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BANK SECRECY ACT’S IMPACT ON

MONEY SERVICES BUSINESSES

HEARING

BEFORE THE

SUBCOMMITTEE ON 

FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 21, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–100

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, JR., North Carolina, 

Vice Chairman 

RICHARD H. BAKER, Louisiana 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SUE W. KELLY, New York 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

JUDY BIGGERT, Illinois 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

RICK RENZI, Arizona 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

BERNARD SANDERS, Vermont 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

GWEN MOORE, Wisconsin 

WM. LACY CLAY, Missouri 

JIM MATHESON, Utah 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

June 21, 2006 .................................................................................................... 1

Appendix: 

June 21, 2006 .................................................................................................... 53

WITNESSES 

WEDNESDAY, JUNE 21, 2006

Abernathy, Wayne A., Executive Director for Financial Institutions Policy 

and Regulatory Affairs, American Bankers Association ................................... 41

Carbaugh, Don, Acting Associate Director for Regulatory Policy and Programs, Financial Crimes Enforcement Network ............................................... 7

Goldman, Gerald, General Counsel, Financial Service Centers of America ....... 39

Jaedicke, Ann F., Deputy Comptroller for Compliance Policy, Office of the 

Comptroller of the Currency ............................................................................... 11

Landsman, David, Executive Director, The National Money Transmitters Association, Inc. ........................................................................................................ 42

Mayer, Eileen C., Director, Fraud/Bank Secrecy Act, Small Business/SelfEmployed Division, Internal Revenue Service ................................................... 9

Milne, Philip W., President and CEO, MoneyGram International, Inc. ............. 37

Taylor, Hon. Diana, Superintendent of Banks, State of New York, on behalf 

of the Conference of State Bank Supervisors .................................................... 12

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 54

Kelly, Hon. Sue W. ........................................................................................... 57

Abernathy, Wayne A. ....................................................................................... 61

Carbaugh, Don .................................................................................................. 75

Goldman, Gerald ............................................................................................... 82

Jaedicke, Ann F. ............................................................................................... 93

Landsman, David ............................................................................................. 105

Mayer, Eileen C. ............................................................................................... 107

Milne, Philip W. ................................................................................................ 114

Taylor, Hon. Diana ........................................................................................... 126

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Statement of Isak Warsame ............................................................................ 139

Statement of Western Union Financial Services, Inc. ................................... 142

Revised Interagency Interpretive Guidance on Providing Banking Services to Money Services Businesses Operating in the United States ......... 156

Bachus, Hon. Spencer: 

Responses to questions submitted to Ann Jaedicke ...................................... 160

(1)

BANK SECRECY ACT’S IMPACT ON 

MONEY SERVICES BUSINESSES 

Wednesday, June 21, 2006

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:07 a.m., in room 

2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the subcommittee] presiding. 

Present: Representatives Bachus, Baker, Kelly, Biggert, Feeney, 

Hensarling, Neugebauer, Price, McHenry, Maloney, Sherman, 

Moore of Kansas, Waters, Carson, McCarthy, Green, and Clay. 

Ex officio present: Representative Frank. 

Chairman BACHUS. Good morning. The subcommittee will come 

to order. 

The purpose of today’s hearing is to review the oversight and regulation of money services businesses (MSB’s). More specifically, we 

will address the impact that the Bank Secrecy Act and related financial institution account discontinuances have had on MSB’s. 

Despite expressions of concern by members of this Congress to 

both regulators and financial institutions to treat MSB’s fairly, I 

remain concerned that financial institutions continue to 

unjustifiably sever their relationships with MSB’s. 

MSB’s provide a valuable service to consumers, and in some instances are the only financial services available to them. 

No one disagrees that banks and MSB’s should comply with any 

money laundering guidance issued by their regulator. Nonetheless, 

terminating an entire regulated industry and forcing its customers 

into the underground financial system itself creates a significant 

money laundering risk. 

MSB’s are regulated at the State level, and are required to comply with the Bank Secrecy Act at the Federal level. Currently, 28 

States and the District of Columbia have regulations requiring 

MSB’s to be licensed by the State banking agency, and some of 

these States have specific laws regarding transmittals abroad. In 

many of these States, an MSB has to submit to a rigorous review, 

including providing financial statements and internal audit reports 

and permitting background checks on owners and managers. Furthermore, the licensing process requires annual training, current 

BSA compliance programs, and the submission of a surety bond. 

2

Since the adoption of the USA PATRIOT ACT, MSB’s have been 

required to adopt a written anti-money laundering compliance program and to conduct independent reviews of their programs. 

MSB’s are also required to register with FinCEN and are examined for BSA compliance by the IRS. Certain MSB’s are also required to file suspicious activity reports for transactions involving 

at least $2,000. In addition, MSB’s are required to file CTR’s for 

cash transactions of more than $10,000, and must also maintain information on fund transfers of $3,000 or more. 

Despite the increased regulation of MSB’s, the bank regulators 

and their examiners have classified all MSB accounts as high-risk, 

regardless of whether there have been any actual problems. 

Banks have been required to investigate the money laundering 

compliance standards of the MSB’s, forcing them to become the de 

facto regulator of these institutions. 

FinCEN and the Federal banking regulators have issued guidance twice. Unfortunately, in my opinion, the requirements continue to be vague, subjective, and burdensome to the banks. 

Over the past year, at least three national banks have ceased offering services to MSB’s, and some State-chartered institutions 

have also discontinued service, and this is across-the-board blanket 

discontinuance by these institutions of all MSB’s. 

In response to concerns raised over the previous year by MSB’s 

and financial institutions, FinCEN issued an advanced notice of 

proposed rulemaking in March 2006. The comment period for the 

ANPR ends on July 10, 2006. 

I am hopeful that today’s hearing and discussion will shed some 

light on this issue and be taken into consideration as FinCEN and 

the bank regulatory agencies move forward with the rule. 

In closing, I would like to ask unanimous consent that Congressman Rangel, the ranking member of the Ways and Means Committee, be allowed to participate in today’s hearing. 

The Chair now recognizes the Ranking Member of the Full Committee, Mr. Frank, for his opening statement. 

Mr. FRANK. Thank you, Mr. Chairman, I appreciate it, because 

I am not going to be able to stay, but this is something which I 

had raised. 

We, on our side, received a letter from our extremely distinguished colleague, Mr. Rangel, who is the Ranking Democrat on 

the Ways and Means Committee, but who also represents a district 

in New York where the MSB’s play a significant role. 

Now, I should say that we have been concerned, many of us, 

from time to time, about potential consumer abuses with some of 

the irresponsible MSB’s, and things like payday lending and elsewhere, but being concerned about abuses does not mean that you 

think that the function is useless, and I would like to get people 

at the lower end into banks. I think getting people banked is a 

good thing for them. We have pushed for that. 

Our colleague from California, Ms. Waters, has been a leader in 

trying to get lifeline banking to try and encourage people into the 

banking system, but with all of that, there is still a role for the 

MSB’s, and it is a role that many lower-income people are going 

to be relying on, and Mr. Rangel, who represents a district in 

which they play an important part, came to us, because he had 

3

heard from some of these entities that service his constituents that 

they were being turned down by the banks, and when we checked, 

it was one bank, in particular, that was cited as having turned 

these down, and we asked the bank what was involved. The bank’s 

top people for this came to see our staff and said it is the uncertain 

atmosphere that has been created in the regulatory area, and 

sometimes, I will say to my friends and regulators, people hide behind you unfairly. Sometimes they have a legitimate point. 

It does seem to me that we have some uncertainty here, and obviously we want to prevent money laundering, but we all have a 

temptation to kind of overdo, in some cases, when the negative consequences of the overdoing do not fall on us, and I think this may 

be a case where the regulators have not been sufficiently sensitive 

to the impact uncertainty can have, and so, I am very glad that we 

have this hearing. 

I hope what will come out of this is a further movement towards 

a situation in which there is all the regulation we need. 

We obviously do not want there to be terrorist schemes being financed here. 

On the other hand, from what Mr. Rangel has said, and from 

what we have gleaned, it does seem to me that the impact has been 

greater than would be called for by terrorism. I do not think all of 

these MSB’s in Harlem are potential terrorist financing entities, although we will defer to New York State’s expertise in this, but I 

think that we probably—I think that this is one of these areas 

where we have conceptual agreement that we want regulation so 

that we do not have abuses, but we do not want to put legitimate 

market entities out of business. 

I do not think we have reached that level of accomplishment yet. 

So, I look forward to our being able to work together, and we will 

hear from the regulators, and then we will hear from some of the 

people in the business. 

I hope we can come out of this at some point fairly soon with a 

more specific set of regulations and with guidance and with some 

way for the businesses to look into it, because as I said, I think we 

are now in a position where the effect of the regulation is to shut 

down some businesses and deny people some services. 

I do not think anyone is to blame in the sense of anybody’s set 

out to do something bad, but the interaction of regulators, banks, 

and businesses here is nothing, and what we hope to be able to do 

is, particularly between the banks and the regulators, promote the 

right kind of interaction, so we can have a degree of confidence, 

never certainty, that we have done everything we can to reduce the 

abuses. 

I also—as I said, I want very much to work with the regulators 

here, but also—I am a great believer in free speech, and I voted 

against fining people, people saying naughty words on television, 

but I would like to ban metaphors from use in discussions of public 

policy. I think it would be very helpful, but as long as it is still constitutional, I will say I do think, in the area—particularly in this 

area of regulation, we have told the regulators to find needles, and 

we should refrain ourselves from the instinct to build bigger and 

bigger haystacks as they look for the needles, and I think, in some 

cases, we may get into that direction. 

4

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you, Mr. Frank. Mr. Hensarling? 

Mr. HENSARLING. Thank you, Mr. Chairman. For, I think, the 

second time this month, I find myself in complete agreement with 

the ranking minority member. I am not sure who should be more 

worried, him or me. 

Mr. FRANK. Mr. Chairman, point of personal privilege. 

Chairman BACHUS. You are recognized. 

Mr. FRANK. I will drop it. 

Mr. HENSARLING. I knew I would regret saying that. 

Mr. Chairman, let me thank you first for holding this hearing. 

Along with Mr. Moore of Kansas, I helped author the regulatory 

relief bill for financial institutions, and throughout that exercise in 

legislating, we knew that each and every regulation that had been 

imposed upon our banking sector at one point in time made a lot 

of sense. Frankly, there are a number of regulations that still create benefits for our economy, and for our Nation, but too often, we 

never go back and we look at the cost, the costs that are being imposed upon this same economy and same Nation, and we often find 

out that, among other things, both the bureaucracy and Congress 

can often exceed—excel at unintended consequences, and so, I am 

glad that you are holding this hearing, because now we see a fair 

amount of evidence, if not alarming evidence, that a number of our 

financial institutions are deciding to drop MSB’s as customers, and 

I think principally due to increased cost, to a lot of uncertainty, due 

to a lot of ambiguity, and we have to take a very serious look at 

what that means to our Nation, what is happening to the cost associated with the MSB’s as, increasingly, they get dropped as bank 

customers. 

What is ultimately the impact upon low-income citizens, low-income neighborhoods? 

Is our Nation really more secure if we start to drive MSB’s into 

the non-banking sector? 

Finally, how much duplication do we have here? Are we coming 

up with a system that essentially makes our financial institutions 

de facto regulators of MSB’s when, apparently, on paper, we have 

a number of other institutions that are supposed to serve that purpose. 

So, Mr. Chairman, again, I thank you for holding this very important hearing, and I yield back. 

Chairman BACHUS. I thank the gentleman from Texas. 

The gentlelady from New York, Ms. Maloney. 

Mrs. MALONEY. I thank you so much, Chairman Bachus, for holding this very important hearing. The issue of bank discontinuance 

of check cashers is very important to my district, and to New York 

City, in general. 

I joined Mr. Rangel in requesting this hearing and, at one point, 

was a member of the city council partially within the boundaries 

of Congressman Rangel’s district. So, I know firsthand that the financial services industry, in many cases, made a decision not to 

open banks in that area, so the check cashers were really the only 

way that many people could achieve services. 

5

So, they were very important, and I saw firsthand during my 

days on the city council the service that they provided to my constituents there, and continue to provide throughout New York City. 

I would like to especially welcome all of the witnesses, but especially my constituents, Superintendent Taylor, and Gerald Goldman of the Financial Services Centers of America. 

As a New Yorker, I know money services businesses form a very 

important part of the financial services district industry in my 

home town, and many of my constituents depend on their services 

for their financial needs. 

There are about 150 money service businesses in New York City, 

in over 750 locations, mostly in neighborhoods not served by banks. 

They employ about 4,000 New Yorkers, and serve many thousands more each day. 

In recent years, the money services businesses in my district 

have repeatedly asked me to help them with the problem of banks 

discontinuing check cashers’ and money transmitters’ accounts. 

Like all businesses, these need a bank account and access to 

bank services. 

In fact, because of their substantial cash flows, they need a bank 

with a local presence. 

This issue came to a crisis point 2 years ago in New York, when 

J.P. Morgan Chase, which serviced about 75 percent of the MSB’s 

in New York State, announced that it was terminating all MSB 

customers. 

This left North Fork Bank as the sole bank doing business in 

New York with check cashers, and I understand even they have 

stopped doing business with money transmitters. 

In late 2004, shortly after the J.P. Morgan announcement, I 

spoke directly to senior J.P. Morgan Chase officers and asked them 

what their reasons were for discontinuing money services businesses. 

They said that the OCC guidance effectively required them to do 

so. 

I then called the Director of OCC, Jerry Hawke, and urged him 

to take a more balanced approach to this issue. I followed up with 

a letter, and he responded with a letter denying that the OCC was 

encouraging banks to cut off MSB’s. 

Basically, the banks were pointing fingers at the regulators, and 

vice versa. 

I was, however, encouraged that the heightened scrutiny this 

issue was receiving from myself and others in Congress, including 

Chairman Bachus, led to the FinCEN conference in late spring of 

last year on this issue, which appeared from the reports to have 

been a very, very positive development. 

Right after the conference, I had the opportunity to ask Bill Fox, 

then-director of FinCEN, and Julie Williams, acting head of OCC, 

whether FinCEN would continue to support MSB’s as viable financial institutions. 

Director Fox said, ‘‘The check cashers are critical to the Nation’s 

economy and to the world’s economy.’’ Rebutting critics who assert 

that MSB’s are not regulated, he said, ‘‘They are regulated by us 

and the IRS enforces those regulations,’’ as well as by the States 

6

that license them. He pointed out that MSB’s are subject to the 

Bank Secrecy Act and make filings under that act. 

Fox and Williams attributed the discontinuance problem to what 

Fox called, ‘‘a misperception by banks of the level of risk involved 

in doing business with this sector,’’ and asserted, ‘‘We are having 

success in educating them.’’ 

Unfortunately, this does not seem to have happened. If anything, 

the situation seems worse now. Banks seem to have been frightened by the amount of work required by the guidance. 

Even though the guidance said that banks should not arbitrarily 

treat MSB’s differently, it requires banks to do much more due diligence than they have to for other types of business. 

MSB’s are on the OCC’s list of high-risk businesses, but so are 

car dealers, lawyers, accountants, investment bankers, broker-dealers, travel agencies, and leather goods stores, just to name a few. 

What does the OCC require in the way of due diligence for them? 

Is the standard higher for this particular industry? 

I would like to see the regulators adjust the guidance to the real 

level of risk. 

Frankly, FinCEN seems to have lost interest in advocating for a 

solution on this, and I am concerned that the other regulators do 

not see it as their responsibility to help MSB’s function. I hope we 

can correct that by working together. 

