal registration law coupled with the desired state 

licensing framework has not fully materialized, it is widely viewed 

that MSBs provide a needed financial service for large segments of 

the population, particularly those that either choose to or are 

unable to make use of commercial banking services and products. 

FinCEN estimated that the implementation of the two MSB-related 

regulatory programs (i.e. MSB registration and suspicious activity 

reporting requirements) has cost approximately $22 million in FYs 

2000 through 2004. The $22 million is largely comprised of direct 

costs for a contractor and reoccurring cost for IRS FTEs 

reimbursements and IRS registration processing costs. Estimated 

costs did not include an overhead allocation for common shared 

costs such as FinCEN personnel, facilities and supporting overhead. 

We did not validate FinCEN’s estimated program costs. 

Findings and Recommendations 

Finding 1 Indicators of Unregistered MSBs 

As of January 2004, 16,142 MSBs had registered with FinCEN. 

By January 2005, the number of registered MSBs had increase 

over 36 percent to approximately 22,000. However, we found 

indicators that potentially large numbers of MSBs had not 

registered. Specifically: 

• A 1997 FinCEN-commissioned study estimated that number of 

business locations engaged in one of more money services 
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activities (i.e., check cashing, money transmission, money 

orders, travelers’ checks, and/or retail foreign currency 

exchange) nationwide to be approximately 122,000, excluding 

U.S. Postal Service outlets.6 It should be recognized, however, 

that this estimate was a raw indicator of the size of the MSB 

industry, not the number of MSBs that would later be required 

to register. 

• In 2000, a FinCEN consultant placed the initial estimate at 

around 100,000. In developing the initial registration database, 

the consultants used five main sources, including: Dun & 

Bradstreet; commercially available directories (Info USA); federal 

agency lists; state licensing lists; and field research, which 

included contacting local governments and coordinating with 

community leaders. 

• In 2003 IRS surveyed nearly 9,500 potential MSBs and 

determined that (1) 2,340 (24 percent) had not registered and 

(2) about 5,000 (53 percent) had either registered or were not 

required to do so. At the end of our field work, IRS was still 

determining the status of the remaining 2,200 MSBs (23 

percent). 

• From 15 state licensing agencies contacted, 7 we identified 404 

MSBs that were state-licensed but not registered as MSBs with 

FinCEN. Because of the differences in the federal registration 

statute and the states’ licensing statutes, it should be noted 

that not all state-licensed entities may need to register. 

• Representatives at three MSB trade associations we contacted 

opined that the number of MSBs subject to registration is 

significantly higher than the approximately 16,100 registered at 

the time of our inquiry. These representatives, however, were 

 

6

 The study, entitled Non-Bank Financial Institutions: A Study of Five Sectors, was prepared before the 

regulations implementing the MSB registration requirement were issued. It did not provide estimates as 

to the breakdown of MSB principals and agents of MSBs who are not required to register. The study is 

available through FinCEN’s website at www.fincen.gov/cooply.html. 

7 We selected 15 from the 46 states that license MSBs. For details on our methodology in selecting the 

15 states, see Appendix 1. 
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unable to provide us with estimates as to the number of MSBs 

required to register, but that had not. 

• Based on BSA onsite examinations conducted to date and 

FinCEN’s 1997 study, an IRS official told us that the number of 

MSB subject to registration was closer to 160,000. 

• Several law enforcement agencies we contacted with ongoing 

MSB money laundering cases also indicated that the associated 

institutions had failed to register. One case in California 

involved a grocery store that allegedly laundered as much as 

$70 million in one year from a check cashing scheme. The 

business was not licensed with the state or registered with 

FinCEN. An FBI agent told us of two cases in Colorado, one 

involving a grocer and another running a money transmitter 

business out of his home, where entities were both unlicensed 

and unregistered. Finally, a DOJ official discussed with us three 

other money laundering cases that involved unregistered MSBs. 

Additionally, the FinCEN Director testified before Congress in 

September 2004 that FinCEN believed there were a significant 

number of MSBs required to register that have failed to do so.

