WASHINGTON — After years out of the spotlight due to the financial crisis, anti-money-laundering issues returned to Capitol Hill on Wednesday as lawmakers raised renewed concerns about the supervision of money-services businesses.
A House Financial Services subcommittee held a hearing on a bill by Rep. Spencer Bachus, the lead panel Republican, which would create an office within the Treasury to monitor Bank Secrecy Act compliance of MSBs.
If enacted, the bill could benefit banks by reducing pressure on them to police money-services businesses, who are often clients, for anti-laundering violations and ensuring such firms face a more even regulatory playing field.
Though lawmakers agreed that the existing regulatory structure falls short, it was unclear how much support Bachus could garner.
"The bill would lead to uniform registration and supervision of MSBs without creating a big new federal bureaucracy and without preempting state safety-and-soundness and consumer laws," Bachus said. The bill "is a good solution to make thorough, uniform and effective national registration and compliance for money-services businesses a reality."
The bill joins a series of House measures that have tried to address the problem of banks severing relationships with MSBs since regulators warned of their risks in regulatory guidance in 2005. Despite each House action, the Senate has failed to follow up on the MSB issue and it is unclear if that will change anytime soon.
During the hearing of the subcommittee on financial institutions, witnesses from money-services businesses argued that the bill would not accomplish much.
The bill "does not create uniform standards for safety and soundness, leaving Western Union to continue to navigate the current maze of state requirements, which can be conflicting," said Joe Cachey, Western Union Co.'s chief compliance officer "Rather than being preemptive and providing uniform standards for companies, HR 4331 preserves state laws and state enforcement powers, leaving in place the current regulatory chaos, and layers on top of it a new federal regime which could potentially be in conflict with our state regulation."
Under current laws MSBs must comply with BSA and other anti-laundering statutes, including registering with the Internal Revenue Service. Both the IRS and Financial Crimes Enforcement Network have enforcement authority over MSBs, and 48 states regulate the businesses through licensing laws.
Though estimates of MSBs exceed 200,000, only 40,831 are registered, according to Fincen. Most of those companies are not examined regularly for anti-laundering compliance.
As a result, banks remain wary of doing businesses with MSBs for fear of increased regulatory scrutiny and the chance of anti-laundering violations.
"This decentralized system coupled with frankly the sheer number of the MSBs that are in the economy today does raise questions about their anti-money-laundering supervision," said Rep. Jeb Hensarling, the lead subcommittee Republican.
The Bachus bill would establish within the Treasury an Office of Money Services Business Compliance, which would require MSBs to register annually and ensure compliance with BSA record keeping. The bill is co-sponsored by Reps. Luis Gutierrez, D-Ill., and Patrick Tiberi, R-Ohio.
All three MSB witnesses said no more regulation is necessary.
But Deborah Thoren-Peden, a lawyer at Pillsbury Winthrop Shaw Pittman LLP, said that instead of a new regulatory body, Congress should protect banks that want to do businesses with well-known MSBs.
"I truly believe there needs to be some safe harbor enacted for banks," she said.
Lawmakers agreed that banking services for MSBs continues to be a problem, and said they are concerned that most of the businesses are not registered with the IRS or Fincen.
"MSBs operate in this country without the proper compliance and registration where appropriate," said Rep. David Scott, D-Ga.
Several lawmakers concurred more should be done.
"You say MSBs already are sufficiently regulated. … In terms of effectiveness the current regulatory structure overseeing MSBs could be improved," said Rep. Ed Royce, R-Calif. "The IRS cannot do sufficient compliance."
Rep. Carolyn Maloney, D-N.Y., used the hearing to push for her bill that would allow MSBs to self-certify BSA compliance to ease bankers' concerns about serving such companies. The bill has previously passed the House but saw no action in the Senate. Maloney reintroduced her bill last June.
"The bill, the Money Services Business Act, addresses the critical problem of money-services businesses being denied access to the banking system, and without a relationship, MSBs are unable to provide financial services to communities," Maloney said. "Federal regulatory agencies, recognizing the problem facing MSBs, have sought to address this issue through regulatory guidance and regulatory changes with very little effect. If this issue is left unaddressed, the viability of MSBs will be compromised, potentially pushing many of these transactions underground and potentially untraceable to law enforcement."
Thoren-Peden said the measure would be "very helpful."
While many bankers have said that measure does not go far enough, Cachey said it would be helpful to smaller MSBs.
"Self-certification is probably the easiest way for more smaller MSB institutions to address the banking problem," he said.
Rep. Al Green, D-Texas, gave the MSBs a tongue-lashing for not embracing more regulation and said they should be working to get banks more comfortable with serving them.
"Given that we have the banks that are concerned, we have those that are not registered, my question for you is how would you stand on the premise that we don't need additional regulation given this circumstance that exists with banking institutions?" Green said. "My guess is you may not like the regulation that is being proposed. You may think this is not a panacea, but surely, given the circumstances, something has to be done, because we have legitimate business enterprises known as banks who are not engaging in the process, others considering discontinuance as it relates to this."
Witnesses argued that the regulations should just be applied uniformly and current regulations should simply be enforced, but Green disagreed.
"If the regulations that are on the books have not kicked up as many persons who are registered, how can you contend that that's sufficient regulation?" Green said. "You've got more people … unregistered than registered. How do you contend that is effective regulation? … The members are trying to do something about the problem. You may not concur with what is being proposed; you have to admit it's time to act."
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