Banking Issues Continue While Surety Bond Underwriters Embrace MSBs

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Authored by: Brian Nelson, Bond Manager at Alpha Surety Brokerage

Why are MSBs are locked out of the traditional banking sector while at the same time surety bonds are becoming cheaper and underwriting requirements continue to loosen? I know I’m oversimplifying this a bit, but surety bond underwriters understand that claims on MSB bonds are typically caused by a breach in compliance. Naturally, banks understand the same. However, as banks continue to close MSB accounts, surety underwriters are issuing approvals on lower underwriting requirements and at premiums that have previously been reserved for only the top revenue companies. It used to be that new money transmitters, check cashers and prepaid access companies would pay at least 3% for their bonds if they could even qualify based on verification of substantial personal assets or substantial cash in the business bank account. Things have changed. Recently, a company with neither a large amount of cash in the bank or a strong personal financial statement for the owner, received an approval for 1.5% on a multi-million dollar aggregate bond need. According to the underwriters, the reason for the low quote was because competition for these types of bonds has increased significantly. (For a state-by-state list of bond amount requirements, click State by State Bonds.)

Wouldn’t it be nice if banks felt the same way about competition? MSBs around the country are dying to find banking partners that will treat them fairly. I recently spoke to an MSB about a potential partnership that would have brought them a substantial amount of new business. After my presentation, I was told that their bank wouldn’t allow for them to partner with other MSBs. I’m still confused by the comment because both entities involved in the partnership would have been licensed money transmitters. Since when does a partnership between two licensed companies create a compliance risk for banks?

Unfortunately, it is the poor, underserved and deprived populations that suffer the most when MSBs are cutoff from serving them. Organizations like the NMTA, NBPCA and others have been fighting the banking battle for years with little to no progress. We can only hope that newer industries like the digital currency and the electronic payments industries will bring their resources, connections and energy to the fight. Without them, I’m afraid we’ll be talking about the same banking issues for many more years.

If you know of any groups or efforts focused on the non-banking issue, please share details in the comments section.


Don’t Bite the Hand that Feeds Millions

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Amidst all of the regulatory oversight and compliance scrutiny MSBs are faced with in the United States, it is easy to lose sight of how noble our cause is. Many of the world’s nations rely on money remittances to support their citizens. Our job as industry participants is to provide our niche client base with simple and affordable ways to support the world economy through international money transfers. It doesn’t take long to see the value US money transmitters bring to the underdeveloped nations after spending time within their borders.

A few weeks ago I had the opportunity to visit an underdeveloped region on a trip to setup correspondent partnerships and bank accounts for a money remittance company I’m involved in. I couldn’t have been more impressed by the region and their willingness to work with us. I was also astounded by the genuine gratitude the business and government leaders showed us after discussing our business plan.

Never before had they been approached by a money transmitter focused solely on supporting and growing their economy. Both banks and government entities welcomed us with open arms. Not only were they excited about our partnership, but they wanted to know how they could further help us reach their citizens. Make no mistake, there are other US money transmitters sending funds into their countries, but it was apparent that the perception of these mega companies was that they were extracting more value than providing. It takes more than a capitalistic desire to make money in order to make a positive difference in the lives of others and our new friends saw the difference immediately.

The highlight of the trip was receiving an invitation to present our business at an upcoming banking and economic development association conference for the region. I know my story is not unique, as many of you launched your businesses with the purpose of serving your people, but this experience opened my eyes to the positive impact our industry is making throughout the world. Regulatory, compliance and banking concerns are not going away, but at least we can take pleasure in the service we are providing millions of people across the globe.

~ Brian Nelson


As a quick plug, I’m the event coordinator for the upcoming Virtual Currency Compliance Conference (VC3 2014) being hosted by the NMTA in New York on August 13th. We’d love to see you there. We’ll have the event page up shortly on

Myth Busters: No Widespread Use of Bitcoin for Crime

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***The following is a Bloomberg article written by Bitcoin insider, Carter Dougherty, and re-posted with his permission.***

Get the article on here.