Contributing Factors and Causes for Unregistered MSBs 

At the inception of the registration requirement, FinCEN undertook 

several initiatives to enhance compliance. These initiatives 

included hiring a public relations firm to engage in multi-year 

outreach to educate the industry, conduct media outreach targeted 

to selective ethnic audiences, and create a website containing 

downloadable information. 

Notwithstanding FinCEN’s outreach efforts, various sources cited 

several possible reasons for the potential high number of 

unregistered MSBs. For example, from their onsite MSB BSA 

examinations, IRS officials were of the view that some MSBs either 

abused or misunderstood the regulatory exemption for registering 

agents of MSBs. The IRS officials believed that many agents 

ignored or did not understand the provision of the regulation that 

effectively disallowed the agent exemption if the agent also 

conducted other money services business on its own behalf. 
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Several law enforcement agencies contacted also cited the 

misapplication of the agent exemption as a reason for some MSBs 

not registering. 

Law enforcement officials we interviewed also indicated language 

barriers as a reason why some MSBs may not fully understand the 

regulatory registration requirements. These officials said many of 

the smaller MSBs are owned and operated by people whose 

primary language is not English. A related aspect to language 

barriers was a perceived lack of financial proficiency of many small 

businesses, which only provide financial services, such as check 

cashing, as an incidental service to their non-financial primary line 

of business. These small MSBs include travel agencies, 

convenience stores, groceries, and liquor stores. 

On-going and Planned Initiatives 

FinCEN recently commissioned a consulting survey to be sent to 

24,000 randomly selected MSBs nationwide. In part, this study, 

entitled 2005 MSB Industry Study, is intended to gauge the 

number of MSBs subject to registration, which should be helpful to 

FinCEN in evaluating overall industry compliance with the 

registration requirement among other things. We were told that 

the study is expected to be completed in September 2005. 

FinCEN officials also stated that they are considering the need to 

issue a Notice of Proposed Rule-Making to expand the definition of 

MSBs for registration purposes. Under consideration is changing 

the current complex distinction between MSB agents, who are 

generally not now subject to the register requirement, and MSB 

principals. In this regard, the Director of FinCEN has stated one 

purpose of registration is knowing who are MSBs and where they 

are located. At present, this is difficult with the current agent 

exemption. 

As a recent and significant action that could result in improved 

compliance by the MSB industry with the registration requirement, 
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FinCEN and the federal banking agencies8 jointly issued 

interpretative guidance in April 2005 to clarify the requirements 

for, and to assist, banking organizations in appropriately assessing 

and minimizing risks posed by providing banking services to MSBs. 

Among other things, the guidance advises banking organizations 

that it is reasonable and appropriate to insist that MSB customers 

provide evidence of registration or demonstrate that they are not 

subject to the registration requirements.

Finding 2 FinCEN Has Recently Taken Steps to Improve 

Oversight of IRS Examinations of MSBs 

FinCEN relies on the IRS as the primary means of examining the 

MSB industry for BSA compliance. IRS has delegated authority 

under Treasury Directive 15-41, Bank Secrecy Act – Internal 

Revenue Service, (issued in December 1992) to conduct 

compliance examinations of MSBs. IRS’s Small Business/Self 

Employed (SB/SE) unit conducts these onsite examinations to 

ensure MSBs comply with the anti-money laundering regulations, 

including trends, patterns, or schemes devised to avoid the filing of 

required reports. As of March 2004, IRS had 354 examiners 

located throughout the country conducting MSB BSA examinations. 

Each year, IRS selects MSBs for examination from a database 

containing non-bank financial institutions, including 81,000 MSBs; 

this automated data system is referred to as the NBFI.9

 Based on 

quarterly examination workload reports, we estimated that IRS 

completes about 3,600 MSB examinations annually. At that rate 

of coverage, we estimate it could take IRS as much as 24 years 

 

8

 The federal banking agencies are the Office of the Comptroller of the Currency, the Office of Thrift 

Supervision, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve 

System, and the National Credit Union Administration. 

