The Anti-Money Laundering Act and Illegal Money Service Businesses

Anti-Money Laundering (AML) refers to the laws and regulations design to prevent criminals from disguising illegally obtained funds as legitimate income.

It serves as a deterrent to the illicit flow of funds and ensures the transparency of financial transactions. Certain laws, such as the Anti-Money Laundering Act (AMLA), aim to prevent financial crimes by imposing regulations on various financial institutions, including Money Service Businesses (MSBs).

An MSB, in essence, operates as a mediator in financial transactions but isn’t a bank. The term “money services business” includes any entity doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following entities:

• Currency dealer or exchanger
• Check casher
• Issuer of traveler’s checks, money orders or stored value
• Seller or redeemer of traveler’s checks, money orders or stored value
• Money transmitter
• U.S. Postal Service

An illegal Money Service Business operates without the necessary licenses or following required legal protocols. These entities often avoid regulatory scrutiny, making them hotbed for illicit activities, such as money laundering. Given that they operate without much oversight, criminals can carry out transactions without proper documentation or reporting, putting both individual customers and the broader financial system at risk.

In other words, through MSB’s, criminals find it easier to introduce illegal cash into the financial system, and make it appear legal. By avoiding mandatory transaction reporting, such as Suspicious Activity Report (SARS). These unregistered businesses facilitate a major step in the money laundering process: layering, which involves separating dirty money from its source by creating complex layers of financial transactions designed to confuse and obscure the paper trail.

Examples of Illegal Money Service Businesses

There are various forms of illegal MSBs operating across the globe. Some of them include:

• Unregistered Foreign Exchange Services: shops or individuals offering to exchange currency without the necessary permissions.
• Digital Currency Exchanges without License: with the rise of cryptocurrencies, many digital platforms offer exchange services without obtaining proper licenses.
• Shell Companies: businesses that exist only on paper and have no office or employees, often created to move money without detection. Note: not all shell companies are illegal.

Mindful of the role that individuals can play in exposing illicit financial activities, U.S. The Department of the Treasury (USDT) has implemented the AML Whistleblower Program, which is enforced by FinCEN, a bureau within the USDT.

Under this initiative, individuals who provide original information about violations of AML laws, leading to a successful enforcement action, may be eligible to receive a reward of between 10 and 30 percent of the financial sanctions levied against a violator. This not only incentivizes the reporting of suspicious activities but also empowers individuals to act against financial fraud.

For those looking to blow the whistle on illegal MSBs, the following steps can be considered:

• Documentation: those deciding to blow the whistle should gather all relevant information and evidence related to the suspected illegal MSB. This can include transaction records, communications, or any other pertinent information.
• Contact an Attorney: before making any reports, it’s imperative that whistleblowers consult with an AML attorney familiar with AML laws. These attorneys can guide you on the best course of action and ensure your rights are protected.
• Anonymous Reporting: many jurisdictions allow for anonymous reporting, which can protect the whistleblower’s identity. Whistleblowers must ensure they understand the mechanisms in place for this.
• Submit the Report: typically, reports can be made to the country’s financial regulatory body. In the United States, this is The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
• Protection from Retaliation: Most AML whistleblower programs offer protection against retaliation from employers. Familiarize yourself with these rights, as retaliation may occur when blowing the whistle.

While the challenge of illegal MSBs is persistent and widespread, empowered individuals, backed by robust AML laws, can play a critical role in combating this menace. By understanding the landscape, knowing what to look for, and taking action, whistleblowers can indeed make a significant impact in the fight against money laundering and financial crimes.

Our team, working pro bono with the National Whistleblower Center and Whistleblower Network News, led a successful grassroots campaign that pushed for the passage of the Anti-Money Laundering Improvement Act. If you’re considering blowing the whistle on an illegal Money Service Business, get in touch with one of our attorneys today for a free confidential case evaluation.