Treasury’s Cohen Sees No Widespread Use of Bitcoin for Crime (1)
2014-03-18 15:55:31.842 GMT

By Carter Dougherty and Greg Farrell

The U.S. government sees no evidence of “widespread” use of virtual currencies such as Bitcoin to evade sanctions or finance terrorism, the Treasury Department’s top official targeting money laundering said.

“Terrorists generally need ‘real’ currency, not virtual currency, to pay their expenses -– such as salaries, bribes, weapons, travel, and safe houses,’ David S. Cohen, the undersecretary for terrorism and financial intelligence.

‘‘The same is true for those seeking to evade sanctions,’’ Cohen said in a speech at the New York headquarters of Bloomberg News.

Governments around the world are grappling with how to classify or regulate virtual currencies such as Bitcoin. Authorities in Russia, China and Israel have sought to restrict the payment system, while Treasury Secretary Jacob J. Lew said in January the U.S. needed more time to assess the ‘‘phenomenon’’ to ensure it isn’t used for unlawful purposes.

Cohen rejected arguments that regulation would drive virtual currency innovation out of the U.S., saying ‘‘the opposite is true’’ in this new industry.

‘‘Financial transparency can help bring stability to the virtual currency market and security to its users and investors,’’ Cohen said. ‘‘And that is what we are trying to do through sensible, flexible and -– to use a word from the tech world -– scalable regulation.’’

At the same time, Cohen emphasized that the government would err on the side of squeezing innovation if necessary for law enforcement purposes.

Choosing Transparency

‘‘There may be situations where we need to choose between innovation and transparency,’’ Cohen said. ‘‘Let me be clear: When forced to choose between the two, we will err on the side of transparency.’’

Cohen said that some virtual currency companies haven’t registered with Treasury’s Financial Crimes Enforcement Network, a requirement established in March 2013, and aren’t following record keeping and reporting requirements.

‘‘Those that do not comply with these rules should understand that their actions will have consequences,” Cohen said.

The Treasury Department’s Bank Secrecy Act Advisory Group will include a member of the virtual-currency community to help make regulations “better informed and more effective,” Cohen said, without saying who it will be.

The department has urged industry leaders to devise ways to prevent criminal use of virtual currencies rather than develop technology that “further obscures financial trails,” he said.

Bitcoin Origins

Bitcoin, the most popular digital currency, emerged from a 2008 paper written by a programmer or group of programmers under the name Satoshi Nakamoto. It uses a public ledger to record transactions made under pseudonyms, an aspect of the system that has fed mistrust among law enforcement.

The price for Bitcoins soared in November, topping $1,000 for the first time, as merchants including began accepting the virtual currency and speculators anticipated broader use of digital money.

Prices dropped this year amid mounting U.S. prosecutions of Bitcoin-linked money laundering, concerns that governments would restrict the currency and market disruptions including hacker attacks on online exchanges.

Bitcoin prices declined about 1 percent today, and stood at $612.50 at 11:08 a.m. New York time, according to the CoinDesk Bitcoin Price Index.

‘Grossly Inefficient’

The decline was “likely” connected to the outage at the website, a popular Bitcoin wallet provider, said Jonathan Levin, a co-founder of Coinometrics, a research firm in Oxford, U.K. He also said that digital currency markets are “grossly inefficient.”

Cohen said that the Treasury Department places “real value” on financial innovation such as digital currencies.

“Advancements in technology that allow entrepreneurs and businesses to innovate, grow and hire are crucial to our country’s long-term success,” Cohen said.

Cohen has served as undersecretary since 2011. He first joined the Treasury in 1999 and, while working for its general counsel, helped draft part of the Patriot Act that granted the regulator new tools to thwart money laundering and terrorist financing after the Sept. 11 attacks.

The Treasury’s office for terrorism and financial intelligence seeks to prevent criminal networks from using the U.S. financial system and to cut off funding for terrorists. It includes the Office of Foreign Assets Control that helps enforce sanctions on nations, such as Iran, that have a history of providing support to terrorist groups.