If we do not, we will only drive MSB’s and their customers underground, where they are much more susceptible to money laundering and fraud. 

Thank you very much for coming, and I look forward to the testimony. 

Chairman BACHUS. Are there any more members wishing to 

make an opening statement? If not, at this time, I would like to 

introduce our first panel. 

Mr. Don Carbaugh is the acting Associate Director for regulatory 

policy and programs, Financial Crimes Enforcement Network, 

FinCEN. 

Ms. Eileen Mayer is the Director of Fraud/Bank Secrecy Act, the 

Small Business/Self-Employment Division of the IRS. 

Ms. Ann Jaedicke is the Deputy Comptroller for Compliance Policy, Office of the Comptroller of the Currency. 

At this time, I will ask Ms. Maloney to introduce our fourth witness. 

Mrs. MALONEY. Thank you so much. It is my pleasure today to 

welcome my long-time friend, Diana Taylor, the superintendent of 

banks for the State of New York. Ms. Taylor has served in this position since 2003, and provides great insight and perspective into 

the field of financial services. 

Having worked in both the public and private sectors, she acted 

as the deputy secretary for finance and housing to Governor 

Pataki, served as the chief financial officer for the Long Island 

Power Authority, and helped found M.R. Beal & Company, an investment banking firm. 

I am looking forward, as always, to Ms. Taylor’s testimony, as 

well as her responses to our questions about money services businesses. 

Thank you so much for being here, Diana. 

7

Chairman BACHUS. Thank you. Let’s start with Mr. Carbaugh 

and proceed. 

STATEMENT OF DON CARBAUGH, ACTING ASSOCIATE DIRECTOR FOR REGULATORY POLICY AND PROGRAMS, FINANCIAL 

CRIMES ENFORCEMENT NETWORK 

Mr. CARBAUGH. Thank you, Mr. Chairman. 

Chairman Bachus, Ranking Member Sanders, and distinguished 

members of the subcommittee, I appreciate the opportunity to appear before you today to discuss initiatives that the Financial 

Crimes Enforcement Network is implementing under the Bank Secrecy Act relating to the money services business sector. 

Your leadership and commitment to understanding and publicly 

discussing the issues confronting this industry is critical not only 

to the safety and soundness of our financial system but also to our 

Nation’s security. 

I am pleased to be here today with Eileen Mayer from the IRS, 

Ann Jaedicke from the Office of the Comptroller of the Currency, 

and Superintendent Taylor from the New York State Banking Department. 

Each of these agencies plays a vital role in implementing Bank 

Secrecy Act requirements. I am happy to say that we have forged 

a strong working relationship in our united effort to regulate the 

money services business industry. 

The Financial Crimes Enforcement Network has regulated the 

money services business industry under the Bank Secrecy Act since 

the 1990’s. 

Issues surrounding the money services business regulatory regime, including the need to identify unlicensed and unregistered 

money services businesses, conduct robust Federal Bank Secrecy 

Act compliance examinations, and ensure access to banking services, continue to be at the forefront of our agenda. 

As you are aware, there has been mounting concern among 

FinCEN financial regulators and the money services business industry regarding the ability of money services businesses to obtain 

and maintain banking services. Many banks have stated their uncertainty as to the appropriate steps that they should take under 

the Bank Secrecy Act to manage potential anti-money laundering 

and terrorist financing risks. 

At the same time, the money services business industry has expressed concern that misperceptions of risk may be unfairly labeling them as unbankable. 

Individual decisions to terminate account relationships, when 

compounded across the U.S. banking system, have the potential to 

result in a serious restriction in available banking services to an 

entire market segment. The money services business industry provides valuable financial services, especially to individuals who may 

not have ready access to the formal banking sector. 

If money services business account relationships are terminated 

on a widespread basis, we believe that many of these businesses 

could go underground. 

This potential loss of transparency would, in our view, significantly damage our collective efforts to protect the U.S. financial 

8

system from money laundering and other financial crime, including 

terrorist financing. 

Clearly, resolving this issue is critical to achieving the goals of 

the Bank Secrecy Act. 

In March 2005, the Non-Bank Financial Institutions and Examinations Subcommittees of the Bank Secrecy Act Advisory Group 

jointly hosted a fact-finding meeting to solicit information from 

banks, as well as money services businesses, on issues surrounding 

the provision of banking services to the money services business industry. Subsequently, in April 2005, FinCEN and the Federal 

banking agencies issued interagency guidance to the banking industry on regulatory expectations when providing banking services 

to domestic money services businesses. 

FinCEN issued a companion advisory providing guidance to 

money services businesses on what they should expect when obtaining and maintaining banking services. 

Currently, based upon what we have learned at the March 2005 

meeting, and in subsequent discussions with other Federal and 

State regulators, law enforcement, and the industry, we have developed, and are implementing, a three-point plan, which is detailed in my written testimony, for addressing these issues. 

First, guidance that outlines with specificity Bank Secrecy Act 

compliance expectations when banks maintain accounts for money 

services businesses. 

Second, education that provides banks and bank examiners enhanced education on the operation of the variety of products and 

services offered by money services businesses and the range of 

risks that each may pose. 

Third, regulation that strengthens the existing Federal regulatory and examination regime for money services businesses, including coordinating with State regulators to better ensure consistency and leverage examination resources. 

We also continue to work closely with our colleagues at the Internal Revenue Service to enhance the examination regime through 

the development of revised Bank Secrecy Act examination procedures, information sharing, and examination targeting. 

Additionally, we continue to work closely with the Conference of 

State Bank Supervisors and State regulators on these issues. 

Executing individual agreements with State banking agencies 

will ensure better coordination and synergy with State-based examiners and improve consistency in examination processes. 

We also intend to continue working on developing indicators for 

law enforcement and financial institutions to help identify unlicensed and unregistered money services businesses. 

By providing law enforcement, banks, and other financial institutions with indicia of illicit activity, they will be better able to help 

us identify money services businesses that choose to operate outside of the regulatory regime. 

Lastly, I would like to comment briefly on our registration efforts. 

Identification of money services businesses subject to the Bank 

Secrecy Act requirements is an essential first step in effective regulation. 

9

Our effort to identify money services businesses begins with the 

Bank Secrecy Act requirement to register with FinCEN and maintain lists of agents. 

However, the industry is largely composed of small, unsophisticated businesses whose primary business is often something other 

than the money services that they provide, frequently to the poor 

and unbanked. 

Additionally, due to language barriers within certain communities, there may be confusion regarding the applicable regulations. 

We recognize that the complexity of our current approach to 

MSB registration may be contributing to a lack of registration, and 

we are working on solutions to provide a more efficient and reliable 

method for identifying money services businesses. 

In conclusion, Mr. Chairman, we are grateful for your leadership 

and that of the other members of the subcommittee on this issue, 

and stand ready to assist you in your continuing efforts to ensure 

the safety and soundness of our financial system. 

Thank you for the opportunity to appear before you today. 

I look forward to any questions you may have regarding my testimony. 

[The prepared statement of Mr. Carbaugh can be found on page 

75 of the appendix.] 

Chairman BACHUS. Thank you, Mr. Carbaugh. 

Ms. Mayer? 

STATEMENT OF EILEEN C. MAYER, DIRECTOR, FRAUD/BANK 

SECRECY ACT, SMALL BUSINESS/SELF-EMPLOYED DIVISION, 

INTERNAL REVENUE SERVICE 

Ms. MAYER. Good morning, Mr. Chairman, and members of the 

subcommittee. 

I am pleased to be with you this morning to discuss the IRS’s 

role in administering the BSA. 

Specifically, the IRS is responsible for examining for BSA compliance all financial institutions not currently examined by a Federal 

functional regulator. These entities include money services businesses such as check cashers, issuers of traveler’s checks, and 

money transmitters, casinos, certain credit unions, dealers in jewelry and precious metals, and insurance companies. 

The largest of these groups is the MSB’s. No one is sure just how 

big the universe of MSB’s may be or how many of them are required to register with FinCEN under the BSA. 

What we do know is that, currently, there are more than 24,000 

registered MSB’s. FinCEN maintains a list of registered MSB’s on 

their Web site. The IRS is committed to our important role in enforcing the BSA. 

In late 2004, we created the Office of Fraud/BSA within the 

Small Business/Self-Employed Division. That is the office I now 

head. This allows us to utilize field agents whose sole responsibility 

is to examine MSB’s, casinos, and other entities covered by the 

BSA but not monitored by traditional Federal regulators. 

Previously, agents conducting BSA exams were doing so as collateral duty to their more traditional income tax enforcement work. 

10

Today, we have approximately 350 BSA examiners in the field, 

and it is my hope that we will get the number up to 385 in the 

not-too-distant future. 

This increased workforce is reflected in the number of Title 31 

exams we have been able to conduct. In FY 2005, we examined 

3,680 MSB’s. 

Through late May of this year, we have almost exceeded that 

total, and expect to examine over 6,000 by the end of the fiscal 

year. 

We are also leveraging our resources with those of the States. 

In late April, Commissioner Everson announced agreements with 

33 States and Puerto Rico to begin sharing BSA information. 

These agreements will allow the IRS and the participating States 

to share information and leverage their resources to ensure that 

MSB’s are complying with their Federal and State responsibilities. 

We recognize, Mr. Chairman, that the money services business 

industry provides valuable financial services, especially to individuals who may not have ready access to the formal banking sector. 

It is a longstanding treasury policy that a transparent, well-regulated money services business sector is vital to the health of the 

world’s economy. 

We find it regrettable that compliant MSB’s are being rejected by 

banks over fears of potential non-compliance with BSA requirements. Our examinations do not support those fears. 

Of the over 7,300 MSB’s that we examined last year, and this 

year thus far, there have been only 41 cases that merited referral 

to FinCEN for consideration of civil penalties or the IRS criminal 

investigations unit for possible criminal penalties. For the most 

part, the violations that we find are minor or technical in nature 

and can be corrected easily. 

When a minor or technical violation is noted, we issue a letter 

to the MSB listing the violation. Unless our letter is challenged, we 

expect those violations to be remedied in a timely manner, and to 

ensure that happens, our examiners will conduct a follow-up examination within 6 to 8 months. 

If no violations are found in the original exam, we issue a different letter showing that the business has been examined and no 

violations were found. 

Mr. Chairman, I hope my remarks this morning, as well as my 

written statement, submitted for the record, address many of the 

questions that the subcommittee has relative to the IRS’s role with 

the BSA, and specifically its examination of MSB’s. 

I will be happy to respond to any additional questions that the 

members of the subcommittee may have. 

[The prepared statement of Ms. Mayer can be found on page 107 

of the appendix.] 

Chairman BACHUS. Thank you, Ms. Mayer. 

Ms. Jaedicke. 

11

STATEMENT OF ANN F. JAEDICKE, DEPUTY COMPTROLLER 

FOR COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER 

OF THE CURRENCY 

Ms. JAEDICKE. Thank you, Chairman Bachus, and members of 

the subcommittee. I appreciate the opportunity to discuss the Bank 

Secrecy Act’s impact on money services businesses. 

Over the past couple of years, the OCC has taken many actions 

to help ensure that MSB’s are not unfairly denied access to a bank 

account. For example, we participated in numerous meetings and 

conferences with representatives of the banking and MSB industries to help us understand the issues. 

With the other regulatory agencies, we issued interagency guidance and examination procedures that address MSB issues. We 

have provided instructions and training to our examiners on 

MSB’s. 

As the regulator of national banks, the OCC has long been committed to ensuring that all Americans have fair access to the banking system and financial services. We recognize the positive role 

that MSB’s play in this process, and the OCC is very concerned 

about the problems that MSB’s are experiencing in obtaining banking services. 

The reasons some MSB’s have lost access to banking services are 

complex and derive from a multitude of factors, including the risks 

presented by some MSB accounts, the costs associated with maintaining MSB accounts, and banks’ concerns about law enforcement 

and regulatory scrutiny. Notwithstanding these concerns, there is 

still a significant number of national banks that continue to provide accounts and banking services to MSB’s. 

OCC officials have met often over the last 18 months with various representatives of the MSB industry to better understand the 

problems MSB’s face. For example, in March of 2005, OCC representatives attended the fact-finding meeting on MSB’s hosted by 

FinCEN. Later that month, the OCC hosted a teleconference for 

the banking industry in which we discussed a variety of issues, including MSB’s. 

Also, the OCC participated in a nationwide teleconference on 

MSB issues hosted by the American Bankers Association. And, in 

April of 2006, the OCC again joined various Federal, State, and industry representatives at an MSB regulatory policy meeting sponsored by the ABA. 

All of these initiatives have helped to further the understanding 

of all parties, and we at the OCC are committed to continuing this 

dialogue. 

As our knowledge and understanding of MSB’s and their issues 

have grown, our guidance has evolved. Along with FinCEN and the 

other Federal banking agencies, in April of 2005, we issued interagency guidance on MSB’s. That guidance has since been incorporated into the Interagency Bank Secrecy Act and Anti-Money 

Laundering Manual and into our interagency training. 

More recently, on March 10, 2006, FinCEN issued an advanced 

notice of proposed rulemaking to solicit updated facts concerning 

MSBs’ access to banking services, as well as recommendations regarding additional guidance or regulatory action that might address these concerns. The comment period closes soon, and the 

12

OCC will again work with FinCEN and the other Federal banking 

agencies to provide, if needed, different guidance to the banking industry that is clear and consistent. We commend the efforts of Director Werner for the leadership he has shown in addressing this 

important issue. 

The BSA has been the focus of regulatory, Congressional, and 

media attention for the past few years, and, certainly, there has 

been an increasing sense of urgency for all of us since 9/11. The 

intense focus on BSA compliance may have led to misperceptions 

about the OCC’s policies and practices relating to MSB accounts at 

national banks, so let me be clear. 

First, the OCC is not the supervisor of MSB’s and does not expect national banks to be the de facto regulators of their MSB customers. Second, the OCC does not, as a matter of general policy, 

require any national bank to close the accounts of an MSB or any 

other customer. Third, the OCC does not discourage banks from 

having MSB accounts. We expect banks that open and maintain accounts for MSB’s to apply the requirements of the BSA, as they do 

with all accountholders, on a risk-assessed basis. 

Finally, the OCC has taken many steps to ensure that our examiners are acting in conformance with our agency policies. For example, when the interagency guidance was issued, we provided copies 

to every national bank examiner with instructions that it was to 

be followed immediately. As previously discussed, the interagency 

guidance has been incorporated into the interagency BSA manual, 

and Comptroller Dugan has directed that the procedures in the 

interagency manual be used at every BSA/AML exam. We have 

trained our examiners extensively on the procedures in the interagency manual. 

Perhaps most significantly, in the past year, senior OCC officials 

have held nationwide teleconference briefings with the entire national bank examination force. In those briefings, examiners were 

instructed that under no circumstances should they be directing or 

encouraging banks to close MSB accounts. We have been very clear 

in this regard. 

Mr. Chairman, the OCC salutes your leadership in this vital 

area. We also believe that important objectives are achieved when 

MSB’s have access to banking services, consistent with anti-money 

laundering laws and rules. We stand ready to work with Congress, 

FinCEN, the other Federal banking agencies, and the banking industry to achieve these goals. 

Thank you. 

[The prepared statement of Ms. Jaedicke can be found on page 

93 of the appendix.] 

Chairman BACHUS. Thank you. 

Ms. Taylor. 

STATEMENT OF THE HONORABLE DIANA TAYLOR, SUPERINTENDENT OF BANKS, STATE OF NEW YORK, ON BEHALF 

OF THE CONFERENCE OF STATE BANK SUPERVISORS 

Ms. TAYLOR. Good morning, Chairman Bachus, Congresswoman 

Maloney—thank you very much for your kind introduction—and 

members of the subcommittee. 