9

 The NBFI is an internal IRS-operated system and is used to establish the universe to schedule their 

BSA examinations. The sources used to identify NBFIs include, for example field contacts, physical 

observation, trade associations, and telephone books. As of June 30, 2003, IRS’s NBFI File contained 

about 85,700 entities. Of that number, approximately 4,700 entities were casinos/card clubs, agents 

of foreign bank, and unregulated banks and credit unions. The other approximately 81,000 entities 

were MSBs comprised of currency exchangers, check cashers, issuers of monetary instruments, 

seller/redeemer of monetary instruments, and money transmitters. 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 18 

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before it will have examined all 81,000 businesses listed in the 

NBFI.10

We found that the IRS had not yet established expected or desired 

examination cycles (i.e., the elapsed time between examinations). 

Assuming static staffing, we believe the estimated IRS 24-year 

examination cycle could even be further prolonged given its 

delegated responsibility to examine other financial institutions, 

including casinos, gem and precious metal dealers, and certain 

types of insurance companies.11 The President’s Budget for FY 

2006 includes an IRS initiative for an increase of 60 FTEs to 

enhance BSA compliance, including increased Title 31 

examinations. 12

As for the effectiveness of IRS BSA examinations, a March 2004 

Treasury Inspector General for Tax Administration (TIGTA) report 

raised two areas warranting IRS’s attention. Specifically, TIGTA 

reported that the IRS BSA examinations needed to be risk-based, 

and management information system data was not being fully 

analyzed.13

IRS officials advised us that their BSA examinations were 

identifying unregistered MSBs, but that they were not yet tracking 

this type of examination results information and thus were unable 

to provide us with either an actual or an estimated number of 

unregistered MSBs identified from a BSA examination. 

 

10 Our estimate assumes continued staffing at the 354 level, as well as a static universe of 81,000 

businesses. No adjustments were made for the likely turnover due to MSBs closing and new ones 

opening during the 24-year period. 

11 The five federal banking agencies have been delegated authority to examine the depository 

institutions for BSA compliance. Securities broker-dealers, mutual funds, and futures commission 

merchants/introducing brokers are regulated by the Securities and Exchange Commission and the 

Commodity Futures Trading Commission, from authority delegated by FinCEN. IRS examines all other 

financial institutions that are not regulated by a federal functional regulator. 

12 In support of the BSA program, FinCEN provides IRS supplemental funding ($16 million in FYs 2000-

2004) the majority of which are earmarked for onsite BSA examinations. 

13 Additional Efforts are Needed to Improve the Bank Secrecy Act Compliance Program (2004-30-0680). 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 19 

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The IRS did, however, attempt to quantify the number of 

unregistered entities during a one-time sample in 2003. Of the 

nearly 9,500 entities sampled, IRS found 2,340 MSBs (24 percent) 

had met the requirements, but were not registered. IRS selected 

the sampled MSBs using a risk-based approach and analysis of 

information from another database called the Currency Banking and 

Retrieval Systems. 

In terms of FinCEN’s management oversight of the IRS’s BSA 

compliance program, we believe FinCEN’s effectiveness was 

lessened by the data it received from the IRS to monitor its BSA 

examinations during our audit period. We found the quarterly IRS 

reports titled Anti-Money Laundering, Quarterly Activity Report 

National Summary provided to FinCEN consisted of examination 

activity data, such as number of examinations started and finished 

during the quarter. The quarterly report, however, lacked 

information on the results of the BSA examinations, such as the 

types of BSA violations or related problem areas, and the number 

of unregistered MSBs. The quarterly report also lacked analytical 

information, such as emerging non-compliance risks or common 

attributes among unregistered MSBs. 

According to FinCEN officials, FinCEN had engaged in considerable 

oversight activities with respect to the IRS and MSB examination 

cycle and additional activities are planned. The activities cited by 

FinCEN officials include: 

• Re-establishing, in November 2003, regular monthly meetings 

with IRS SB/SE to discuss the examination issue, during which 

FinCEN provided direction, advice, and analysis on where to 

focus and target examination resources in the MSB industry. 

According to FinCEN officials, it focused on rebuilding the 

relationship with IRS SB/SE, while seeking to bring IRS into 

alignment with FinCEN objectives. 