Accepting Applications

New York financial regulators also have been working on a response to Bitcoin. Benjamin Lawsky, the state’s superintendent of financial services, announced last week that his office is accepting applications to operate exchanges for Bitcoin and other digital currencies. He plans to propose a set of rules for virtual-currency firms by mid-year.

Last month’s collapse of Tokyo-based Bitcoin exchange Mt. Gox, in which some customers lost their holdings, shows the need for “robust standards for consumer protection, cyber security and anti-money laundering compliance,” Lawsky said.

Federal authorities have been targeting misuse. Last year, they shut down Silk Road, an online drug and weapons bazaar where Bitcoin was the preferred medium of exchange. In January, they arrested Charlie Shrem, a Bitcoin entrepreneur, on charges of money laundering. He has denied the allegations.

To contact the reporters on this story: Carter Dougherty in Washington at; Greg Farrell in New York at

To contact the editors responsible for this story: Maura Reynolds at Anthony Gnoffo, Gregory Mott

NY Virtual Currency Announcement Misleads

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The excitement and enthusiasm of Digital Currency entrepreneurs was palatable after the recent announcement by Ben Lawsky, New York’s first Superintendent of Financial Services, that the state would begin accepting license applications by Digital Currency exchangers. However, less than 48 hours after Lawsky’s announcement, feelings of frustration have replaced the excitement. Bitcoiners are quickly learning that the announcement does not apply to the majority of companies in the space.

Why are Digital Currency industry members so upset and frustrated?

New York is only accepting applications from “pure” exchanges. That is to say, exchanges that do not offer any other services or products other than exchange services.

Based on that information, the heavily funded, well-known and respected Bitcoin companies like Coinbase, Circle, Kraken, itBit or BitStamp are not being allowed to submit applications to the state. And it’s not likely that smaller, less visible companies will submit money transmitter applications because of the surety bond requirement. The $500,000 surety bond, which is required to be submitted with the NY application, is not attainable for these companies.

The motives behind this announcement are somewhat suspect. Having such a narrow scope of possible applicants doesn’t make much sense. If Lawsky and his team in New York really want to protect consumers by issuing Digital Currency specific regulations, then they should encourage the big industry participants to submit applications, not lock them out. And on the subject of consumer protection, a singular focus on exchanges for consumer protection purposes is shortsighted and will be found lacking. New York will accomplish little with this current application acceptance strategy.

– Brian Nelson

Upcoming Event: Industry Symposium for Legislative Action

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Members of the MSB industry are invited to participate in an industry symposium for legislative action. The event will be held in Washington DC on February 18th. The event and registration page can be found HERE.

The National Money Transmitters Association is hosting the event in an effort to create legislative change that would benefit the society and our industry. Below is a copy of the most recent email communication regarding ISLA. A great list of current attendees is found at the bottom of the page.


January 16, 2014

Dear Colleague,

Usually, new regulatory legislation comes as a ‘crackdown,’ a reaction to some problem or abuse that has occurred, bringing stricter standards imposed from the outside, resisted by industry, and seen as bad for business.

In a previous email, I listed the benefits reform would bring to society. But here is how we in the money transmitting industries would benefit from regulatory reform, and why we should advocate for change:

  1. To overcome an image problem
  2. To defend against unfair competition from less-compliant market participants
  3. To establish orderly, predictable business conditions
  4. To maintain a level competitive environment
  5. To enable reasonable access to banking services
  6. To forestall more onerous, misguided legislation from elsewhere
  7. To reduce redundancies that exist in the present system
  8. To establish common standards and credentials that certify compliance

The money transmitting industries have become so numerous, complex and varied, that intelligent regulation (and sustainable growth) is no longer possible without a permanent, centralized  agency, one that appropriately understands the industries and can establish consistent norms and recognized certifications.

These are just my opinions. I certainly do not claim any monopoly on wisdom.The Symposium is a place for many different points of view. Anyone can sound off on what they think is wrong with current regulation – or could be done better – and come up with suggestions on how to fix it. Of specific concern, is the banking problem.

Sticking to that theme – and time – are the only restrictions. I am asking people who wish to, to write a 1 or 2-page monograph, outlining their ideas, for collation and posting on the conference page.