13

I am Diana Taylor, superintendent of banks for the State of New 

York. 

I am pleased to be here today on behalf of the Conference of 

State Bank Supervisors to discuss the impact of Bank Secrecy Act 

compliance requirements on the availability of banking services 

through money service businesses. 

The New York State Banking Department is responsible for licensing, supervising, examining, and regulating MSB’s that operate 

within our State’s borders. The MSB’s that we currently oversee, 

by State law, include money transmitters and check cashers. 

MSB’s fill a need in many markets. For many individuals and 

families, especially in low-income and urban communities, MSB’s 

may be the only means of access to cash or the only avenue for 

sending funds to family members abroad. 

In New York State, there is an enormous concentration of money 

transmitters and check cashers in only a few banks. Two banks 

provide services to 42 percent of our money transmitters, and two 

different banks provide services to 87 percent of our licensed check 

cashers. The two banks in New York that are the most active in 

providing these services to money transmitters are currently considering exiting this business. 

The departure will undoubtedly present a significant challenge to 

New York’s MSB’s, not only in the short term but in the long term, 

as well, as the decline in competition is likely to not only raise fees 

for these businesses but to make it that much more difficult to find 

any bank to do business with them. 

So, how do we solve this problem? Our solution must create incentives that ultimately serve to protect consumers, the banks, and 

the MSB’s. Piecemeal stop-gap legislation is not a viable solution. 

The solution requires effort from all parties involved—the MSB’s, 

the banking industry, State and Federal banking regulators, 

FinCEN, and the IRS. 

First, FinCEN should revisit its definition of an MSB. The current definition is too broad, with a threshold so low that it may 

capture more entities than intended. The definitions hit target entities whose primary business is providing financial services, rather 

than the entities that offer financial services only incidentally to 

their core businesses, such as supermarkets cashing checks for 

their customers. 

Two, regulators should consider further clarifications of standards. 

We, as regulators, should be able to develop simplified standardized requirements for MSB’s that serve a lower-risk client base. 

This new standard could serve as a foundation for an advanced 

comprehensive BSA/AML program. 

Additionally, while the joint guidance issued by FinCEN and the 

Federal banking agencies did help clarify regulators’ expectations 

for banks that serve MSB’s, further guidance may also be necessary in two areas—appropriate due diligence when maintaining 

accounts for foreign providers of money services and identifying entities that may be operating covertly as MSB’s. 

Third, we must continue to improve Federal and State coordination. 

14

Thirty-nine States have signed a memorandum of understanding 

(MOU) with FinCEN, and 35 States have signed with the Internal 

Revenue Service, to set forth procedures for sharing certain Bank 

Secrecy Act information. 

These MOU’s, however, cannot entirely address a critical need 

for additional services at both State and Federal levels. We need 

access to additional training and a renewed commitment from 

FinCEN and the IRS to deliver on the promises of the MOU’s. 

Federal and State regulators, FinCEN, and the IRS need to continue our efforts to deliver a consistent message to the banking industry about their obligations and rights. 

Fourth, we should create incentives to encourage banks to serve 

the MSB industry. 

We might consider offering CRA credit to banks that provide 

services to MSB’s, since a significant segment of these businesses’ 

customers are low-income individuals, households, minorities, and 

new immigrants. 

We should also seek out incentives for banks to offer MSB-type 

services in unbanked and underbanked communities across the 

country. 

MSB’s must continue to improve their risk-management systems, 

with continuing focus on the area of BSA/AML compliance. 

As MSB’s make their commitment to compliance clear, banks 

may become more willing to provide services to these businesses. 

At the State level, we must continue to improve supervision of 

these entities. 

New York supervisory protocol for MSB’s takes an integrated approach that focuses on risk management, with an emphasis on the 

compliance function, inclusive of BSA. 

Our FILMS evaluation system provides an early warning system 

about weakening conditions and a guide to where to look for noncompliance issues. 

Both CSBS and its counterpart organization, the Money Transmitters Regulators Association, have made a commitment to provide additional training and resources for State MSB examiners 

across the country. 

No silver bullet can solve this issue, and finger pointing is not 

helpful. 

This is an industry that is vital for many people. 

Licensing alone is not a panacea. It is also not helpful for banks 

to categorically refuse to do business with MSB’s. Regulators must 

be consistent in their requirements for the industry. Everybody 

must work together. 

I commend the subcommittee for holding a hearing on this very 

important issue. 

Thank you. 

[The prepared statement of Ms. Taylor can be found on page 126 

of the appendix.] 

Chairman BACHUS. Thank you. 

Mr. Carbaugh, the SAR’s that the MSB’s are required to file—

does law enforcement review those SAR’s? 

Mr. CARBAUGH. Yes, they do, sir. 

Law enforcement around the country, through various, for example, high-intensity financial crime areas, have SAR activity review 

15

teams that review and assess individual SAR’s that come in, and 

they distribute them based on their jurisdiction. So, yes, they are 

being looked at on that level. 

They are also being looked at on a more macro level at FinCEN 

to identify potential trends and patterns, and to look at the information in a more strategic way and to provide some proactive targeting of institutions when they are identified. 

Chairman BACHUS. What is the last year that you all have reviewed those SAR’s? Have you reviewed those that were filed last 

year? 

Mr. CARBAUGH. One of the strategies that we have in place right 

now is actually looking at SAR’s filed by depository institutions 

since the issuance of our guidance last year, where we said in 

our—in the guidance that if you identify a potential unregistered 

or unlicensed money service business that you believe is operating 

outside of the requirements— 

Chairman BACHUS. Yes, I am talking about the licensed ones 

now. How long after they file the SAR’s are you reviewing those 

SAR’s? 

Mr. CARBAUGH. Well, they come into the database very quickly, 

depending on how they are filed. 

Chairman BACHUS. How many of the SAR’s filed by MSB’s last 

year resulted in criminal cases being brought? 

Mr. CARBAUGH. I do not have that information. I would have to 

reach out to my law enforcement counterparts to obtain that. 

Chairman BACHUS. Is that information available? 

Mr. CARBAUGH. I would have to check with them. 

Chairman BACHUS. Are you personally aware of whether any of 

them have resulted in criminal charges? 

Mr. CARBAUGH. My understanding is that, yes, they have resulted in criminal actions, and we do have evidence that we put 

forth in our SAR activity review, which we publish twice a year, 

detailing cases where suspicious activity reports have resulted in 

prosecution. 

Chairman BACHUS. Are the prosecutions from the SAR’s that 

MSB’s have filed—are they much greater in number and percentage than those filed by other financial institutions? 

Mr. CARBAUGH. I do not have that information. 

Chairman BACHUS. Could you get that information and supply it 

to the committee? 

Mr. CARBAUGH. I would have to check with our law enforcement 

counterparts. 

Chairman BACHUS. Okay. 

Thank you. 

Ms. Jaedicke, what is the OCC doing to discourage banks from 

severing their relationships with MSB’s? I mean it is not working. 

You know, there was another major announcement this week of 

another major bank that actually says they are not going to extend 

banking services to MSB’s. Is the OCC powerless to stop this? 

Ms. JAEDICKE. I hope not, sir. The intent of the guidance that 

was put out last year, under FinCEN’s leadership, was to provide 

more clarity around this particular issue, so that banks would feel 

comfortable servicing MSB’s, and MSB’s would know how to provide information to banks that would make banks more comVerDate 0ct 09 2002 17:34 Jan 23, 2007 Jkt 031529 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 F:\DOCS\31529.TXT HFIN PsN: TERRIE
16

fortable. So, I would again say that we should take a hard look at 

the comments that come in from the ANPR that FinCEN has 

issued and see if there are some changes we can make in the guidance that might help the situation. 

Chairman BACHUS. Let me ask both FinCEN and the OCC. You 

are aware that some of the largest banks in America say that they 

are not going to continue to serve MSB’s, and I think you both said 

you are very concerned about this. My question is what are you 

going to do about it? 

Ms. JAEDICKE. Sir, as I said, we do not tell national banks which 

accounts to open or close. 

Chairman BACHUS. OCC is powerless—if a whole industry—if 

banks are saying we are not going to deal with this industry—the 

OCC—do you feel like you have any responsibility or any obligation 

to— 

Ms. JAEDICKE. I think this is a multi-part problem, sir, that will 

require a multi-part solution. 

Chairman BACHUS. Is there any obligation or responsibility on 

your part, when the major banks in this country say that they are 

not going to serve an industry, and they discontinue their services 

to that industry, do you—does the OCC have a statutory or regulatory duty or obligation to see that does not happen? It is not a 

loaded question. You are in charge of compliance. 

Ms. JAEDICKE. Yes, sir. 

I think our duty and obligation is to provide clear guidance in 

terms of what our supervisory expectations are, and that is what 

we have tried to do. We are very concerned about the situation 

with the money services businesses and the discontinuance. We 

want to do what we can, what is within our power, although we 

are not the regulator of the money services businesses, we do not 

write the regulations for MSB’s, but certainly our banks are some 

of the banks that are providing services to them. So, I think the 

best place for us to have influence is in the information and the 

guidance we provide to the financial institutions. 

Chairman BACHUS. I do not know the answer to this question. 

Is there any statutory or regulatory obligation of banks to serve 

all industries, or can they categorically just announce that they will 

not serve certain industries or certain groups of people? 

Ms. JAEDICKE. There are CRA obligations, sir, that have to do 

with lending, particularly lending to— 

Chairman BACHUS. Or servicing accounts? 

Ms. JAEDICKE. Right. Lending to a bank’s communities, including 

low- and moderate-income areas. 

Chairman BACHUS. If these are law-abiding companies that are 

subject to regulation, and they are complying with the regulations, 

is it a violation for banks to just publicly announce to the world 

that they are not going to deal with those companies anymore? 

Ms. JAEDICKE. Not to my knowledge, sir. 

Chairman BACHUS. Okay. Do you need such statutory power? 

Ms. JAEDICKE. No, sir, I don’t think so. I think the solution to 

this really lies with multiple parties. It lies with the OCC and the 

other Federal banking agencies. It lies with the States and the IRS, 

who need to provide even and vigorous supervision of the MSB’s. 

17

It lies with the MSB’s themselves, who need to make sure that 

they are in compliance with the regulations that apply to them. 

Chairman BACHUS. You know, some of them are complying. They 

have not been guilty of any violations, and yet, they have been denied banking services by some of the country’s largest banks. You 

are aware of that? 

Ms. JAEDICKE. Yes, sir. 

Chairman BACHUS. Okay. 

You said you do not like the regulations that have been imposed 

upon OCC or that you have to comply with? Is that the FinCEN 

regulations? 

Ms. JAEDICKE. I am sorry, sir. Would you repeat that? 

Chairman BACHUS. You made some statement that you did not 

like the regulations. 

Ms. JAEDICKE. No, sir, I do not think I said that. 

Chairman BACHUS. Okay. 

All right. 

Ms. Maloney? 

Mrs. MALONEY. Thank you. 

Superintendent Taylor, in your testimony, you state that 

FinCEN’s definition of an MSB does not differentiate among levels 

of risk within the MSB industry, and you gave several suggestions 

about how that definition should change based on targeting the entities whose primary business is providing financial services rather 

than entities that offer financial services only incidentally to their 

core business. 

What sort of a breakdown in definitions do you think would be 

helpful to properly regulate MSB’s? If you would like to expand on 

any of your recommendations, you have the floor. 

Ms. TAYLOR. Thank you. 

What I was referring to is the entities that have a primary business of being an MSB. For instance, entities like a MoneyGram or 

a big check casher are subject, under the current regulations, to 

the same sets of rules and regulations as a—for instance, a grocery 

store that is cashing checks as, you know, a courtesy to their customers or entities that carry out more limited businesses—for instance, just cashing payroll checks or government checks or something like that—and I think this is an area that needs to be explored, where maybe we could be a little bit more pointed in which 

types of entities get regulated how, so you do not have everybody 

getting swept up under the same group of regulations. 

I think that is something that we need to look into, and maybe 

we can do something there and maybe we cannot, but I think that 

we need to look at it. 

Mrs. MALONEY. I would like to ask the Deputy Comptroller for 

Compliance in the OCC, Ms. Ann Jaedicke—one of the problems 

that we are hearing is, when I talk to some of the big banks—and 

I am not just talking about New York banks. I am talking about 

big banks in this country—a number of my colleagues, Mr. Frank 

and others, have mentioned that they have talked to these banks 

and they say we have to stop this service because the OCC is telling us to do that. 

Now, when I wrote to Mr. Hawke, and in your comments, you 

are saying you are not doing that, but there definitely is some 

18

misconnection, because they truly do believe that they are being 

told to discontinue the service, and so, that is my question. 

You say that you are not telling them that, but whatever—there 

is a disconnect. They are pointing fingers back at you. 

How can you clear this miscommunication up? 

Ms. JAEDICKE. We tried to clear it up in March of 2005, as part 

of the interagency guidance on MSB’s that we issued with FinCEN 

and the other regulators. In that guidance, we made it clear that 

it was the bank’s decision whether to keep open an account or close 

it. Also, as I said in my testimony, we made it very clear to our 

bank examination staff that it was not their job to decide which accounts should stay open or be closed; that was the bank’s decision. 

Mrs. MALONEY. Well, I tell you, we work on this committee and 

we try to figure out how to get financial services into our country. 

We are working very hard to try to get people who are unbanked 

into the banking system. 

It is a better way to track money laundering and to just track 

what is happening in our country, and everyone says that they 

want to help, but nothing seems to be happening, and I would like 

to ask everyone to just talk about what you think should happen, 

but right now, I would like to ask Don Carbaugh, how many MSB 

SAR’s were filed last year, and of those that were found to involve 

money laundering, how many do you expect will eventually reveal 

actual criminal activity? 

Mr. CARBAUGH. Thank you, Congresswoman. 

Last year, there were approximately 384,000 MSB SAR’s filed by 

the money services business industry. Your question with respect 

to prosecutions or criminal activity, I cannot answer. 

That is a question that will, again, be a question for law enforcement. 

We at FinCEN do not have criminal investigative authority. 

Mrs. MALONEY. Of those that were filed, do you know if any of 

them involved money laundering? Did any of them involve—I mean 

that is an important question. 

Mr. CARBAUGH. Sure. The SAR’s that are filed—there is information on the SAR’s that the MSB has to check to determine what 

kind of activity they have identified, and many of those SAR’s do 

indicate money laundering or Bank Secrecy Act violations. 

Mrs. MALONEY. If you cannot get it to me today, I think a very 

legitimate question is how many MSB SAR’s were filed and how 

many of them had money laundering or some problem with them, 

and so, I think it is important to see whether there is any correlation between criminal activities and your assertion that MSB’s are 

high-risk. 

It may be that there has not been any money laundering in 

MSB’s, and therefore, the high risk level should be removed. 

You may not have that information now, but you surely can obtain it, and I’d like to ask for it for the committee. 

My time is up, but if you have a comment, I would love to hear 

it. 

Mr. CARBAUGH. Again, there were 384,000 filed last year. 

Just to your point, we do not suggest that all MSB’s are high 

risk. 

19

In the joint guidance that was issued last year to the banking 

industry, we indicated that there were various levels of risk in the 

money services businesses industry, as there are with any other account holders or businesses that depository institutions would 

bank. 

Mrs. MALONEY. To my question, how many MSB SAR’s had any 

type of money laundering, that figure has to be out there. 