• Working with the IRS to plan and execute a joint exam of a 

national MSB at the corporate level, with one purpose that 

FinCEN train IRS examiners on the appropriate approach. 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 20 

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• Working with the IRS to conduct “saturation examinations” of 

financial institutions in targeted areas to better focus 

examination resources. 

• Reviewing IRS examiner training materials and examination 

manuals as well as materials used for education and outreach. 

However, the FinCEN officials stated that while suggested 

revisions to these materials were provided to the IRS, they were 

unsure whether the IRS had adopted the recommended 

changes, including comprehensive revisions recommended in 

2004 to the examination manual. 

• Participating in an IRS working group that was formed to build 

the analytical infrastructure at the IRS to engage in risk-based 

examination targeting. 

To improve on its oversight responsibility over the federal 

functional regulators including the IRS, FinCEN recently created an 

Office of Compliance. The new office has been authorized 22 FTE 

positions, and as of the end of our audit fieldwork, FinCEN was in 

the process of hiring 18 analysts. 

In April 2005, FinCEN also executed an MOU with the IRS that is 

expected to improve the sharing of information between the 

bureaus. This exchange of information is intended to help FinCEN 

fulfill its role as administrator of the BSA and to assist the IRS in 

conducting examinations to assess BSA compliance. We believe 

that the MOU is an important step that could potentially lead to 

better coordination between the two agencies. However, it is early 

in the life of the MOU and the document contains no provision or 

consideration for noncompliance by IRS or FinCEN (i.e., no 

penalty). 
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Finding 3 Absence of Enforcement Actions to Date for 

Non-compliance with Registration Requirement 

MSBs failing to register with FinCEN are subject to enforcement 

actions, including civil money penalties,14 and/or criminal 

proceedings15 if the unregistered MSBs are engaged in money 

transmitting business. 

At the time of our audit fieldwork, FinCEN had not taken any 

enforcement actions against MSBs for failure to register although 

over three years had passed since the registration requirement 

came into effect. In this regard, states and the IRS apparently 

made few referrals to FinCEN for penalty consideration, and the 

referrals that had been made contained insufficient information to 

take enforcement action. 

For example, our inquiries with two state regulatory agencies 

revealed that they had identified unregistered MSBs. We were told 

by one state agency that it had referred a case to FinCEN but was 

never advised what, if any, enforcement action had been taken. 

When we inquired about the case, a FinCEN enforcement official 

stated that enforcement action had not been pursued due to the 

lack of sufficient information from the state. However, FinCEN did 

not follow-up with the referring state agency to either seek 

additional information or advise them of FinCEN’s regulatory 

response. 

With respect to IRS, a FinCEN enforcement official advised us that 

the few IRS referrals received lacked the evidentiary documentation 

necessary to assess or to proceed with a formal enforcement 

action. This issue was also raised in the March 2004 TIGTA audit 

report, which concluded that IRS BSA examinations lacked 

sufficient documentation to proceed with an assessment of civil 

penalties. According to the TIGTA report, FinCEN advised TIGTA 

that poor referral documentation was a major reason for FinCEN 

 

14 31 U.S.C. §5330(e) provides for significant civil monetary penalties for failure to register--$5,000 a 

day. 

15 18 U.S.C. §1960. 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 22 

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not assessing civil penalties. Exacerbating this situation, TIGTA 

noted that IRS examiners believed that referring cases was not 

necessary because FinCEN did not pursue penalties. 

FinCEN officials told us that, in general, they were concerned that 

an indiscriminately aggressive enforcement approach against 

unregistered MSBs could drive them underground, thus 

undermining a principal goal of the registration program to promote 

transparency through compliance. Management also considered 

that, as opposed to banks or other institutions more experienced 

with regulation, this previously unregulated and relatively 

unsophisticated industry needed time to understand and adjust to 

the regulatory requirements and to implement appropriate controls. 

However, FinCEN management emphasized that it would have 

moved against an unregistered MSB that should have known about 

the requirement or intentionally violated it. 