If you would like to speak, please fill out our very short Speaker Request Form, indicating your desired topic and desired length of talk. This will help schedule the sessions and distinguish between people who would like to speak less than 5 minutes (your name will automatically be put on a list) from those who would like to speak more than 5 minutes (in which case, I will contact you to discuss.)

You do not have to prepare a paper or a presentation if you would like to speak. So far we have 44 people registered and more signing up every day (see list below). The Choate Room has a maximum capacity of 90 persons, so please do not delay, we are already halfway to capacity.

If you are interested in attending the ISLA, please visit our new website and click on “Events” to register. If  you have any questions, please respond to this email, or call me at (917) 921-9529. The ISLA wll be held at:

The Carnegie Endowment for International Peace
1779 Massachusetts Avenue NW
Washington, DC 20036

I look forward to seeing you in Washington!


– David Landsman

* The AML Training is a separate event taking place the day before the ISLA, on February 17, 2014. This will be an all-day, “Total Immersion ” AML Compliance Crash Course, also covering state licensing issues. The registration for that day is $445. Please visit our new website and click on “Events” to register.

Attendees as of January 16, 2014

 Company or Agency First Name Last Name
A & B General USA, Inc. (Thailand) Thanyarat Nualsirisakul
AML Experts, Inc. Connie Fenchel
Baird Holm Terrence Maher
Banking Committee, US Senate Jeanette Quick
Bitcoin Solutions DC Darrell Duane Dmitry Murashchik
Bryan Cave Judith Rinearson
Caribe Express Raquel Olivo
Chartered Forex Carmen De Jesus
Columbia University Portia Crowe
Consumer Financial Protection Bureau Rebecca Smullin
Dolex Laybaa Hernandez
Embassy of El Salvador Enilson Solano
Embassy of El Salvador Luis Aparicio
Federal Reserve Jennifer White
Federal Reserve Lee Davis
Financial Service Centers of America Scott McClain
GCC Exchange (Dubai) Joshua Suresh
GCC Exchange (Dubai) Maninadar Iyadurai
GCC Exchange (Hong Kong) Kishore Iyadurai
InteliSpend (Prepaid access) Wendy Lewis
Internal Revenue Service Sandra Stolt
Legislative Solutions Ann Vroom
LeveLup (MobilePayments App) Katie Alexander
Macfarlane Group Cary Chan
m-banco Mobile Money Randolph Kantorowicz
Mondato Julienne Lauler
National Money Transmitters Association David Landsman
Optima Compass Group Jorge Guerrero
Patton Boggs Carol Van Cleef
Pontual Money Transfer Fernando Fayzano
Qikcoin Stephen Sunderlin
Retail Grocers Association of Kansas City Jon McCormick
Skrill Elena Sabkova
Skrill Mary Lozada
The Law Office of Marilyn D. Barker Marilyn Barker
Transmit International Inc Mohammed M Islam
Unidos Financial Juan Llanos
United States General Accounting Office Toni Gillich
Washington DC Bitcoin Meetup Richard Weston
Western Union Meredith Cipriano
Western Union Susan Smith
Wilmer Hale Katrina Carroll
World Bank Alana Fook

The Future of Money Remittance

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Update: Carter Dougherty released a great article for Bloomberg this morning that better articulates my point. 

The protocol of Bitcoin and other digital currencies provide perfect platforms to disrupt the money transfer industry. It’s no secret that remitting money around the world can be a costly and often times lengthy process. The current financial system requires money transmitters to use antiquated procedures that include multiple touch points.

A Personal Story

I spent 2 years living in the Dominican Republic. While living in the DR I regularly received money from family in the US. Because I was in the country on a service mission, I did not have a personal bank account which made receiving funds very difficult. At the beginning, my family used traditional money transmitters in the US. They would wire money to the company in the US and then the company would use an agent in the DR to issue me the funds. Everything seemed to work smoothly to my family, but to me the process was difficult and costly. It took 3-4 days from the time the transfer was initiated in the US for me to receive the funds and I typically only received 80-90% of the original transferred value.