It may be that none of them had any money laundering. I do not 

know. 

I think it is a legitimate question; maybe you could get back to 

us. 

Mr. CARBAUGH. We can get that information. Again, it would be 

suspected money laundering. 

Mrs. MALONEY. Thank you. 

Chairman BACHUS. Mr. Hensarling? 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Mr. Carbaugh, on page 3 of your testimony, I think you said that 

if the MSB account relationships were terminated on a widespread 

basis and these businesses go underground, that this could significantly damage our collective efforts to protect the U.S. financial 

system from money laundering and other financial crimes. 

That is pretty strong language. 

Could you elaborate just how serious of a challenge this would 

be to FinCEN? 

Mr. CARBAUGH. Sure. 

The challenge for us would be that, if there is a loss of transparency, then we have no indicators of activity that may be flowing 

through these types of businesses. 

When we bring them under the AML regulations, they are filing 

reports to us that are then used by law enforcement, that are obviously indicators of potential suspicious activity. 

So if, in fact, they go underground, that is that much information 

that we would not have available for law enforcement to potentially 

investigate, 

Mr. HENSARLING. So, between the regulation and the legislation, 

if we do not get it right, these businesses are not necessarily going 

away; we are just simply going to lose their paper trail. 

Is that a fair statement? 

Mr. CARBAUGH. I think that there is evidence to suggest that, 

correct. 

Mr. HENSARLING. Ms. Jaedicke, I peeked ahead at the testimony 

of the next panel, and Mr. Abernathy with the ABA states in his 

testimony that the interagency guidance has not provided a firm 

enough separation between the low-risk and high-risk profiles on 

the MSB’s, causing, in the opinion of ABA—and I have not seen a 

statistic saying that most banks are prompted to use a high-risk 

due diligence criteria and applying that to the MSB’s. 

I think, in your own testimony, if I remember right, that banks 

are supposed to be using some amount of due diligence to differentiate between the two, but it sounds like they do not feel they have 

sufficient guidance on how to do that, and so, they are using the 

higher risk, which, to some extent, is perhaps helping the phenomena that Mr. Carbaugh is worried about. 

20

Can you detail how this interagency guidance defines low-level 

risk versus high-level risk, and why, seemingly, financial institutions do not feel that they have too much ambiguity to apply it? 

Ms. JAEDICKE. Certainly, sir. 

The guidance has examples of what low-risk money services businesses might be versus what high-risk money services might be 

and supplies some attributes. For example, it explains a low-risk 

money service business to be something like a check casher that 

would cash payroll checks for a local employer, and that would describe many of the money services businesses that we have here in 

the United States. As an example of a high-risk money service 

business, it gives a wire remitter that was remitting large and frequent wires to a country that was of money laundering concern to 

some part of the United States Government, either Treasury or the 

State Department or some other organization. So, we tried to make 

differentiations, with FinCEN’s help, in the types of MSB’s and 

give the industry examples of low-risk versus high-risk. 

Mr. HENSARLING. At what point, if any, does a financial institution ultimately become responsible for the BSA compliance of its 

customer, because I believe a number of our financial institutions 

believe that, de facto, they are. 

Ms. JAEDICKE. At what point does the bank become responsible 

for its— 

Mr. HENSARLING.—for the BSA compliance of one of its customers. 

Ms. JAEDICKE. We would not say that the bank was responsible 

for the BSA compliance program of the MSB. MSB’s are required 

by regulation to have a compliance program. What the bank typically would do would be to simply ask questions of the MSB, if the 

bank felt it was necessary to do so for their due diligence program, 

questions about the MSB’s own program, perhaps. 

Mr. HENSARLING. You understand that a number of the financial 

institutions—apparently a great number of them, as we will soon 

hear testimony—believe that, de facto, they are being asked to do 

that and that they do bear some responsibility. 

You understand— 

Ms. JAEDICKE. I do understand that, sir. All I can tell you is that 

the guidance was specifically intended to address that. 

Mr. HENSARLING. Thank you. 

I am out of time. 

Chairman BACHUS. Mrs. McCarthy? 

Mrs. MCCARTHY. Thank you, Mr. Chairman. 

It has been interesting hearing each one of you speak, and also 

reading your testimony, and it seems to me, obviously, with all of 

you sitting in front of us, we are sitting here because we are thinking, okay, how are we going to fix this problem. 

I know New York State is going to have some legislation in front 

of their committee—that was in your testimony—that would require banks to get your permission in order to close an MSB account. Could you go further into detail on your concerns with this 

requirement? 

I think the one thing I am hearing is that everybody is going by 

these requirements, but nobody seems to be talking to each other 

on how to handle this. 

21

New York State has, at least, come up with some solution, where 

the Federal Government—have you all talked together, all of you, 

to try and figure out what we can do to make sure that everybody 

is on the same page, so that our MSB’s can serve the people they 

need to, and certainly protect our banks that have an obligation to 

make sure that we are not money laundering. 

Ms. TAYLOR. I will start with the New York State legislation 

problem and then go to the Federal regulations to answer your 

question. 

As far as the proposed legislation in New York State, what it 

would require is that any bank that told an MSB that it was going 

to close its account—it would have to get written permission from 

the superintendent of banks in order to do that. 

I think this is a very, very bad idea for exactly the reasons that 

Ms. Jaedicke said before. 

Regulators are not in the business of telling their regulated institutions who to do business with or who not to do business with. 

We set up guidance and guidelines and regulations, and each 

bank in this free country of ours is free to do business with whomever they choose. 

However, what we can do, and what we are trying very hard to 

do at the New York State Banking Department, is to put in place—

which I think we have done—a system of rating and examining 

and supervising the MSB’s, which hopefully will bring them up to 

par in the BSA compliance area. We have done a lot of work in this 

area, and it is starting to show some success. 

The money transmitters who have gone through our system—

they are on their second round. The first round, there were some 

very severe BSA compliance problems. Approximately two-thirds of 

the businesses were not up to standard. 

The second time through, it is about two-thirds who are up to 

standard. 

In the check-cashing area, there are some very severe compliance 

problems, and we are working with our constituents to make sure 

that they put the systems in place that they need in order to comply with the rules and regulations. 

Mrs. MCCARTHY. Thank you. 

Ms. JAEDICKE. I would just like to say that the Federal bank regulators and State bank regulators are spending a great deal of time 

trying to work on this issue. We have met repeatedly as a group, 

and we have met with the trade associations for the MSB’s, and 

we have met with the ABA to try to find solutions. 

Mr. CARBAUGH. I would add that, as was previously mentioned, 

FinCEN took the lead last year in conducting a fact-finding meeting on this issue, worked very closely with our counterparts in the 

Federal banking agencies to develop and issue a policy statement, 

as well as joint guidance, on this issue, and since there has been 

some evidence of continued discontinuance—and again, I think we 

are taking the lead in that, in March, we issued an advanced notice 

of proposed rulemaking seeking comment on this very issue, and 

that rulemaking closes on July 10th, and at that point, we will certainly assess all comments and recommendations provided to us, 

and make some decisions about appropriate steps to take at that 

point. 

22

Mrs. MCCARTHY. I guess my concern is—because I am also hearing from my MSB’s that, you know, as they try to go into new entities, you know, to join with a bank or a credit union, they will not 

even consider them anymore, because they are hearing of all the 

other larger banks that are actually pulling out. 

Obviously, we want to work with the bankers. We also want to 

work with those that are serving the underserved communities. 

So, I guess that is going to be up to us to see how we are going 

to come up with those answers. 

I yield back the balance of my time. 

Chairman BACHUS. Thank you. 

Mr. McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Mr. Carbaugh, you say in your testimony that many banks have 

stated their uncertainty as to the appropriate steps that they 

should take under the Bank Secrecy Act to manage potential antimoney laundering and terrorist financing. Those are your words. 

In your opinion, is this due to the lack of regulatory guidance? 

Mr. CARBAUGH. No. 

I think that there might be misperceptions about the guidance. 

Again, we worked collaboratively with the Federal banking agencies when this issue was raised last year to develop some very specific guidance that details what our expectations are when they 

open and maintain accounts for money services businesses. 

Those requirements and expectations are similar to that of any 

other business that a banking organization would bank, and the 

types of risk assessments that they would conduct pursuant to 

those types of accounts, as well. 

Mr. MCHENRY. You also talk about certain MSB’s going underground. 

How would they do that? 

Mr. CARBAUGH. One is not registering with FinCEN and not licensing with any potential State requirements, and then conducting business through, for example, a banking organization 

without being in compliance with those basic compliance requirements under Federal, as well as potentially State— 

Mr. MCHENRY. Have you seen that? 

Mr. CARBAUGH. Yes, we have evidence, through suspicious activity reports, of that occurring. 

Mr. MCHENRY. How significant? 

Mr. CARBAUGH. I think it is significant enough to certainly pay 

attention to, and we are certainly developing a strategy to identify 

unregistered money services businesses and put in place a broad 

spectrum of compliance and enforcement strategies to address that 

issue. 

Mr. MCHENRY. I would like to also echo what the chairman requested, some statistics in terms of what—you talk about 385,000 

suspicious activity reports last year, right? 

Mr. CARBAUGH. Correct. 

Mr. MCHENRY. You know, in terms of what that is doing, I mean 

how many of those have netted anything, we would like to hear 

that, because perhaps we are generating too much paper for you, 

or not enough, and you know, unless we have the statistics, we are 

not going to be able to judge. 

23

Mr. CARBAUGH. We will get those statistics for you. 

It is also important to note that it is a database of information, 

and one SAR that is filed will not necessarily result in an action, 

but looking at the database as a whole and linking different pieces 

of information together may present a very different picture, and 

that is important, too, I think. 

Mr. MCHENRY. Moving to Ms. Jaedicke, you are popular today. 

I think it is because of your name, so easy to say. 

Ms. JAEDICKE. Yes, sir, it is fun. 

Mr. MCHENRY. Yes. 

You mentioned the diversity in MSB’s—size and mom-and-pop 

versus Fortune 500. 

Ms. JAEDICKE. Yes. 

Mr. MCHENRY. How are the regulations affecting these—is it 

across the board? Is it affecting certain areas more than others? 

Ms. JAEDICKE. You mean in terms of the bank discontinuance 

issue? 

Mr. MCHENRY. Yes. 

Ms. JAEDICKE. Which types are losing accounts more frequently? 

Mr. MCHENRY. Yes. 

Ms. JAEDICKE. I do not know that I would have that information. 

Maybe Ms. Taylor would know better for the State of New York. 

Mr. MCHENRY. Ms. Taylor? 

Ms. TAYLOR. I think the best way to answer that is to say that 

everybody is complaining about the same issue. If a bank says that 

it is not doing business with money service businesses anymore, 

that includes the big ones and the small ones. 

I would say that you could ask the next panel that question, also, 

but it is our experience that it is pretty much across the board, I 

think. 

Mr. MCHENRY. Is there a certain type that would have a greater 

risk for money laundering? 

Ms. TAYLOR. Who are you asking? 

Mr. MCHENRY. You, Ms. Taylor. 

Ms. TAYLOR. Okay. 

Well, it depends on the business. There are a lot of different 

characteristics of— 

Mr. MCHENRY. That is what I am asking. 

What characteristics would say that there is a greater risk? 

Ms. TAYLOR. If money is being—large amounts of money are 

being transmitted overseas, large checks being cashed, if there— 

Mr. MCHENRY. What I mean is the type of business—mom-andpop versus a Fortune 500. 

Ms. TAYLOR. It is hard to say, because it depends on the compliance systems. 

If the compliance systems are in place to catch trends and transactions to lead people to go look at them, then that’s one thing. 

I think that any business, large or small, that does not have a 

good compliance system is a very high risk situation, no matter 

what kind of business it is conducting. 

Mr. MCHENRY. Ms. Jaedicke, would you like to comment? 

Ms. JAEDICKE. I would add to that that it sometimes can be more 

difficult—I am not saying they are inherently more risky—but it 

sometimes can be more difficult for the very small MSB’s, the 

24

mom-and-pop-type MSB’s, to have robust compliance programs. Of 

course, they do not need as robust a compliance program as does 

a big MSB, but it is sometimes difficult for them to find qualified 

people to help them design a program, and that can make a difference sometimes in bank discontinuance. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Ms. TAYLOR. Can I add to that? 

Mr. MCHENRY. Go right ahead. 

Ms. TAYLOR. Thank you. 

We had a situation recently where there was a newspaper article 

which was written about a city in western New York which complained that there were several—as in many—check cashers that 

were unlicensed, operating in the city, which were charging exorbitant rates to their customers. This is problematic on a couple of 

levels. 

One, they are charging their customers exorbitant rates, which 

is not good. 

Two, they were unlicensed, unregistered entities, and so, we need 

to know about those. 

A lot of these mom-and-pops do not even know that they have 

to be registered. 

So, the really small ones that are below everybody’s radar 

screen—you have to actually go out in the community and see them 

before you can find out what they are doing and whether or not 

they are registered and licensed. 

So, that is a very big problem, too, and those, I think, are very 

high risk. 

Chairman BACHUS. Thank you. 

Mr. Clay? 

Mr. CLAY. Thank you, Mr. Chairman, and I thank you for holding this hearing today, and I appreciate the panel’s participation. 

Many banks cite the risk associated with dealing with unlicensed 

MSB’s, and it is required that MSB’s register with the Treasury. 

The Patriot Act also prohibits anyone from knowingly operating 

or owning a money transmitting business without a license in a 

State that requires one or without registering the business with 

the U.S. Treasury. 

This question is for the entire panel. 

Why does it seem that all MSB’s are generally put into the same 

category of risk regardless of whether they are licensed or have a 

strong record of compliance? How do banks quantify and distinguish between the risk of unlicensed MSB’s and those that are licensed? 

We can start with you, Ms. Taylor. 

Ms. TAYLOR. One of the things that we have been very definite 

with our banks about is, if we find that they are doing business 

with unlicensed money service businesses, that is a very bad thing. 

The first question they should ask any money service business 

that comes to them for an account is whether or not they are licensed. 

Doing business with unlicensed money service businesses is not 

a good idea. 

Mr. CLAY. What happens when you find out they are not licensed? 

25

Ms. TAYLOR. We tell them, if they are not licensed, then we ask 

them to close the account, and we go to the money service business 

and tell them that they need a license in order to operate in this 

State, and if they do not get a license, you will be penalized. 

Mr. CLAY. Ms. Jaedicke. 

Ms. JAEDICKE. I would say that is a significant issue for the 

banks that we deal with, as well. One of the threshold questions 

for them when they’re opening an account for an MSB is, are you 

registered with FinCEN, are you properly licensed with the State? 

Sometimes MSB’s do not understand the licensing requirements, 

and the banks will, in some cases, try and help them to understand 

those requirements. 

They will print the licensing forms off of the Web site; they will 

explain to the MSB what they need to do. But, if the MSB then 

does not follow through, that leaves the bank with what they view 

as a rather serious situation, because the MSB is operating outside 

of the requirements of the law. 

Mr. CLAY. Then they are immediately stopped from doing business with the bank? 

Ms. JAEDICKE. Well, I would not say they are immediately 

stopped. I would say that banks will close accounts for MSB’s that 

have not gotten licensed and registered, once the bank has made 

the MSB aware of the requirement, if, indeed, they were simply 

unaware. 

Mr. CLAY. Thank you. 

Ms. Mayer? 

Ms. MAYER. Congressman, as you know, the IRS is charged with 

enforcing compliance with the BSA by MSB’s, and so, we do not 

have anything, really, to do with banks. 