At our June 2005 exit conference on this audit, FinCEN officials 

again stressed the importance of striking an appropriate balance 

between education/outreach versus aggressive enforcement to 

obtain compliance. FinCEN officials also told us that their approach 

to enforcement was changing, as reflected by the MOU with the 

IRS as well as similar MOUs that have been executed to date with 

30 states and Puerto Rico to obtain more complete and current 

information about BSA deficiencies and violations. The FinCEN 

officials indicated that going forward they would use the 

enforcement actions available to them for non-registration, when 

appropriate. 

As a general observation, by not taking enforcement actions when 

appropriate, FinCEN runs the risk that the MSB industry may 

perceive that federal registration is unimportant and there is no 

penalty for non-compliance. Based on our review of the MOUs 

with the IRS and the State of New York, we believe that they 

provide a good framework to provide FinCEN with more timely and 

complete information on BSA violations, including failure to 

register. However, as stated previous, it is early in the life of these 

MOUs and it is too soon to tell how well they will result in 

enforcement actions when appropriate. 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 23 

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Finding 4 Other Challenges to Enhance Registration Program 

We noted other areas where FinCEN could improve the registration 

program. These areas relate to (1) measuring how registration has 

improved BSA compliance by the MSB industry, (2) guidance on 

the dollar threshold for meeting the definition of MSB, and (3) the 

reliability of the publicly available registration list. 

Measuring the Benefits of Registration 

During our audit, we made inquiries as to how MSB registration has 

resulted in enhanced federal oversight of the MSB industry or 

raising the level of industry compliance with the BSA. We found 

that FinCEN had not developed specific performance indicators, in 

line with the Government Performance and Results Act, nor had it 

collected any related underlying information that would provide 

data as to the benefits arising from the registration program. 

We canvassed officials of FinCEN, law enforcement, states, and 

trade groups as to their perspectives on how federal registration 

has enhanced federal oversight over the MSB industry’s compliance 

with the BSA. FinCEN officials cited several: (1) the fact that by 

January 2004, over 16,100 MSBs had registered, (2) the Internet 

availability of the MSB registration list to assist banking 

organizations in meeting due diligence requirements under the USA 

PATRIOT Act, (3) the legal basis afforded to law enforcement for 

pursuing a civil or criminal proceeding against unregistered MSBs, 

and (4) the prospect that overall industry BSA compliance is 

generally higher as a result of the registration requirement. 

Although the approximately 16,100 registered MSBs at the time 

may reflect the results of FinCEN’s outreach efforts, it was difficult 

to gauge contextual performance, in light of the indicators of 

possibly large numbers of unregistered MSBs. Furthermore, the 

overall level of BSA compliance by registered MSBs could not be 

assessed because IRS at the time was not collecting summary 

information on the results of their BSA examinations. 

With respect to enhancing law enforcement efforts, there is limited 

case history or actual cases at the time of our audit. We met with 

several different law enforcement agencies to inquire about using 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 24 

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the registration mandate as a basis for pursuing a criminal 

proceeding against unregistered MSBs. We found that while a few 

unregistered MSBs had been indicted, none had been convicted. 

DOJ officials involved with asset forfeitures (arising from criminal 

money laundering cases) provided us with 5 cases which they felt 

illustrated the application of the registration mandate. The 

5 cases, all involving money transmitters, were currently in the 

indictment stage. However, in only 1 case was the indictment 

based on the registration mandate; the other 4 cases appeared to 

be based primarily on violations of state licensing requirements. 

We believe that going forward FinCEN should develop and track 

specific performance indicators to gauge whether MSB registration 

is enhancing federal oversight of the MSB industry or raising the 

level of industry compliance with the BSA, including registration. 

While developing such indicators can be difficult, we believe they 

would be useful for FinCEN management to determine where and 

how to expend its resources, as well as those of the IRS and the 

states, to improve the MSB industry’s compliance with the 

registration requirement and the BSA in general. In this regard, the 

MOUs with the IRS and the states, if properly implemented as 

intended, should provide FinCEN with considerably more 

information about industry compliance than previously available, 

and could provide a basis for developing performance indicators 

and tracking results. 

