Banking Issues Continue While Surety Bond Underwriters Embrace MSBs

MSB Talk 4


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

MSB Talk 4

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

NY Virtual Currency Announcement Misleads

MSB Talk 4

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

Is Objectivity Possible for Compliance Consultants?

MSB Talk 4

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

The Gaping Void Between Traditional MSBs and Virtual Currency Operators

MSB Talk 4

There is a gaping void between traditional money transmitters and the virtual currency world! In order for virtual currency exchangers and administrators to comply with FinCEN and state regulations RIGHT NOW, they must build working partnerships with traditional money transmitters. Believe me, there is no other way for a virtual currency operator to get licensed and bonded nationally in any reasonable amount of time. Unfortunately, the process usually takes over a year. So…why aren’t more partnerships being developed where a virtual currency operator hooks up with a nationally licensed money transmitter as an agent?

What I’ve found is many money transmitters are interested in developing relationships with virtual currency operators, but they don’t know enough about the industry to jump in just yet. On the other hand, virtual currency operators know they need to find a partner, but don’t have the connections or the relationships with traditional money transmitters to make it happen.

I have been working with a number of organizations in preparing a “match-making” event where traditional money transmitters and virtual currency operators can meet face-to-face to discuss possible partnerships. This would give both sides an opportunity to learn from each other while building valuable relationships. Our hope is that by bringing both sides together, we will see more partnerships being built and thus the foundation of the virtual currency industry being strengthened.

Unfortunately, this type of event is not being valued by conference directors. I’ve contacted multiple conference directors who either don’t understand why this type of “match-making” is important or just don’t care to add additional value to a conference schedule that is already set.

So…that begs the question; would a “match-making” event be valuable to you, either as a traditional money transmitter or a virtual currency operator?

Authored by Brian Nelson

Why We Need to Know Our Customers

MSB Talk 4

I was reading a fascinating true fraudulent situation on ‘U.S Charges Eight with Multi Million-Dollar cybercrime’ dated June 12, 2013 in CIO Magazine.  Essentially hackers were able to gain access into the accounts of various banks and organizations which included the U.S Military’s Defense Finance and Accounting Service.  In addition, the hackers allegedly submitted fraudulent tax returns to the U.S Internal Revenue Service seeking refunds.

The funds received from these institutions were then directed on to pre-paid debit cards and various bank accounts.  In the case of the pre-paid debit cards, money was obtained from ATM withdrawals and purchases which were converted into cash.  Cash was then deposited into bank accounts in amounts below reportable thresholds limits.

Apart from reading this ingenious scam operation, I could not help but think of the consequences to our legitimate business.  Once the funds were in bank accounts and even the pre-paid debit cards, it could have easily been used to purchase products or services offered by our institutions.  And even applying the standard Know Your Customer rules when conducting business with a new client, I can imagine that there is a possibility of such activity still passing through our business unwittingly.

We would then only be aware of a problem when the authorities made their investigation.   And at this point, the scenario becomes a regulatory nightmare for any legitimate business which would have accepted these transactions.   Apart from possible financial losses we would then be faced with a regulatory issue of how we could have allowed this transaction to be passed through our organization.

The end result is that business in general is tough as it is.  But with sophisticated cybercrime, we now have additional financial and regulatory problems.

Allan Ramlall

We Are NOT Liberty Reserve

MSB Talk 4

I am sure that you all have read the numerous articles and news accounts of the $6 billion laundered through Liberty Reserve.  My intention is to look at various aspects of the Liberty Reserve case which all of our fellow colleagues in the foreign exchange, precious metals and legitimate money transfer business would never implement.   We must not allow anyone to link our totally transparent business activities with an outfit such as Liberty Reserve.

First of all, our fellow business entities operate within the confines of the U.S regulatory system.   Thus, many of us are registered with FinCEN as a MSB or obtaining a relevant State Money Transfer License.  Others would be registered appropriately in their various industry associations.   Liberty Reserve was blatantly conducting money transfer business and did not possess any such appropriate state licenses.  Without this license, with no regulatory oversight – who knows what due diligence if any was conducted with their customers and trading counterparties.

Second, with the mentioning of due diligence, it appears that Liberty Reserve accepted customers with the basic requirements of an e-mail address, a name, address and date of birth.  But what was not required, it seems was any verification of the customer’s identity.   What I am sure of – is that all of our upstanding fellow financial institutions have a strong Know Your Customer protocol prior to accepting anyone as a customer.  It is simply not worth the reputation risk of linking our institutions with criminal elements.

Third and here it becomes a bit confusing.  From the New York Times Article on May 29, 2013 ‘U.S Says Currency Exchange Was Online Hub for Laundering of $6 Billion’ customers did not directly fund Liberty Reserve. In fact the account holder would direct his or her regulated bank to transfer U.S Dollars to a Third Party Exchanger which was an unlicensed money-transmitting business located in Russia, Nigeria and Vietnam.  Then that Exchanger would then convert the money into digital or virtual funds for deposit into the holder’s Liberty Reserve account.


It is here where I am positive that no such payment policy of ours even resembles that of Liberty Reserve.  We would require our accepted and approved customer to directly pay our institution’s account at a regulated bank in the U.S.  Not to have this simple requirement would mean there is no transparency.  And what I cannot comprehend is why the legitimate customers as opposed to the criminals would even conduct such a questionable payment process.  Would you or I just arbitrarily wire funds to an unknown entity in all places such as Russia, Vietnam and especially Nigeria!  And I would be curious to know what type of ‘due diligence’ were the regulated U.S Banks conducting when wiring funds to ‘questionable’ companies in High Risk Compliance countries.

I have mentioned these differences because I am hoping that the Liberty Reserve fiasco is not going to affect us in any way. I have no idea of what the fall out will be from this situation as it affects the U.S Banking System.  We certainly do not want the banks in the U.S to have any additional fears of dealing with legitimate non-bank financial institutions which conduct business with the general public.  And we have to disassociate ourselves with entities such as Liberty Reserve so that the legitimate public can trust dealing with us.

-Allan Ramlall