Things haven’t changed much since my time in the DR, but thanks to digital currency protocols, FinTech entrepreneurs are beginning to address the long standing issues of money transmission. Using a digital currency protocol to transmit funds is a less expensive and faster solution. Transfers made on the Bitcoin network for instance can be done for less than 1% and can be settled in less 15 minutes.

An Example

In a December 2013 article published by Coindesk, Coincove, a California based company, is featured as the poster child for digital currency based money transmitters. Coincove uses the Localbitcoins platform to make remittance easier in Latin America. However, the Localbitcoins platform is built on an in-person marketplace and although it is substantial and growing at a rapid pace, digital currency money transmitters must seek a better long-term solution before they can effectively support the billions of dollars remitted annually.


We are in the infancy stages of digital currencies so we can expect to see major improvements in the digital currency money transmitter space in the coming months and years. Traditional money transmitters should take notice now and begin developing a strategy to leverage digital currency protocols.

If you’re interested in seeing an example, I suggest looking into Ripple. Please let us know of other examples in the comments section.

Full Disclosure: I am not associated with or receive payment from Coincove or Ripple in any way. 

Author, Brian Nelson

IMTC Conference Review – Industry Disruption: New Payment Protocols

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Mohr World Consulting along with the NMTA held another great conference for money transmitters in Miami Florida last week. The IMTC Miami conference has become the world’s largest conference dedicated to the money transfer industry and continues to grow year over year. It was great to see old friends and new faces as we all work together in building a more compliant and accepted industry throughout the world.

My main take away: New technologies are beginning to disrupt the money transfer industry.


Although they are still in their infancy, protocols such as the Bitcoin protocol and Ripple are starting to compete with Swift as a transfer settlement tool. The new technologies are making money transfers easier, cheaper and more secure. However, it is apparent that these technologies still have a long road to travel before they have the traction and volume to make a big impact on the industry.

Traditional money transfer companies are hesitant to make any changes with their operations because of the potential compliance issues associated with using the new protocols. But…that will quickly change if companies like Ripple succeed in landing a couple big name money transmitters.

It was apparent during the Virtual Currency panel, that traditional money transmitters are still not convinced of the power of Digital Currencies. However, a number of individuals in the room later expressed interest in either partnering with Bitcoin companies or using a service that would provide a better settlement tool using the Bitcoin protocol. Now that the ball is rolling, it’s only a matter of time before the industry adopts new protocols to facilitate money remittances.

All in all, I truly enjoyed the conference and look forward to reconnecting with everyone again soon.

– Brian Nelson

Customer’s Customer Compliance Issue

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I was reading an interesting article entitled ‘ Argor-Heraeus Rejects Allegations on Congo Conflict Gold’ By James Kraus of Bloomberg  – Nov 4, 2013.  Essentially, a non-profit Swiss organization by the name of TRIAL was accusing Argor-Heraeus SA , a Swiss gold refiner of illegally refining gold originating from the war torn – Democratic of Congo for the years 2004-2005.

TRIAL is stating the Argor-Heraeus refined close to 3 tons of gold pillaged from an armed group which used the gold proceeds to finance its operations.  From the article, Argor-Heraeus received the questioned gold from its customer Hussar Limited.

My commentary of this article is not to give my opinion as to whether the TRIAL accusation is true or not.  My interest is solely from a ‘Know your Customer’ point of view.  Most compliance experts would agree that a rigorous Know Your Customer policy would be one of the most important criteria in protecting an institution against money laundering or the financing of terrorism.

Should Hussar Limited have been the customer and thus delivered the gold for refining at Argor-Heraeus then the latter institution would have executed the KYC ( Know Your Customer) due diligence on the former institution.  Apart from the obvious customer identification and verification procedures,  Argor-Heraeus would have evaluated Hussar’s own compliance procedures on its own customers.   And most likely this documentation would have been satisfactory and thus Hussar would have passed the Customer Acceptance process for Argor-Heraeus.