Guidance on the Dollar Threshold for MSB Designation 

Another aspect of the registration requirement that could be 

confusing to the MSB industry is the minimum $1,000 transaction 

threshold per person per day provision to be designated an MSB.16 

We believe that the guidance on this provision, as currently 

written, is unclear and could be misinterpreted. 

Specifically, following is guidance on the MSB dollar threshold on 

FinCEN’s website for MSBs (www.msb.gov): 

 

16 All money transmitters are defined as an MSB regardless of the $1,000 transaction threshold. In 

addition, only money transmitters are required under federal law to be licensed when the applicable 

state requires a license (18 USC §1960). 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 25 

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“An activity threshold of greater than $1,000 per day per 

person in one or more transactions applies to the definitions 

of: currency dealer or exchanger; check casher; issuer of 

traveler's checks, money orders or stored value; and seller or 

redeemer of travelers' checks, money orders or stored value. 

The threshold applies separately to each activity -- if the 

threshold is not met for the specific activity, the person 

engaged in that activity is not an MSB on the basis of that 

activity.” 

We believe the above guidance could be misunderstood particularly 

by MSBs with language barriers and those whose primary business 

is non-financial, such as convenience stores, markets, and liquor 

stores. For example, these entities would not know if they qualify 

as MSBs if they have just one or more transactions in one single 

day over the dollar threshold per person or whether they need to 

meet the transaction threshold each and every day. Accordingly, 

we believe that FinCEN should consider clarifying guidance in this 

area. 

Reliability of the Publicly Available MSB Registration List 

As provided in the April 2005 interpretive guidance issued by 

FinCEN and the federal banking agencies, banking organizations are 

expected to check the registration status of their MSB customers 

as a minimum due diligence procedure.17 While the banking 

organizations should principally rely on the IRS acknowledgement 

letter as proof of registration when required, in the case of new 

registrants the guidance also directs bank organizations to the 

website MSB registration list as an alternative in the event IRS has 

not yet provided the acknowledgement letter.18

 

17 Due diligence is defined as exercising care in the examination and evaluation of risks affecting a 

business transaction. Banks are required to have due diligence policies, procedures and processes in 

place to identify customers that may pose higher risk for money laundering or terrorist financing. 

18 The guidance noted that it may take 60 or more days after an MSB files its registration form for the 

business to receive an acknowledgment letter from the IRS. 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 26 

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However, we found certain data limitations with the publicly 

available MSB registration list that diminished its usefulness for this 

purpose, a problem that FinCEN readily recognized on the website. 

For example, the latest registration list posted on the website at 

the end of August 2005 was as of April 15, 2005. From a limited 

review, we noted that the list that was posted in January 2004 

contained: 

• Over 1,000 entities with identical names, with about 10 

percent having identical addresses; 

• One entity that was registered 65 times; and 

• Over 130 registrants that were no longer in business 

according to IRS records we reviewed. 

According to IRS registration processing officials, the registration 

process also did not provide for internal controls to prevent or 

detect inappropriately filed registrations. 

For the April 15, 2005, registration list, FinCEN noted on the 

website that the list is intended only as general reference for the 

public and should not be treated as definitive or determinative of an 

entity’s registration status, and that the only determinative 

evidence of registration is the IRS acknowledgement letter. FinCEN 

also noted that the list may contain incorrect or inaccurate filings 

as well as omissions, such as the existence of 2-year update forms 

when initial registrations were never filed. Furthermore, FinCEN 

stated that it is continuing to work with the IRS to address these 

and other data quality issues. 

Recommendations 

As discussed in the findings, FinCEN has taken or planned a 

number of actions to improve the MSB registration program. These 

actions include: (1) executing MOUs with the IRS and most states 

and Puerto Rico (with plans to execute similar agreements with the 

remaining states) intended to increase information sharing among 

the parties; (2) issuing interpretive guidance to banking 

organizations on due diligence with respect to MSBs, including the 

registration requirement; (3) assessing whether agents of MSBs 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 27 

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should be required to register; and (4) working with the IRS to 

address data quality issues with the publicly available MSB. 