However, whether or not MSB’s are registered is obviously an 

important issue for us, and at the moment, we are working with 

FinCEN, we have put a special emphasis on trying to find MSB’s 

that are not registered and have pushed out several thousand nonregistration cases into the field in order to find these MSB’s that 

are not registered and to get them registered, to bring them into 

compliance with the law. 

Part of what we do in our efforts is to educate businesses that 

we find through various sources and try to bring them into compliance with the law. 

Mr. CLAY. Any idea of how many MSB’s, percentage-wise, are not 

registered or that may be registered? 

Ms. MAYER. That is the $64,000 question. You know, there are 

estimates all over the place of how many MSB’s there really are. 

We know that there are 24,000 MSB’s that have actually registered. 

Mr. CLAY. I see. 

Okay. 

Thank you. 

Mr. Carbaugh, anything to add? 

Mr. CARBAUGH. I would just echo that licensing with the State, 

if required, and registration with FinCEN, if required, is one of the 

most basic requirements under our regulations for MSB compliance, and we have outlined that, actually, in our guidance to the 

banking industry, as well, and the guidance also details the steps 

26

that a banking organization should take when they do identify an 

institution that they believe is operating outside of the law, and 

therefore, in potential criminal violation under Title 18, and that 

is to file a suspicious activity report. We are looking at that information right now and providing data to the Internal Revenue Service for outreach and examination purposes. 

Mr. CLAY. Do you see any flaws in the current guidance for 

banks and the guidelines for the banks? Do you see any flaws? 

Mr. CARBAUGH. Well, I think the guidance is very detailed and 

lays out expectations, and it is important to note that we also, at 

the same time, issued a companion piece of guidance to the MSB 

industry indicating what they should expect whenever they open 

and maintain accounts at a banking organization. 

One of the things, as I mentioned before, that we are doing is 

the issuance of the advanced notice of proposed rulemaking to ascertain if there is anything else we can do in this area as far as 

guidance or changes to regulations. 

Mr. CLAY. Thank you. I thank the panel for their responses. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Mrs. Kelly? 

Mrs. KELLY. Thank you. 

Ms. Jaedicke, the OCC ombudsman program allows banks to 

complain about examination issues in a forum that is free from 

negative consequences, but MSB issues do not appear in the ombudsman’s summary of cases and published documents. How many 

cases have been raised with the ombudsman about the BSA and 

the MSB issue since last year, and what was their deposition? 

Ms. JAEDICKE. I do not actually know, Ms. Kelly, how many have 

been raised. To my knowledge, there have not been any, but I will 

be happy to check and find out. 

Mrs. KELLY. With the chairman’s permission, I would like to insert in the record—I have here the summary of the cases, and 

there is not one case on MSB that appears here that was brought 

up to the ombudsman by the banks. 

Chairman BACHUS. Without objection. 

Mrs. KELLY. Thank you. It seems to me that we can err on the 

side of getting too much information, and I really appreciate, Mr. 

Carbaugh, that you are looking to try to figure out what to do. 

It is a Catch-22, because we do not want people to go down under 

where we do not know what is going on financially. We need to see 

what is going on out there in order to protect America, but to do 

it right does require a very delicate hand in various ways. 

It appears that no banks have complained to the OCC about the 

regulatory problems with MSB’s, which may mean that they are 

simply refusing to take the MSB business, and this is a problem. 

I had one president of a major bank say to me that he was getting rid of all of the MSB’s. 

This is a New York bank, and he said that he was not going to 

do any MSB business, and he just simply canceled all their accounts. 

This is not helpful for them, it is not helpful for the bank, and 

it is not helpful for all of us as regulators, but what we need to 

do is not, I think, try to write a piece of regulation that is going 

27

to impose something again, before we understand how to do it 

properly. 

That is why I appreciate, Ms. Taylor, your being here and your 

talking about the fact that you are concerned about over-regulating. It would indicate to me, from your prior testimony to Ms. 

McCarthy, that you are going to recommend that the Governor of 

New York veto the bill that has passed the State Senate and the 

Assembly banking committee, because you think that it is a bad 

idea. 

Is there a way that you can put in place a better situation than 

you have now with regard to rating and supervising the MSB’s so 

that people will understand? 

I think part of our problem is that the general public—and especially people who do not use banking systems and need MSB’s—

need to have education that there can be a certification out there, 

and they can go—when they are getting their check cashed—and 

find a certificate posted on the wall. 

That may be all we actually need to see. 

I would be interested in the comments of you, Ms. Taylor, on 

that, and then I have one more issue I am going to try to pick up 

here. 

Ms. TAYLOR. Thank you, Mrs. Kelly, and that is really the crux 

of what we are trying to do in New York State to alleviate the situation, which is to educate people, especially in the money services 

businesses, to supervise, examine, and license them in a way that 

is very similar to how we license—or charter, supervise, and examine the banks. 

We have put into place a system called the FILMS system, which 

is unique to the money services businesses. 

They are different than banks. They are very short-term. It is 

not credit-based, so much. Liquidity is a big requirement. So, there 

are different characteristics that you look at in a money services 

business than you do in a bank. 

So, what we are doing is, in taking our money services businesses through the licensing process, which has been made much 

more stringent over recent years than it was before—so, it is a lot 

harder to get a license, and it means something when you have a 

license, and our examination procedures are much more rigorous 

than they were in the past. 

So, what we are hoping happens is that the banks become more 

comfortable with doing business with money services businesses licensed by us, knowing that they do—will have the compliance systems in place that are necessary, and I have to say, in addition to 

that, we have worked very hard with CSBS to take that system out 

to the other States in the country. 

We have a pilot program— 

Mrs. KELLY. I am going to run out of time here, but I do need 

to ask one more question of Ms. Jaedicke. 

It is about the Arab bank in New York. It was fined by the OCC 

and FinCEN for BSA violations. The Arab bank, in spite of paying 

a record fine, continues to insist that they were the victims of persecution and that they violated no U.S. laws. 

I would like to know when the OCC is going to release the summaries of their investigation. 

28

I think that investigation’s summaries show directly the threat 

that Arab Bank did pose to this country, and that we were justified, at the OCC, and FinCEN were justified in levying that fine. 

When are you going to release those records? 

Ms. JAEDICKE. That is a supervisory matter, and, to my knowledge, we do not intend to release the records. 

Mrs. KELLY. Okay. Thank you. 

Chairman BACHUS. Thank you. I would like to ask additional 

questions. Are there any other members that would like to do follow-up? All right. 

My first question—and I will just ask this to OCC or FinCEN or 

IRS or even Ms. Taylor. Do you know of any instances where an 

MSB itself was convicted of money laundering or terrorist financing? I am talking about the MSB itself. 

Any cases, Mr. Carbaugh? You all would maintain a database on 

that, wouldn’t you? 

Mr. CARBAUGH. Again, that would be law enforcement information, and I would have to defer to my law enforcement counterparts. 

I do not know if Eileen can speak on behalf of IRS criminal investigations. 

Chairman BACHUS. None that you know of. Is that right? 

Mr. CARBAUGH. Well, I think we can point to the SAR activity 

review. 

Chairman BACHUS. I am not talking about the SAR’s which they 

file on their customers. I am talking about the MSB itself. 

Mr. CARBAUGH. Right. I think we have some evidence in a publication that we have called the SAR Activity Review, in which law 

enforcement provides us information on cases that have been supported by the filings of suspicious activity reports, and I believe 

there are cases in there that relate to MSB’s. 

Chairman BACHUS. Are they licensed, registered MSB’s? 

Mr. CARBAUGH. It could be both. Again, I would have to get back 

to you. 

Chairman BACHUS. Could you get me that information? 

Mr. CARBAUGH. We can get you some information, yes. 

Chairman BACHUS. Okay. 

Now, as far as if their customers are engaged in money laundering, the indication of that would either be—I mean they would 

file SAR’s and you would have to review that information. 

So, it would be a good thing actually for them to go to MSB’s, 

because that is a regulated industry, and then you would get a 

SAR, right, as opposed to going underground. 

Mr. CARBAUGH. It is very important that they stay transparent 

to us, as I mentioned in my testimony. 

Chairman BACHUS. So, it is actually very important that these 

customers—even if the customers are engaged in money laundering—very important that they go through a regulated industry 

so that law enforcement can discover those activities. 

Mr. CARBAUGH. It would be important, also, for the MSB then to 

report that activity, pursuant to requirements. 

Chairman BACHUS. Now, do you know of any evidence or any 

cases when MSB’s were not reporting those transactions? 

29

Mr. CARBAUGH. I would defer to Ms. Mayer on that from an examination standpoint. 

Chairman BACHUS. Ms. Mayer? 

Ms. MAYER. Mr. Chairman, I do not know specifically, but I 

would be happy to ask our examination folks if we have any information that we can share with you and get back to you. 

Chairman BACHUS. You have the MSB itself, and you know, I 

have not heard that any of those are guilty—I have yet to hear any 

evidence or any testimony or anybody say, oh, yes, you know, there 

are—particularly licensed, registered MSB’s which are engaging in 

money laundering or terrorist financing, and then the customers of 

the MSB’s—as long as the MSB’s are filing the reports and the 

SAR’s they are supposed to file, I mean that is all you can ask 

them to do, I would think. 

Mr. CARBAUGH. They have to have an anti-money laundering 

program that is designed to detect— 

Chairman BACHUS. Right. 

Mr. CARBAUGH.—and report and have appropriate controls in 

place, correct. 

Chairman BACHUS. Would you supply me any cases where licensed, registered MSB’s did not do that, you know? 

Mr. CARBAUGH. Again, we will look at that, in cooperation with— 

Chairman BACHUS. I guess there are literally thousands of examples of MSB’s which have not been charged with any criminal activity or that have developed such programs, but despite that, the 

banks have discontinued their business with those MSB’s. You 

know of some of those, I suppose, don’t you? We hear reports every 

day. 

Mr. CARBAUGH. Again, on the discontinuance issue, you know, I 

have to defer comment until the advanced notice of proposed rulemaking is final, so that we can then assess the findings and comments and recommendations. 

Chairman BACHUS. You need to know some of this information 

I am asking you before you finalize the rule. I mean if you address 

the problem, you need to sort of be informed about what the problem is and the extent of the problem. 

Mr. CARBAUGH. Sure. 

Ms. JAEDICKE. Mr. Chairman, may I just add that there have 

been MSB cases subject to prosecution, and we can provide some 

of that information. 

Chairman BACHUS. Sure. 

Ms. JAEDICKE. I do not have it with me today. 

Chairman BACHUS. I just looked at the information that is available on the internet, and there are three of them; one was in 2003, 

one was in 2004, and one was in 2006, and they actually—and one 

case involved, really, misconduct by the bank, not the MSB, is my 

understanding, just from reading the account. So I know of three 

cases. 

I think this is, you know, Delta National Bank, Hudson United 

Bank, and Bank Atlantic. 

Ms. JAEDICKE. Yes. 

Chairman BACHUS. Not all of them actually involved the MSB. 

Sometimes it was a failure of the bank. 

30

My last question—are banks responsible for reviewing the MSB’s 

customers’ activities and to monitor the transactions conducted by 

the MSB’s customers? 

In other words, the banks—are they responsible for monitoring 

the MSB’s customers, and to what extent, and should they be, and 

are they capable of doing that? 

Ms. JAEDICKE. I would say no. Specifically, the banks are not responsible for monitoring the individual customers of MSB’s. That 

would be extraordinarily difficult to do, Mr. Chairman— 

Chairman BACHUS. Oh, I agree. 

Ms. JAEDICKE.—because some of the customers of MSB’s do not 

necessarily have an ongoing, long-term relationship with the MSB. 

Chairman BACHUS. Right. 

Ms. JAEDICKE. But what we do often see banks do is have some 

general understanding of the type of customer that the MSB does 

business with. 

Chairman BACHUS. Right. 

Ms. JAEDICKE. They do not know the individual customer, but 

they know that the MSB is servicing a particular customer base 

that sends wires to a particular country or that kind of thing. 

Chairman BACHUS. Sure. 

In certain cases, it ought to be our policy, I would think, to encourage the MSB’s to monitor those transmissions and to report 

them, but beyond that, you know, I am not sure that the MSB can 

even refuse—unless they have some grounds—refuse business. 

Ms. JAEDICKE. The MSB’s are required by regulation to have a 

BSA program that would include doing some of those types of 

things. 

Chairman BACHUS. Sure. 

So, it is my understanding that the answer to my question, 

though, is that the banks are not responsible for reviewing MSB 

customer activities, nor for monitoring in any way the transactions 

engaged in by MSB customers. 

Is that right? 

Ms. JAEDICKE. There is no overt obligation for them to do that. 

Where I think this becomes very confusing, though, sir, is when an 

MSB brings to the bank transactions that the MSB is facilitating 

on the part of a customer and the bank facilitates these transactions via a wire to somewhere else, then the bank becomes involved. 

Chairman BACHUS. Does there need to be some clarification as 

to exactly what the bank’s responsibility is, and as to whether any 

responsibilities extend to the MSB customers? 

Ms. TAYLOR. I would say part of the problem here is it’s very 

similar—and correct me if you think differently—to the correspondent banking problem. 

You know, how far do you have to go down into your customer’s 

customer, and what we really look at is patterns of activity. Is it 

something that is a pattern throughout, you know, a series of 

transactions and the bank does not pick that up, but we do. Then 

that becomes a little bit of a problem. 

We try and—and we look at all of the businesses, you know, with 

the same sort of criteria. 

Chairman BACHUS. Correspondent banks self-certify, right? 

31

Ms. JAEDICKE. Yes. 

Chairman BACHUS. Okay. I have no further questions. 

Ms. Maloney. 

Mrs. MALONEY. I would like to ask FinCEN—has FinCEN ever 

brought an enforcement action against an MSB? 

Mr. CARBAUGH. Yes, we have. As a matter of fact, we brought a 

civil enforcement action last month against one MSB, and I think 

since 1999, we have had seven MSB-related enforcement actions, 

including in 2003, an enforcement action with Western Union. 

Mrs. MALONEY. Well, this is becoming a tremendous problem in 

New York. Many banks are not providing any services, by their 

choice, and the two smaller banks that are now still doing business 

with MSB’s—there are rumors that they may be bought by larger 

banks that will not provide the service. 

So, this is a crisis in New York, and that is why you see the New 

York State assembly and Senate passing out a bill to maintain 

MSB support by banks, which the superintendent has raised some 

objections to, and others have raised objections to. 

So, my question is, if banks decide they do not want this business and it is a service that many people need—we want financial 

services. We want the underground economy to go into financial 

services. What would be your reaction to legislation that would 

allow money service businesses to open up accounts directly with 

the Federal Reserve Bank? Would there be any objection? What 

would be your response to a legislative action for money service 

businesses to open up accounts with the Federal Reserve? 

Mr. CARBAUGH. That is a policy issue that would really require 

some very senior-level input and coordination through various compartments of the Department of Treasury. 

I am really not in a position to make a statement on that issue. 

Mrs. MALONEY. I mean we have to have the service. So, if everybody is going to—we have to—what would your reaction be? 

Mr. MAYER. I have absolutely no knowledge or experience in 

that, so I cannot really answer your question. 

Mrs. MALONEY. OCC. 

Ms. JAEDICKE. I do not either, Congresswoman Maloney. 

Mrs. MALONEY. Ms. Taylor. 

Ms. TAYLOR. That is something for the Federal Reserve to take 

up. 

Mrs. MALONEY. What you have all said is that you are meeting, 

and that you are thinking about it. 

What action are you taking? What policy are you putting in 

place? 

Is there any comment from any of the panel—everybody is talking to everyone. You have been talking for years. There have been 

conferences. 