But now it appears that the gold actually came from illegal sources via Hussar Limited and then passed on to Argor-Heraeus.   The question now becomes as to how much should Argor-Heraeus have to know as to its customer’s customer.  And should Argor-Heraeus have actually o assessed whether Hussar Limited was adhering to its own AML policy of accepting gold from only legitimate sources.  This is a tough call especially at least in the beginning stages of the transaction history.  Now, maybe if the transaction kept on continuing over time with larger volumes, then ‘red flags’ would have appeared.

Then once ‘Red Flags’ appear, the institution has to impose enhanced due diligence which perhaps Argos-Heraeus did.    And it does appear that Argor-Heraeus must have been concerned because by 2005 it had terminated the business with Hussar Limited.

Of course in retrospect, it is so easy to say the Argor-Heraeus should have known from the beginning that the origin of the gold was from illegal means.  And this observation could or could not be true  – I certainly do not know.  And we have to remember that the incident occurred in 2004 and not 2013 where we now work in a heightened state of compliance alert.  This situation is of interest because as a financial institution today, we just cannot take for granted anymore as to the compliance acceptance of a customer.  Now, unfortunately we have to run the extra step of actually knowing our customer’s customer compliance with laws.

– Allan Ramlall

Is Objectivity Possible for Compliance Consultants?

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Two articles appeared in the New York Times on September 13, 2013 which caught my attention because of its relation to ‘objectivity’ in the Compliance Consultant industry.    The two articles appeared in separate sections of the New York Times and had no bearing on each other in any way.  It was my reading of the articles which raised an interesting thought.

The first article entitled ‘ 2 Consultants to Banking Industry Come Under Scrutiny’ by Ben Protess and Jessica Silver-Greenberg concerns the Promontory Financial Group and Pricewaterhouse Coopers  being subpoenaed within the past few months by the New York Department of Financial Services.  It appears that there is a questioning of the Compliance Consultants being able to have total independence when reviewing a bank.  There is a possibility that there could be a conflict of interest  for the Compliance Consultant in giving independent assessments when at the same time it is the customer who is choosing and paying for the consultant work.  This situation is also causing concern to the Regulators  because of its own use of Compliance Consultants to correct and institute AML compliance processes for the banks.

The second article appearing in the New York Times the same day was ‘When Accountants Act as Bankers.’ By Floyd Norris.    In this particular case, Deloitte L.L.P was fined 14 million English pounds and one its retired partners Maghsoud Einollahi – 250,000 English pounds  for failure in its professional responsibilities for work conducted for MG Rover.  Apparently in the U.K, there are ethics rules of the Institute of Chartered Accountants which require accountants to consider the ‘public interest.’  In this particular case, the U.K Financial Reporting Council ruled ‘ They placed their own interests ahead of that of the public and compromised their own objectivity.’

After reading these two articles, the terminology of ‘ the Public Good’ is so very appropriate when it comes to Anti-Money Laundering and the Countering of Financing of Terrorism issues in the U.S.A.   These two serious issues if not controlled and thus prohibited at the banking level can be considered as being for ‘ the Public Good.’  And we would expect the compliance staff at the banks and the supplemental professional assistance from the Compliance Consultants to set up maximum procedures to prevent the infiltration of drug money and other criminal finances from entering the U.S Banking system.

I am under the belief that Compliance personnel are indeed very serious about their responsibilities in the prevention of money laundering and terrorist financing.  But there could be the tendency of trying to be lenient with their Customers not for financial gain but perhaps not wanting the hurt the ‘bottom line’ of their customers.  The areas of Compliance and Business Development do come under different mentalities.  On the one hand, if the compliance group institutes such strong compliance rules then from the business development point of view – it means a loss of revenue from operations.

Somehow we have to come to a level whereby there is a regulation of some sort which ties into the concept of the ‘Public Good’ which will clearly spell out the objectify role of the compliance consultants.   Then once this rule is established, both the customer and the compliance consultant would clearly understand seriousness of the U.S Compliance Regulations.  The consultant would then have no choice but to demonstrate a strict compliance assessment.   In a way, the rules will then provide more comfort to the consultant when conducting compliance work on an objective basis.

– Allan Ramlall