Accordingly, we are not making specific recommendations in these 

areas. We, however, make the following recommendations related 

to measuring the benefits of registration, taking enforcement 

actions, and clarifying MSB guidance. 

1. The FinCEN Director should develop and track performance 

indicators that measure how registration is enhancing BSA 

compliance by the MSB industry. Among other things, such 

information should be useful to FinCEN to (a) improve the 

registration program and (b) inform the Congress as to whether 

MSB registration is serving the intent of the underlying 

legislation, and as appropriate, how that intent could be better 

achieved. 

Management Response FinCEN concurred with comment. It 

believes that performance measures are only effective when 

those measures can track performance against specific, 

quantifiable objectives, and the results of the measures 

accurately reflect a long-term trend instead of a snapshot of 

activity. FinCEN is preparing a proposal to expand the 

registration requirement to all MSBs’ locations, which requires 

FinCEN first completing the rulemaking process to institute the 

changes to the registration requirements for MSBs. FinCEN will 

define a performance measure for FY 2008 Budget and will be 

establishing the baseline in FY 2008. The target date for 

completion is June 2006. 

OIG Comment We believe FinCEN’s planned management 

corrective action adequately meets the intent of the 

recommendation if properly implemented. 

2. As discussed in Finding 3, FinCEN has not taken enforcement 

action against unregistered MSBs for a variety of reasons. Now 

that the registration requirement has been in effect for more 

than 3 1/2 years and MOUs with the IRS and most states have 

recently been put in place, the Director of FinCEN should 

develop and implement a strategy to take enforcement actions 

when appropriate, including working with the IRS and the states 
BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 28 

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to ensure timely and quality referrals of unregistered MSBs are 

made. 

Management Response FinCEN concurred with comment. It 

believes that has taken a number of steps to encourage referrals 

of appropriate enforcement cases against MSBs. FinCEN 

expects to produce a written strategy for civil enforcement 

efforts against MSBs and will work with the IRS and the states 

to help these partners understand what constitutes a quality 

referral. The target completion date is March 31, 2006. 

OIG Comment We believe FinCEN’s planned management 

corrective action adequately meets the intent of the 

recommendation if properly implemented. 

3. The FinCEN Director should assess whether the guidance on the 

dollar transaction threshold definition of an MSB requires 

clarification so as to reduce the risk of misinterpretation. 

Management Response FinCEN concurred and will provide 

clarification in the form of guidance, regulatory refinements, 

dollar threshold definitions, and circumstances under which the 

dollar thresholds are applied. The target completion date is 

December 31, 2005. 

OIG Comment We believe FinCEN’s planned management 

corrective action adequately meets the intent of the 

recommendation if properly implemented. 

* * * * * * 

We like to extend our appreciation to FinCEN for its cooperation 

and courtesies extended to our audit staff. If you have any 

questions, please contact me at (202) 927-5746. Major 

contributors to this report are listed in Appendix 3. 

John F. Lemen 

Acting Director, Western Field Audit Office
Appendix 1 

Objective, Scope, and Methodology 

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Our overall audit objective was to determine if FinCEN had 

adequate controls and systems to ensure that all applicable MSBs 

are registering with Treasury, as required by 31 U.S.C. 5330. We 

focused on FinCEN’s program management oversight and 

monitoring aspects of the MSB registration requirement. We did 

not address enforcement aspects in terms of IRS’ programs aimed 

at BSA compliance. 

We conducted fieldwork from December 2003 to July 2004 at 

FinCEN offices in Vienna, VA and Washington D.C. While 

preparing the draft report we continued to update certain 

information. In addition, we included information in the draft report 

concerning FinCEN’s activities since the completion of our 

fieldwork. In most instances, we included FinCEN’s recent 

activities, however, we did not validate these activities, such as 

agreements with IRS, federal banking agencies, and several states, 

because they were not in place long enough for us to determine 

whether they would be effective as FinCEN believes. 

Because the MSB registration enforcement authority is delegated to 

the IRS, we interviewed several IRS personnel involved in 

administering the MSB compliance program. We also obtained 

from an IRS official a list of the MSBs they contacted as part of 

their one-time sample. The IRS information indicated that over, 

2,300 MSBs meet the registration requirements but had not yet 

registered. 