What action are you taking? 

Mr. CARBAUGH. Again, I think, as was mentioned in my testimony, FinCEN took the lead last year in pushing this issue forward, in holding the fact-finding meeting, and then working with 

our colleagues at the various Federal banking agencies to develop 

an issue—a policy statement on this issue. 

Mrs. MALONEY. Do you have the policy statement? 

32

Mr. CARBAUGH. The policy is that banks are not the de facto regulator of MSB’s, and subsequent to that, we issued very specific 

joint guidance on expectations for the banking industry, companion 

guidance to the— 

Mrs. MALONEY. Who is the regulator on MSB’s? FinCEN? 

Mr. CARBAUGH. At the Federal level, for compliance with the 

BSA, we have delegated examination authority to the Internal Revenue Service. 

Mrs. MALONEY. So, the Internal Revenue Service is the regulator 

of MSB’s. 

Another approach is, should we have a separate regulator for 

MSB’s? 

Is that an approach that might help? 

Mr. CARBAUGH. Again, that would be a policy-level decision, you 

know, of senior levels within the department, and certainly something for your consideration. 

Mrs. MALONEY. Any comment on—what specific action are you 

taking? 

Mr. MAYER. Well, at the IRS, we are actually delegated the examination authority to make sure that MSB’s are in compliance 

with BSA. So, what we are trying to do is to be out and to be picking the places that we examine in a risk-based way, based on the 

knowledge that we have from our databases and from what we 

get—leads from law enforcement, so that the banking industry can 

be assured that MSB’s are complying with the anti-money laundering regime, with the BSA, and so that they are not being used 

in a way that would in some way endanger their relationship with 

the bank. 

That is what we can add to this mix. 

Ms. JAEDICKE. I believe that we can try to do more to alleviate 

the uncertainty, if it exists, among national banks in terms of what 

their roles are vis a vis the MSB’s, and to try to alleviate the concerns they have with the regulators and how they view these accounts. 

Ms. TAYLOR. In New York State, we have instituted the FILMS 

rating system. 

We have upgraded our examination and licensing of these institutions. 

We will work toward trying to provide CRA credit to banks and 

other incentives for banks to do business with MSB’s. 

We actually have something in New York State called the Banking Development District Program, which creates incentives for 

banks to put branches in underserved areas, and we are working 

very hard, together with our Federal counterparts and the other 

States, through CSBS, to make more uniform the regulatory process and to educate the examiners and train examiners in these systems. 

Mrs. MALONEY. Thank you very much. 

Chairman BACHUS. Thank you. 

Ms. McCarthy. 

Mrs. MCCARTHY. Thank you, Mr. Chairman. 

I guess the question I have to ask is—the MSB’s—I mean, basically they are serving people that—of very small paychecks, and I 

would tend to think that if—certainly, all of us are concerned about 

33

national security and money laundering—that if anybody deposited 

or tried to, you know, send a large amount of money out of the 

country, I would have to think that would be very minute and a 

red flag would go up. 

I mean one of the problems that we have seen, especially in the 

underserved communities, is that banks do not want to go into 

those areas, for a number of reasons. Most of their customers are 

not going to open up a checking account or a savings account, because their weekly check is what they are living on, on a day-today basis. 

So, I am having a hard time understanding the problems that we 

are having with the MSB’s, because they are serving a community 

that the bankers do not—it would not be worth their effort to open 

up a bank in that area. They are serving a situation, and again, 

as far as the security goes, anyone that comes in and is going to 

be sending a large amount of money overseas, or tracking it, that 

is going to be a red flag. 

So, I am having a hard time understanding this whole problem 

that we are dealing with. 

Can someone clarify it? 

Ms. TAYLOR. Thank you. 

You are right. The majority of the transactions that take place 

are very small transactions. 

However, we have found situations at check cashers in New York 

State where checks for $400,000 are being cashed. We have to find 

this. 

These compliance systems have to be in place to find this. Nobody is going to tell us, you know, unless a SAR is filed. 

It has to be a licensed institution. 

So, there—these institutions are used for criminal purposes in 

some instances, and we need to have the systems in place to make 

sure that when that happens, we can find out about it and we can 

direct it to the appropriate authorities to look into what exactly is 

going on. 

Mrs. MCCARTHY. I would take it that those particular areas 

where they are looking at those kind of checks being—coming in, 

and obviously, we should be—they are probably not licensed. 

Ms. TAYLOR. Maybe, maybe not. We have several investigations 

underway right now, some licensed, some unlicensed. 

Mrs. MCCARTHY. Well, that is where you prosecute, but I would 

tend to think that would be not the norm on the majority of MSB’s 

serving the small communities. 

Ms. TAYLOR. One would hope. 

Mrs. MCCARTHY. Thank you. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you. 

I appreciate the panel’s testimony. I think it was very helpful to 

us. 

Oh, I am sorry, Mr. Baker. 

Mr. Baker is recognized. 

Mr. BAKER. Thank you, Mr. Chairman. I slipped in late, and just 

wanted to present a few observations for the record. 

I do not recall whose testimony that it was I read attributing 

these facts. It appears that there are about 40 million people who 

34

are unbanked, who have need of financial services. Individuals 

who, for example, may be in south Louisiana, who get a Social Security check and need to have that cashed for their daily activities. 

The trouble that I think has occurred is that, if that person is 

cashing and the money service entity is required to substantiate 

the activity, therefore report back to the bank and the bank take 

responsibility for that conduct, what we are missing is an appropriate nexus between the act of negotiation and the requirement to 

report, as opposed to someone who has, for example, a check from 

Casino Rouge in Baton Rouge for $128,000, who appears to be 

cashing these checks on a regular basis, who the money service organization may have reason to conclude that there is a reason for 

me to ask these questions, as opposed to the wholesale requirement 

creating the potential regulatory liability for the institution, the financial institution, who has no reason nor ability to conclude the 

difference between the 80-year-old cashing of the Social Security 

check and the 30-something cashing of the $100,000 casino check. 

Now, has there been—anybody can give me a study that shows 

there is statistical prevalence—are there regions of the country—

say, New Orleans—where we have aberrantly high criminal records 

relating to liquidity, or if we are going to get into Oklahoma, where 

we have maybe a aberrantly high number of retireds and they are 

cashing Social Security—has there been any kind of study to say 

this is why we are pulling the trigger on this gun, or is it just a 

systemic, let’s check everybody out and make sure nobody is sneaking by us that we do not know about? Could anybody comment on 

that, please? 

Mr. CARBAUGH. I would say that the system that we have in 

place with respect to the anti-money laundering requirements for 

the money services business is a risk-based system, and certainly, 

it is up to the money service business, under their obligations, to 

assess the risks of all of— 

Mr. BAKER. Let us back up just one second. From the money 

service business back to your level, what is it, or is there anything, 

that triggers this high level of responsibility based on data, analysis, formula? How do you determine it? 

In other words, in rural communities, where there is very little probability of somebody money laundering at a $100 level, as opposed to someone in an urban area who is money laundering at 

$100,000 per week, is there a difference between the two, or are 

the standards uniformly the same? 

Mr. CARBAUGH. The standard is a risk-based standard, and the 

reporting requirement for MSB’s is activity that is $2,000 and 

above. So, there is a threshold requirement for reporting suspicious 

activity. 

Mr. BAKER. So, if somebody sells a bass boat and deposits $2,200, 

they are in. 

Mr. CARBAUGH. If it is deemed suspicious. 

Mr. BAKER. How would one know? Is it the way they approach 

the check casher or their clothing? You are not going to tell me this 

is racial profiling, I hope. I mean you are telling me it is a riskbased model. Describe the risk. How is it imposed? 

Mr. BAKER. Again, it would be up to the institution to determine— 

35

Mr. BAKER. So, it is a risk-based model where the check casher 

has to determine what the risks are. 

Mr. CARBAUGH. Correct. 

Mr. BAKER. Can you understand why there would be resistance 

to that level of responsibility? It would be like me hiring a guy to 

paint my house. I do not tell him what color, but when it is done, 

I will tell him if I like it or not. 

That is an unacceptable regulatory standard. 

If we are going to apply sanctions in the market for inappropriate conduct, we have to describe what the inappropriate conduct 

looks like. You have not described it. We are saying that there is 

a risk associated with laundering money, but we are not telling the 

person at the gatekeeper level what it is they must look for. We 

are saying you describe the risk, you enforce it, and if you get it 

wrong, we will tell you about it later. 

Mr. CARBAUGH. We have provided some guidance and indicia of 

suspicious activity. 

Mr. BAKER. I am sorry to be picking on you, but you had the misfortune of answering me. 

The point is, from our side and policy side, if we are going to 

pass this criminal statute and we are going to say you go to jail 

because you do something, we have to be very specific, and then 

artful defense lawyers take us to task that we have not been specific enough, and therefore, the person gets off. 

In this case, we have generally described a conduct which we do 

not like, and we find unbecoming, but we have not really said what 

it is, and yet, there is a market consequence to a regulatory determination that this institution did not oversee the MSB with sufficient degree of professionalism, therefore there is a consequence, 

and a result, financial institutions withdraw from the market, and 

people who have that $800 Social Security check, or $2,200 Social 

Security check, are left without services. 

All we are saying is that there is a social consequence to this policy that is unacceptably high in light of an undefined, ill-defined, 

or improperly defined risk. 

Sure, we know there is money laundering, but it happens at videotape rental stores, where people come and pay for rentals, but 

they do not rent the movie. 

Hello? 

That is a real problem. Or people who pay for professional service for which there is no service. That is a whole lot different from 

a low-dollar—and $2,000 is an incredibly low standard. 

I think anybody in the money laundering business who is really 

in it is going to looking at a significantly higher cash-out number 

than $2,000. 

There are a lot of used trailers—and I am an expert on used 

trailers in Louisiana—and bass boats and a lot of other items that 

are sold customarily in the cash market for under $10,000 on a regular basis, and although the outside view may be different, most 

of them are legitimate and without question. 

I thank the chairman for his leniency on the time, and I yield 

back. 

Chairman BACHUS. Thank you, Chairman Baker. 

Ms. Carson, you are recognized. 

36

Ms. CARSON. Thank you very much, all of you distinguished and 

informed panelists, for being here today. I have two concerns. 

Number one, I read just yesterday that the overdraft fees that 

are collected by financial institutions far exceed the profit that you 

derive from any other investment. My concern is, do you want to 

continue to rely on that as the stabilizing asset, the overdraft fees 

that you collect from consumers— 

Chairman BACHUS. Ms. Carson, this is actually a hearing on the 

MSB’s. 

Ms. CARSON. Sorry about that. 

Chairman BACHUS. Okay. 

Ms. CARSON. I just thought I would catch them while they were 

here. 

I apologize, Mr. Chairman. 

Chairman BACHUS. Thank you. 

I am not sure that this panel handles those issues. I mean if you 

do, and you wish to respond to Ms. Carson’s statement, I am sure 

it would be helpful. 

Ms. CARSON. I will let you off the hook. I do not think you want 

to respond. 

Thank you very much. 

Chairman BACHUS. Thank you, Ms. Carson. I am not sure, in 

fairness to the panel, if they were prepared to answer. 

Ms. CARSON. Right. 

I have a visitor out here, and I will be right back, Mr. Chairman. 

Chairman BACHUS. Thank you. 

That concludes the testimony of this panel. 

In closing, I would like to ask unanimous consent that Congressman Rangel, a member of the Ways and Means Committee—in 

fact, the ranking member—be allowed to offer a written statement 

into the record. 

I also have a written statement submitted by Western Union Financial and an additional statement by Isaac Warsame that I 

would like unanimous consent to introduce into the record. 

This panel is discharged. Thank you for your attendance. 

At this time, we would welcome the second panel. 

Mr. Price is going to chair the second panel, and I have read the 

testimony of the second panel and commend them for their testimony. 

Mr. PRICE. [presiding] Good morning, almost afternoon. We appreciate your joining us today and your patience on our schedule. 

I also want to just mention that, although there may not be 

many members here, your statements and your input into this 

process is extremely important and greatly appreciated. 

The second panel we will have before our subcommittee today—

I want to welcome Mr. Philip Milne, president and CEO of 

MoneyGram International; Mr. Gerald Goldman, general counsel 

for Financial Service Centers of America; Mr. Wayne Abernathy, 

executive director for financial institutions, policy, and regulatory 

affairs for American Bankers Association; and Mr. David 

Landsman, executive director of the National Money Transmitters 

Association. 

I want to also say that, without objection, your written statements will be made a part of the record and that each of you will 

37

be recognized for a 5-minute summary of your testimony, and we 

thank you so much for joining us today, and with that, I recognize 

Mr. Milne. 

STATEMENT OF PHILIP W. MILNE, PRESIDENT AND CEO, 

MONEYGRAM INTERNATIONAL, INC. 

Mr. MILNE. Good morning, Mr. Chairman, and members of the 

committee. My name is Phil Milne and I am the president and 

CEO of MoneyGram International. I am very pleased to speak with 

you today about the bank discontinuance problem and anti-money 

laundering compliance by MSB’s. 

MoneyGram is a payment services company operating in 170 

countries through more than 92,000 agent locations. We are licensed by the States and comply with the Bank Secrecy and USA 

Patriot Acts. 

MoneyGram is also a member of the Money Services Round 

Table, along with American Express, Western Union, Comdata, 

Travelex, Sigue, and Ria. 

The bank account problem is not a stand-alone issue. It is tied 

to compliance and the challenges faced by MSB’s in complying with 

the Federal laws and the variety of interpretations of those laws 

by State banking departments that regulate MSB’s. 

We believe fixing the bank discontinuance problem will also improve overall compliance by MSB’s. 

We are dedicated to the fight against money laundering and terrorist financing, but we also need banking services and the Federal 

Government’s help to ensure continued access to banks. 

Initially, the bank account problem impacted mom-and-pop 

stores and check casher locations. 

However, 2 months ago, Bank of America informed MoneyGram 

that it would be terminating its long-term relationship with us. 

This was not just a simple deposit account but, rather, a global 

banking relationship that generated millions of dollars in fees annually for Bank of America. 

While Bank of America is only one of the many banks with which 

MoneyGram conducts business, its decision to terminate our account relationship was, and is, a serious issue. 

In the meantime, in order to help our agents, MoneyGram has 

been negotiating with banks to establish special accounts, and hiring armored cars to serve agents who have had bank accounts 

closed. These actions, however, increase MoneyGram’s cost. 

A key point that gets lost in the discussion regarding bank relationships and compliance requirements, is that all of these issues 

cost money, which, in turn, leads to higher fees for consumers. 

So, what is driving this exodus by the banks from MSB’s? We believe it is the banks’ fear of their own regulators. 

The guidance increased the problem because it raised bankers’ 

fears that they are responsible for policing the compliance programs of MSB accountholders. 

Now, I would like to offer the committee a few suggestions on 

how this issue might be solved, as well as how compliance by 

MSB’s might be improved. 

First, the existing guidance must be rescinded. New guidance 

must clarify that banks are not required to evaluate the quality of 

38

an MSB’s compliance program, nor are they expected to monitor 

the activities of MSBs’ customers. A draft of new guidance which 

embodies these concepts is attached to my testimony. 

Second, an incentive should be provided to banks to resume serving MSB’s, such as the Community Reinvestment Act credit. 

Other incentives might also be effective, but there must be something to entice banks to reestablish accounts for MSB’s. 

Third, consistent enforcement of the anti-money laundering laws 

as they apply to MSB’s is needed. Many States are interpreting the 

Federal money laundering laws in their own way, which has 

caused confusion and compliance challenges for MSB’s. 

