Referenced in our Newsletter Volume 2, Issue 10 - October 2003

Compliance Analysis Link Chart

This month's Link Chart focuses on exposing the compliance of agents within a money service business. Instead of looking for individuals involved in money laundering activities, the spotlight is on the agents involved with conducting the actual transactions.

According to the U.S. Department of Treasury, a Money Service Business (MSB) is defined as a money transmitter or issuer, or seller or redeemer of money orders or traveler's checks, which also includes the U.S. Postal Service. MSBs are required to report suspicious activity within 30 days by filing the SAR-MSB Form when a transaction (or series of transactions) appears suspicious and exceeds $2,000. The SAR-MSB can be found at the following URL: http://www.fincen.gov/f902256.pdf

According to the Government*, a suspicious transaction:

1. Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity; or is

2. Designed to evade the requirements of the Bank Secrecy Act, whether through structuring or other means; or,

3. Serves no business or apparent lawful purpose, and the reporting business knows of no reasonable explanation for the transaction after examining all available facts

The basic business process of MSBs is to transfer money within a network of authorized agents. There is always a sender and a receiver of the money and reviewing the flow of money between the actual participants (e.g., the SUBJECTS) in the network is the basis for performing money laundering investigations. However, it is also a duty of the MSB to monitor the individual agents to ensure they remain compliant with their reporting requirements and are not trying to circumvent any controls within the system.

Recently, a review was conducted to look at the filing patterns among the agents within an MSB. Often, there will be very dominating agents (e.g., high-volume) that send to a select set of other agents in what appears to be a flow-down (i.e., money being sent or received in only one direction). Initial analytical results show that in larger networks containing complex cross-references where multiple agents send/receive with one another, a tree-like structure appears for the largest networks.

The following diagram represents the transfer of funds between different money remitter businesses (shown as ORG icons) within a geographical region that has at least 5 or more connections.
Notice that the root node for each tree-structure controls the flow-out among the rest of the agents. What is particularly interesting is that the sub-structures tend to reach out at least 3-4 levels and, in some cases, 6 levels. The money "trail" for these structures can be quite complex when tracing money through the network. Thicker lines indicate more money transfers between the respective agents.

Additionally, tests are being run to determine other "compliance" factors with respect to collecting certain types of information on the SAR-MSB by the individual agents. An agent found not complying with the law or BSA filing requirements can have their license revoked and be prohibited from conducting transactions (i.e., removed from the network). The concentration of resources on determining compliancy for the Patriot Act filing requirements is quickly expected to become a mainstream form of analytics with serious consequences for non-compliance.

* http://www.irs.gov/businesses/small/article/0,,id=104315,00.html