We coordinated with TIGTA prior to our discussions with the IRS. 

We also visited the outside consultant hired by FinCEN in 

Alexandria, VA to determine how they identified the potential MSB 

universe and conducted outreach. To obtain information on statelicensed entities, we visited and interviewed selected states. In 

addition, we interviewed personnel with several law enforcement 

agencies to obtain their perspective on FinCEN’s MSB database. 

Finally, we interviewed representatives of several trade 

associations to obtain perspective on the outside industry views of 

the new MSB registration regulation. 

We reviewed: (1) general background information on the MSB 

program, including the MSB registration law and regulation; 

(2) FinCEN files containing information on the contract with the 
Appendix 1 

Objective, Scope, and Methodology 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 30 

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outside consultant; and (3) reimbursable agreements between 

FinCEN and the IRS. We also reviewed TIGTA audit reports 

pertaining to IRS’s BSA compliance program, anti-money laundering 

referrals, and Detroit Computing Center processing of BSA 

documents. 

Additionally, we selected 15 of the 46 states that currently license 

MSBs and compared information in their licensing databases to the 

FinCEN database of registered MSBs. This resulted in over 400 

MSBs that were licensed with the states but not registered with 

FinCEN. The 15 states were: Arizona, California, Colorado, 

Connecticut, Delaware, Florida, Idaho, Illinois, Nebraska, New 

York, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin. 

We selected these particular states based on certain factors. 

Specifically, we focused on those states: (1) in high-intensity 

money-laundering and related financial crimes areas, (2) with very 

low or high volume of suspicious activity reporting under the BSA, 

and (3) with large number of MSB licensees. We based our work 

on the licensed entities posted to the states’ web-sites. We 

interviewed personnel from these 15 states to obtain: the states’ 

criteria for licensing entities, a complete list of all licensed entities, 

and information about their MSB examination compliance efforts. 

We interviewed two law enforcement agency officials: (1) an 

investigator with the Department of Labor’s Office of Inspector 

General, and (2) an FBI special agent in Denver, CO. The purpose 

of our interviews was to discuss three specific money laundering 

cases involving unregistered MSBs. We also interviewed an 

attorney at the Department of Justice to determine if they had any 

prosecutions in process or finalized regarding unregistered MSBs. 

We conducted interviews with officials at three MSB trade 

associations to get their views on the new MSB registration 

regulation and FinCEN’s performance in identifying and registering 

required MSBs. The trade associations we contacted were 

representatives at the National Conference of Commissioners on 

Uniform State Laws, National Money Transmitters Association, and 

Non-Bank Funds Transmitters Group. 

We conducted our audit in accordance with generally accepted 

government auditing standards. 
Appendix 2 

Management Comments 

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Appendix 2 

Management Comments 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 32 

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Appendix 2 

Management Comments 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 33 

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Appendix 2 

Management Comments 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 34 

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Appendix 3 

Major Contributors to the Report 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 35 

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John F. Lemen, Acting Director, Western Field Audit Office 

Benny Lee, Director, Western Field Audit Office 

Garrett W. Gee, Audit Manager 

Joseph K. Eom, Auditor-in-Charge 

Feliser Lee, Auditor 

Mark F. Ossinger, Referencer 
Appendix 4 

Report Distribution 

BANK SECRECY ACT: Major Challenges Faced by FinCEN in Its Program Page 36 

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The Department of the Treasury

Under Secretary, office of Terrorism and Financial Intelligence 

Assistant Secretary, Terrorist Financing and Financial Crimes 

Office of Strategic Planning and Performance Management 

Office of Accounting and Internal Controls 

Financial Crimes Enforcement Network

Director 

Associate Director, Regulatory Policy and Programs Division 

Assistant Director, Deputy Chief Financial Officer 

Internal Revenue Service

Associate Commissioner for Modernization/Chief Information 

Officer 

Director, Fraud/Bank Secrecy Act 

Small Business/Self Employed Division 

Legislative Analysis Officer (Audit Coordinator) 

Office of Management and Budget

OIG Budget Examiner