MoneyGram urges Treasury and FinCEN to establish their preemptive authority to interpret and enforce the Bank Secrecy Act 

and related Federal laws. 

An important offshoot of this suggestion is the need to create a 

system that can provide a consistent regulatory framework for the 

MSB industry. 

MoneyGram is proposing an optional Federal licensing regime for 

MSB’s that would be available to entities that operate in multiple 

jurisdictions and would be mandatory for any entities that operate 

in States that do not license their activity. 

A Federal license would also help banks gain greater confidence 

in the regulatory oversight applied to MSB’s. 

Fourth, standards for MSB’s as to what constitutes an effective 

compliance program must be established. We understand FinCEN 

is working with the IRS on an exam manual, and we applaud this 

effort. The absence of standards has left the MSB industry with no 

clear direction on which measures to take in order to establish an 

effective compliance program. 

MoneyGram appreciates Congress holding a hearing on this important issue. 

We recognize that Congress cannot solve the problem by ordering 

banks to serve MSB’s, but we believe that, through its oversight 

and budget authority, Congress can compel Federal regulators to 

take appropriate action. MoneyGram requests that Congress continue to monitor the bank discontinuance problem and that Congress hold Federal regulators accountable for implementing a workable solution by years-end. 

In conclusion, I want to thank you, Mr. Chairman and members 

of the committee, for the honor of having the opportunity to 

present testimony on behalf of MoneyGram. We appreciate your 

concern with this issue, Mr. Chairman, and we hope you will view 

us as a partner in this effort and call upon us for whatever assistance we can provide. 

Thank you again. 

[The prepared statement of Mr. Milne can be found on page 114 

of the appendix.] 

Mr. PRICE. Thank you, Mr. Milne. We appreciate your testimony, 

and your full testimony, as I mentioned, will be made a part of the 

record. 

Mr. Goldman, general counsel for Financial Service Centers of 

America, we welcome you. 

39

STATEMENT OF GERALD GOLDMAN, GENERAL COUNSEL, 

FINANCIAL SERVICE CENTERS OF AMERICA 

Mr. GOLDMAN. Mr. Chairman and members of the committee, my 

name is Gerald Goldman. I serve as general counsel to FISCA, a 

national trade association of over 6,000 neighborhood financial 

service providers in the United States. 

We serve millions of people engaging in tens of millions of small 

financial transactions. 

As every business does, we rely on banks for our connection to 

the American financial system. For the past 6 years—this is not a 

new issue. For the past 6 years, banks have been abandoning us, 

first as a trickle and then continuously accelerating, so that now 

few banks are willing to service us, and when they go, that will be 

a disaster for the people we serve. 

Six years ago, in response to my questions, then-FinCEN-Director Sloan said that the bulk of MSB’s are law-abiding individuals, 

are providing legitimate services, and that, in his view, the MSB 

industry as a whole is no more a risk than any other business. 

He said that 6 years ago. 

Six years have passed. 

In the course of those 6 years, two FinCEN directors, the Secretary of the Treasury, the Comptroller of the Currency, and the 

ABA and many Members of Congress have all, on the record, acknowledged that our industry is a key component of a healthy financial sector and that it is very important that we have access to 

banking services. In fact, in 2004, in a letter to Congresswoman 

Maloney, which she mentioned, OCC Comptroller Hawke noted the 

important role that money service businesses play, and stated that, 

absent extraordinary circumstances, the OCC would not direct or 

encourage any national bank to refuse their accounts. Just 6 

months earlier, Comptroller Hawke, appearing before this very 

committee, stated that MSB’s should not be dropped by banks as 

a class, and should be treated on a case-by-case basis. 

All of these same public officials acknowledge that our industry 

has an exemplary record of Bank Secrecy Act compliance, and you 

heard today the flimsy aspects of a number of violations. 

In fact, former Director Sloan stated that our industry—and I am 

quoting him now—‘‘has set the standard for the financial services 

industry in the fight against money laundering, financial crimes, 

and terrorism,’’ and the record shows that there have been very few 

violations. 

Most of these public officials believe that bank discontinuance of 

our industry is just plain wrong. 

We all agree on that. 

In the past 12 months, there have been no less than three hearings—one in the Senate, one in the House, one by FinCEN itself—

documenting the bank discontinuance problem. To its credit, the 

ABA has courageously recognized this problem and supports a solution. 

In April 2005, we know that FinCEN issued its guidance, which 

has gotten nowhere. 

Despite all of these valiant efforts, despite all of these statements, results have been illusory and to no avail. Not one bank has 

40

reversed its termination policy. In fact, no banks are even here 

today—terminating banks. 

Banks continue to terminate check cashers. None of those banks, 

as I said, are here. 

For 6 years, we have had support by public officials, we have had 

no evidence of money laundering and no evidence that we discovered any terrorists, and yet bank discontinuance continues. 

We conclude—this is our conclusion, on behalf of the industry 

that I represent—all efforts at regulatory change have failed and 

will continue to fail and will not solve this problem. 

Regulation is not the answer. Its effort is hopelessly mired, and 

you saw it here in the last 2 hours, in a bureaucratic maze. We believe that it is time for legislative intervention before more real 

damage is done. 

It is time for either absolution or compulsion. It is time to absolve banks of an unreasonable burden upon them to monitor and 

regulate our industry. 

The only alternative to absolution is to compel the banks to treat 

us fairly, as they would any other business, and it is clear to me 

and to us that this compulsion alternative is politically less achievable. 

We believe that there will be wide support by banks and MSB’s 

for legislation which gives force to the policy of the MSB guidance 

that banks will not be held responsible for their customers’ compliance with Bank Secrecy Act or other regulations. 

To accomplish this, we are supporting a legislatively adopted 

self-certification program where MSB’s will certify that they are in 

compliance with all the requirements of anti-money laundering 

laws, with swift and strong penalties for false certification. 

We believe that our industry has taken and must continue to 

take responsibility for its own compliance obligations. Banks 

should not be called upon to become our regulators, and that is 

what has happened, no matter how you slice it. 

We also believe that any legislation should eliminate the OCC 

designation of our industry as being high-risk, which took us down 

this road in the first place. 

This would send a strong, clear message to the banks and other 

regulators that, by legislative action, we are going to turn a corner. 

Finally, we stand ready to work with members of this committee, 

the ABA, and other MSB’s on an urgent basis to craft the legislation proposed. 

We believe that if this is not done, we will be back here a year 

from now talking about the same problem or, even worse, talking 

about a bigger problem. 

So, let us go back to fighting money laundering. Let us not destroy a viable industry which serves hundreds of thousands of customers. 

The facts demand no less. 

Thank you. 

[The prepared statement of Mr. Goldman can be found on page 

82 of the appendix.] 

Mr. PRICE. Thank you so much, Mr. Goldman. I appreciate your 

passion. 

41

Mr. Abernathy, we welcome you today. Mr. Abernathy is executive director for financial institutions policy and regulatory affairs 

with the ABA. 

STATEMENT OF WAYNE A. ABERNATHY, EXECUTIVE DIRECTOR FOR FINANCIAL INSTITUTIONS POLICY AND REGULATORY AFFAIRS, AMERICAN BANKERS ASSOCIATION 

Mr. ABERNATHY. Thank you, Mr. Chairman, and members of the 

subcommittee. 

Our anti-money laundering program today increasingly focuses 

on the legal activities of law-abiding people rather than on detecting and deterring crime and stopping terrorists. 

Of course, this is not what we all intended, but it is the result 

that we have, and nowhere is this more evident than in its application to money service businesses. 

In many situations, banks have raised fees to cover added compliance costs. 

Some banks have discontinued accounts for MSB customers after 

a case-by-case analysis of their perceived money laundering regulatory risk. 

Other banks have concluded that serving MSB’s, in general, is 

not an attractive option, given the bank’s reputation risk or regulatory risk tolerance. 

The result has been unfortunate for all parties. Banks lose customers, customers lose access to banking services, and too many financial activities move off of the financial main street and into the 

shadows. 

It will take supervisory, regulatory, and perhaps even legislative 

change to redress this. 

Last year, FinCEN and the banking agencies took the important 

step of issuing interagency guidance and an interagency examination manual. 

Despite all the good intentions, the guidance and the manual 

have fallen short of their goals. 

More is needed to fulfill the policy pronouncement that ensured 

banks are, ‘‘not expected to act as the de facto regulators of the 

money services business industry,’’. 

It is increasingly evident that the IRS and the States have taken 

concrete steps to oversee compliance by MSB’s with the BSA and 

AML obligations. 

If any gap remains, it is not for the banks to fill but for State 

and Federal Governments to address by applying direct MSB supervision. 

The guidance in the manual should be amended to reflect and reinforce this reliance on the established Federal-State supervisory 

regime. 

Supervisory expectations that a bank consider whether an MSB 

operates consistent with its legal obligations should be satisfied by 

a questionnaire executed and certified to by the MSB, reciting its 

implementation of the components of an AML compliance program. 

Similar questionnaires, for example, have been developed and used 

by banks to ascertain the BSA compliance posture of foreign correspondent banks. 

42

Our members know the importance of providing all legitimate 

customers throughout all segments of society with banking services. 

An underlying challenge is that there exists in the United States 

and in all countries a large pool of individuals outside of the financial mainstream. These individuals are often accustomed to using 

informal—and sometimes very informal—financial services providers. Governmental actions that discourage people from entering 

banks also make anti-money laundering goals far more difficult to 

achieve. 

Therefore, it is the view of the ABA that the current MSB bank 

regulatory environment must change if we are to advance the goals 

of effectively serving all market segments, while reducing the risks 

of money laundering and terrorist financing. 

ABA urges that State regulators not criminalize the efforts of 

banks that, in good faith and with reasonable diligence, enable 

MSB’s to conduct business. Otherwise, the risks of unwarranted 

criminal litigation and unfounded injury to reputation will adversely impact a bank’s risk assessment for providing account services to MSB’s, and those services will likely diminish. 

ABA believes that consistency in implementing regulatory policy 

can be promoted by conducting joint industry and agency training. 

Placing bank staff, MSB agents, and examiners in the same room 

to hear the same explanations helps ensure a consistent message, 

consistently communicated, and most importantly, it reinforces the 

teamwork approach that is likely to prove most successful in cutting off the flow of funds for criminal activities. 

Neither banks, their customers, nor our BSA/AML efforts are 

served by driving a regulatory wedge between banks and legitimate 

MSB’s, pushing large segments of America’s economy into the 

shadows. 

The members of the ABA will continue our support for efforts to 

improve the regulatory process so that we can all focus more on 

stopping criminal activities and avoid efforts that too often target 

legitimate businesses and their customers. 

Mr. Chairman, we thank you and the members of this subcommittee for your leadership in this effort. 

[The prepared statement of Mr. Abernathy can be found on page 

61 of the appendix.] 

Mr. PRICE. Thank you very much, Mr. Abernathy. We appreciate 

your participation today and your entire testimony. 

Now, Mr. Landsman, executive director of the National Money 

Transmitters Association, we welcome you. 

STATEMENT OF DAVID LANDSMAN, EXECUTIVE DIRECTOR, 

THE NATIONAL MONEY TRANSMITTERS ASSOCIATION, INC. 

Mr. LANDSMAN. Thank you, Mr. Chairman. I am David 

Landsman, executive director of the National Money Transmitters 

Association. 

The NMTA was founded in 1999 to voice the concerns of Statelicensed remittance companies, or LRC’s, of the United States. 

Currently, we have 43 member companies, which collectively 

handle over $17 billion a year in migrant worker remittances. 

43

I would like to thank the subcommittee on behalf of our members 

for allowing me to appear before you today. I would also like to express our gratitude to Congressman Charles Rangel, who has consistently shown his concern for the negative impact these account 

closings are having on our customers and their families, on the 

many countries that depend on remittances for their survival, and 

on the effectiveness of our Nation’s anti-money laundering, or 

AML, strategy. 

No one knows the exact amount, but we estimate that outbound 

remittances from the United States total at least $60 billion annually. 

The approximately 620 American LRC’s that handle these remittances have never faced more peril than we do today. 

Banks are crucial to the operation of our business, and they are 

no longer willing to work with us, citing regulatory concerns. 

These regulatory concerns are well-founded, but not because of 

any real money laundering risk. Banks get into trouble for having 

us as customers because Federal banking regulators have incorrectly classified all money service businesses, or MSB’s, as high 

risk, and make no distinction within that stereotype between licensed and unlicensed remittance companies. 

Now, these attempts to protect the banking system from the risk 

LRC’s pose have backfired badly by threatening to destroy the best 

ally law enforcement has in the fight against money laundering. 

If financial institutions are the first line of defense in our Nation’s war against terrorist funding, then we LRC’s are the special 

forces. 

No sector of the financial industry has better compliance programs, a cleaner record, or is more essential to our Nation’s AML 

efforts than LRC’s. 

The average remittance we send is approximately $243, hardly 

a size conducive to money laundering. 

Although regulators say that they do not hold banks responsible 

for our supervision, that is exactly what is happening. 

Under such conditions, it does not make sense for any bank to 

keep us as a customer, no matter how profitable our accounts are 

for them. 

According to the New York State Banking Department’s own survey, 42 percent of New York LRC banking relationships hang by 

a thread and are concentrated at only two banks. 

If this situation is not remedied, and soon, then the ranks of 

LRC’s all across the country, not just New York, will be decimated. 

Unscrupulous, unlicensed operators will no doubt fill the void left 

by our departure. 

Regulators without legislative guidance have steadfastly refused 

to grant any sort of protection that would allow banks to rely on 

our State licenses. 

In order to solve this problem, we recommend the following 

steps. 

Number one, remove the onus of supervising us from the banks’ 

shoulders by law as soon as possible. 

This may be done by officially recognizing some or all State licenses, defining all measures a bank is expected to take when 

opening our accounts, and making those measures practicable. 

44

Banks would still have to verify our licenses and remain alert for 

red flags, as usual. 

The LRC may be required to sign a self-certification form similar 

to the one used in foreign correspondent banking relationships. 

Number two, start regulating LRC’s at the Federal level with a 

voluntary, non-preemptive Federal AML certification that would involve initial application and vetting, published rules and standards 

that must be followed to maintain certification, and regular examinations and reports. 

The current regulation of MSB’s we have at the Federal level is 

not good enough. Create an MSB supervision department at 

FinCEN, and end the unfortunate division of AML responsibilities 

that currently exist between FinCEN and the IRS. 

Let the MSB registration program gradually be replaced by 

something more meaningful that would give those firms that so desire a pathway to the credentials that it takes to get bank accounts. 

Regulate the agent population through licensees like us, rather 

than trying to herd over 200,000 retail locations, most of which are 

mom-and-pop shops. 

number three, our industry needs to take the first steps toward 

self-regulation. This would involve industry-driven training, standard setting, certification, and disciplinary procedures. While this is 

something that we ourselves need to do, government can help by 

encouraging LRC’s to join together. 

I thank the subcommittee once again for the opportunity to have 

our opinions heard. 

[The prepared statement of Mr. Landsman can be found on page 

105 of the appendix.] 

Mr. PRICE. Thank you so much, Mr. Landsman. We appreciate 

your testimony and that of each of you. I want to once again assure 

you that all staff and members have received your full testimony 

and that it will be included in the record. 

I would like to ask a few questions, just to try to shed a little 

light, because Mr. Goldman, your frustration and passion is clear, 

and it is shared by many folks. I think one of the things that is 

not understood by most folks is the consequence of having the 

banks go, and their service for MSB’s, to not you and not me but 

to the individual on the street, if you would not mind commenting 

a little bit about what those real-life consequences are, and maybe 

some others would like to comment, as well. 

Mr. GOLDMAN. I think it is pretty clear that the millions of people who use our services are the people who benefit from the fact 

that our services are serviced by banks. 

If we eliminate the bank from the process, we cannot perform the 

service, and if we cannot perform the service, I do not know where 

it is going to go, but it will go someplace, because the need for our 

service will be the same with or without the banks. 

Mr. PRICE. So, what does that mean to Mr. or Mrs. Smith on the 

street? 

They would pay more for the services that you all are currently 

providing? 

Mr. GOLDMAN. Well, Mr. and Mrs. Smith certainly, I believe, 

would pay more in an underground economy, unregulated, than it 

45

is now, and so, the people in those income groups, who now rely 

on us, are going to have an enhancement in the course of their receiving their financial services, and the banks are not—the banks 

are not going to pick up that service. 

They have rejected serving us to serve these people. They are not 

going to serve them. 

They have not up to now, and they are not going to serve them 

directly. 

Mr. PRICE. Mr. Abernathy? 

Mr. ABERNATHY. Although I would generally agree with that, I 

would differ with it a little bit. Banks are increasingly providing 

services to populations of all stripes and locations and financial situations, but it is very difficult to penetrate many particular population groups for cultural reasons and a host of other causes, all 

causes that we are trying to overcome. That is why that important 

role is played by money service businesses. 

It is painful to a banker to tell somebody no, we cannot provide 

services to you. We are in the business of providing services. 

What it means to a Mr. or Mrs. Smith, when they cannot have 

that access, is they are further alienated not only from financial 

services but from the mainstream of our society, in general, and I 

think that there are multiple consequences that come from that. 

Mr. PRICE. I think that we have done a poor job educating folks 

on that point. 

Mr. Milne, did you have a comment? 

Mr. MILNE. Yes. I think there are many consequences, Mr. 

Chairman. 

I think one is access. As our agents are shut down, it limits the 

access points for consumers for these valuable products and services. 

Two, I think, as was brought out in the panel this morning, we 

provide very valuable information to law enforcement in terms of 

anti-money laundering and law enforcement activities, and once 

again, those activities will get pushed underground as access is 

limited for those consumers, and then, finally, as I pointed out in 

my testimony, as we scramble to get the agents that provide our 

products and services to consumers bank accounts, we are ending 

up hiring armored cars, setting up bank accounts for them, and we 

have been really working hard to drive the pricing down for things 

like wire transfers, and this is going to increase our costs. 

Mr. PRICE. Mr. Landsman? 

Mr. LANDSMAN. Yes. One of our members is a company called 

Dahabshil, and the subcommittee has his testimony, Mr. Isaac 

Warsame. Around the time that he was getting his major bank account notification of closure, 2 weeks ago, the Islamic fundamentalists were taking over Mogadishu, and they are the largest transmitter to Somalia. 

I think that is pretty clear. 

So, the consequences to the consumer, of course, will be understandable. 

They will pay higher prices. 

They will have to give cash to friends and relatives who are traveling there. 

46

It will take longer, it will be less convenient for them, but the 

consequences to national security are tremendous. 

Dahabshil has an excellent compliance program. They take ID, 

they make reports, and they keep records, and most of their wire 

transfers are incredibly small, they are like $25, but if they do not 

survive, then all of this money will be going to a very dangerous 

place in the world with absolutely no control on this end. 

Mr. PRICE. Given those comments and given the fact that I think 

it is readily apparent and certainly all would agree that no one desired to make the banks a de facto regulator of the MSB’s, and not 

meaning to put you on the spot, but given the 5- to 6-year history 

of this recognition, clearly, by all involved, why do you think that 

no change has occurred in a positive direction? I will let anybody 

fall on that sword who wants to. 

Mr. GOLDMAN. First, it took a few years for these regulators to 

really recognize and acknowledge the extent of the issue. 

So, we will give them the first 3 years, and the last 3 years, I 

think there is some inherent bureaucratic inertia, and you know—

very interesting—I would like to make two observations. 

One is that we have not heard from the banks that have terminated. 

You know, we have never really talked to the—and I think there 

is a wealth of knowledge that we could get from the banks that 

have terminated, and I suspect that they would agree that there 

is no clarity. They are being asked to be the regulators. 

You will get all the war stories, and I think it is that there is 

no czar here. 

There is nobody who is prepared or willing in the regulatory system to take the bull by the horns and say—I would say Mr. Fox, 

with all due respect, did really take the bull by the horns. I think, 

unfortunately, he left for a bank, but the reality is that he started 

to take the bull by the horns, and even he, himself, if you were to 

talk to him in the quiet of his office, recognized his own limitations. 

I mean all you have to do is re-read the testimony, and I’m not 

here to criticize the regulators, okay, but you reread the testimony 

of the regulators, and you know, they do not have all the answers, 

they do not have any direction, they all have pieces of the action, 

you know, but nobody has—nobody has taken it by the horns, and 

that is why I have said that I really believe, genuinely, that it has 

come time for the legislative body to make a statement, a legislative body to pass legislation and say, you know, no more blanket 

high risk and no more banks being asked to regulate the industry, 

and until that happens, we are having a lot of meetings, we are 

having a lot of conferences, we are having a lot of hearings, but 

nothing is happening. 

The other thing I did want to say, to correct the record with Mr. 

Abernathy, is that he is correct. I mean the banks are making an 

effort in their own way to service non-bank customers. 

The reality, I think, is that that is a long-term process, but the 

answer to your question, I think all you have to do is reread the 

testimony of the regulators today, and you have to ask yourself a 

lot of questions. 

47

They are proving the point that somebody has to take the bull 

by the horns, and as far as we can see, the real candidates for 

doing that are the legislators. 

Mr. PRICE. My time has expired, but if anybody else has a comment about that— 

Mr. ABERNATHY. Just briefly, Mr. Chairman, I think that there 

has been a lot of progress, but it has been insufficient. 

You can heat water up, but until it gets to 212 degrees, it does 

not boil, and the progress has been sort of one step forward, one 

step back. 

We did get guidance. 

The guidance did not quite do it. It is better than it was before. 

It said some good things, but while saying some good things, it 

also created some ambiguities. When you give the ambiguity to an 

examiner without clear guidance, then the banks are left in the 

lurch, and that is a real problem that we have. 

The way the law is written, there is a position of leadership, and 

that is at FinCEN. 

It is interesting, the way the BSA is written, the Treasury Secretary, FinCEN—they have the responsibility for administering 

BSA. It is delegated from there to the bank regulators, but the policy maker is at FinCEN. 

While Mr. Fox was there, I think a lot of progress was being 

made. 

We would like to see that kind of progress continue, and then 

maybe we can get the water to boil and get something done. 

Mr. PRICE. Let me recognize Ms. Maloney for a round of questions. 

Mrs. MALONEY. I would like to thank everyone for their testimony, and I would like to ask, what steps do you take to ensure 

that the members of your association or agents who are part of 

your network are reputable, and what kind of screening do you perform? 

Mr. GOLDMAN. Well, first of all, we provide manuals which have 

gotten the respect and support of FinCEN. 

We were the first industry to provide manuals about responsibilities. 

We provide training programs. 

We have numerous meetings with members of our association. 

I think that, without question, anti-money laundering—the imposition of anti-money laundering compliance is—it is not—it is our 

second most important priority. It is only second to the issue of 

bank discontinuance, and we are participants with FinCEN in 

DSAG, starting back when Peter DeGinis was there. 

We worked from the beginning—we have worked for 15 years to 

be compliant, and I think that the proof is in the pudding. 

When you get the results that you asked from FinCEN, you are 

going to find that there is little, if any, noncompliance, other than 

technical noncompliance, with Bank Secrecy Act laws. So, you 

know, we are kind of beating a dead horse here. 

I mean the point of the matter is that we have not—notwithstanding what Mr. Abernathy said, with all due respect, we have 

not made progress. Not one bank has come back. 

48

Not one bank that terminated us in the last 6 years has seen fit 

to come back, and not—and in fact, more banks are terminating us, 

and what I am saying is that you reach a point where you say 

something dramatic has to be done, and what we are suggesting is 

that it may be time for Congress to make a statement, because as 

I said, Madam Maloney, when you were not here for the moment, 

that my fear is that we are going to be back here next year listening and saying the same things that we said this year, and we said 

if you look back at the testimony in prior Congressional hearings 

on this issue, you will see the same things were said then. 

So, we are kind of—we have to accept the fact that we bogged 

down and mired down. 

Without placing responsibility on anybody—I am not even placing responsibility on a particular regulator. I am saying the regulatory process is not working, and I think it needs some direction, 

and I said in my oral testimony, I think two areas that we have 

to—I noted two areas that I think we have to deal with. 

Mr. MILNE. Mrs. Maloney, maybe I could just touch on that question, as well. 

At MoneyGram, we really take compliance and anti-money laundering very seriously, and really consider ourselves a partner with 

FinCEN and Treasury and the IRS in combatting that. 

We start from the basic level of know your agent. We do background checks on all the agents that our services are provided 

through, run them through the OFAC list, look at criminal records. 

We provide them with anti-money laundering training and compliance materials, help them set up their program, always go back 

and review that training with them at a later date, and of course, 

we run all the transactions through our computer system, looking 

for suspicious activity and any types of patterns. 

So, we have a comprehensive compliance and anti-money laundering program, not only because we have to, but because it is the 

right thing to do. 

Mrs. MALONEY. Well, as I testified and said earlier, in New York 

City, we have roughly 150 money services businesses in over 750 

locations. 

They employ 4,000 New Yorkers and serve many thousands each 

day, and with this discontinuance, it is causing a huge problem. 

You heard the superintendent of banks speak forcefully against 

the New York State legislature’s action to force the banks to do 

this business, and the banks have repeatedly said that they do not 

want to be the regulator; they are not a regulator. 

I would like to ask each member of the panel, what do you think 

of the proposal that I put forward earlier that if the banks are not 

providing this service, then have the—let us legislate and have the 

Federal Reserve serve as a bank to this financial service industry, 

the MSB’s, and starting with you, Mr. Goldman, what is your response to that proposal? 

Mr. GOLDMAN. I wish I had one. 

I am not familiar enough with how that would work and whether 

it would or not. 

Mrs. MALONEY. They would serve as a bank, and you would be 

able to use, you know—they would be the bank to the MSB’s. 

49

Mr. GOLDMAN. I am not sure whether they could do that on a 

local basis. I am not clear on whether— 

Mrs. MALONEY. With legislation, they could. They cannot now. If 

we pass legislation that said, since there is no banking services for 

the MSB’s and they are providing services that are needed by thousands of people, that as a last resort, MSB’s can bank through the 

Federal Reserve. 

Mr. GOLDMAN. Well, as I said, if they could serve as the check 

cashers’ bank, at least on its surface, it appears to me that we 

would have no objection. At least we know we would have one 

bank. 

Mrs. MALONEY. Mr. Milne, do you have a comment? 

Mr. MILNE. I am not an expert on what level of service the Federal Reserve could provide on a local level for the depository requirements that these smaller MSB’s have, although I do agree 

with you that Federal preemption, I think, is a necessary part of 

this, and whether it is the Federal Reserve or it is FinCEN, somebody who has oversight on MSB’s at a Federal level, an optional—

maybe charter at a Federal level—I think would bring a lot of 

credibility to the industry, and I think would help on an interpretation, a consistent interpretation of AML and compliance laws 

across the country. 

So, I think, you know, preemption at a Federal level from a regulatory standpoint would be a huge step forward. 

Mrs. MALONEY. Mr. Abernathy? 

Mr. PRICE. The gentlelady’s time has expired, but you are welcome to continue. 

Mr. ABERNATHY. Certainly, Mrs. Maloney, this would be with the 

benefit of only having the chance to think about it since you presented the question and not having given it long-term thought. I 

would wonder whether such a proposal would change fundamentally the nature of the Federal Reserve, which right now serves as 

a backstop to the retail financial system. To then put them into 

that posture might move them into the retail sector of the economy, 

and I am not sure that that is where we want the Federal Reserve 

to be. 

Mrs. MALONEY. If the retail banks in our country refuse to provide this service—and we are a country that believes in free enterprise, we believe it has made this country great. 

The superintendent of banks raised constitutional questions of 

requiring them—the banks are saying it is unfair, that they are not 

regulators, they are providing services. 

If this service is not provided anywhere else and it is a service 

that benefits people—you know what I find unusual about this—

and I want to share this with the chairman. 

We constantly have meetings, in this committee and others, 

about how we provide services to needy neighborhoods. 

Here we have MSB’s—they are in all neighborhoods, but in certain neighborhoods in New York, they are the only financial services there. 

So, sometimes there are proposals—let us create a Federal bank 

or a State bank that will go in and provide these services, and yet, 

that would be great expense, great overhead, and yet, a service 

that is there is essentially being cut off to many people, and we 

50

need to have some answer that respects free enterprise, respects 

the fundamentals of this country, but the fact that the New York 

State legislature and the New York State Assembly and Senate are 

passing bills requiring banks to do business in certain areas—this 

shows the crisis level that it has reached in New York State. 

There are rumors that the two smaller banks may be bought by 

bigger banks that will not provide the service. Therefore, this 

whole service, reaching hundreds of thousands of New Yorkers, 

would not be there. Then, if that was cut off, immediately there 

would be a crisis meeting in this committee, how do we get the 

banking services and check cashing services into the communities. 

You know, so we have to think creatively of how we can work 

in the free enterprise system and our constitution to provide these 

services, and if the Federal Reserve is the backstop, maybe they 

need to be the backstop to this. 

Maybe they need to create a place where we can have this transaction take place so that the service continued to help hundreds of 

thousands of people. 

So, that is where the thought came from, because there are a lot 

of problems here, but everyone agrees that the service should continue, and maybe if you put the bill forward, maybe FinCEN and 

OCC would come out with some regulations that clarify where we 

should go. 

Could we hear Mr. Landsman’s— 

Mr. PRICE. That is what I was about to say. I appreciate you 

sharing that with me and the committee, and if Mr. Landsman 

would comment, please. 

Mr. LANDSMAN. The NMTA is the primary sponsor of the bill you 

are referring to, and I agree with you, it is a desperation measure. 

We are concerned that it not be interpreted as a coercive measure against the banks. Rather, we are trying to find some way to 

give them the safe harbor, the protection that they can feel comfortable banking with us without having people point fingers at 

them. 

In fact, your suggestion was used by the Government of Dubai, 

I understand, when they had similar problems because of severe 

money laundering concerns. The banks were closing the accounts 

of money exchangers there, but the money exchangers were incredibly important money transmitters, because of all their migrant 

labor that comes from south Asia, mostly. 

So, the central bank did step in there, but Dubai is a very small 

country. 

The thing that we need the banks for very much is to get small 

deposits from the agent location into the branches of the major 

banks that are right next door. 

So, if an agent of ours has 1,000 or 2,000 dollars that he has collected from the public, he can walk right next door and deposit it 

to our account. 

That is the fastest, cheapest, and safest way for us to run our 

business. 

Other than that, we have to send an armored car, and it just 

does not pay, because the money that it costs for an armored car 

service and the additional delay is practically all the money we 

ever make on it. 

51

Mr. PRICE. Thank you for that. The gentlelady’s time has expired. I appreciate your participation. 

I want to thank each of the panel members again for your participation and your testimony. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing, and 

without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record, and with that, this hearing is 

adjourned. 

[Whereupon, at 12:43 p.m., the subcommittee was adjourned.] 

(53)

A P P E N D I X

June 21, 2006

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