MSBs fight account closings as unfairly targeting important industry

MSBs fight account closings as unfairly targeting important industry
06/01/2001

Money services businesses, including check cashers and cash transmitters, are up in arms over closings of some of their bank accounts by large commercial banks.

Money services businesses, including check cashers and cash transmitters, are up in arms over closings of some of their bank accounts by large commercial banks.

The money services companies believe banks and regulators are unfairly targeting them for alleged money laundering. They acknowledge that they have experienced some instances of laundering but contend the problem is on a much smaller scale than in commercial banking.

Recent bank mergers have compounded the problem by reducing the options MSBs have for bank accounts, which are essential to their business.

Citibank, Fleet drop check cashers

The Financial Service Centers of America, which represents some 3,700 check cashing firms nationwide, is challenging the proposed merger of Citibank and European American Bank. Citibank has dropped check cashers as clients, but European American maintains many such accounts, said Gerald Goldman, FISCA’s general counsel.

FISCA hopes to meet with Citibank officials to try to persuade the banking giant to allow EAB to keep the accounts.

“Citibank may not fully understand how check cashers work and their value to the communities they serve,” Goldman said. “We’ve written to the American Bankers Association to show that check cashers are not a high risk for laundering.”

MSB clients often avoid banks

Check cashers and money remitters generally serve inner-city areas where few banks have branches. Most MSB clients do not have bank accounts but use check cashers and transmitters to cash paychecks, wire money to relatives and buy money orders. The MSBs charge fees for each transaction.

FISCA unsuccessfully challenged the merger of FleetBoston Financial Corp. and Summit Bancorp, which was approved by the Federal Reserve in February. Both banks have been dropping MSB clients.

FISCA argued FleetBoston had failed to serve the needs of low and moderate-income groups. The Fed disagreed, saying “its subsidiary banks have served (those) areas… and taken steps to help provide checking accounts for underserved individuals.”

About two dozen banks have closed check cashers’ accounts without a stated reason, said Rick Lyke, of FISCA.

Few penalty cases

Goldman said regulators have cited fewer than 15 check cashers in the past 10 years for laundering. U.S. regulators have assessed penalties on only six check cashers in the past 15 years for currency reporting violations (MLA, Sept. 2000).

The MSBs aren’t ruling out going to court to stop the account closings, but they hope negotiations will resolve it.

Not all banks share the same policy. J.P. Morgan-Chase Manhattan Bank maintains accounts for more than 400 MSBs, Goldman said.

A case of ‘profiling’?

Meanwhile, a top official of a leading U.S. Hispanic transmitter believes “profiling” may be at play. Ernesto Armenteros, executive vice president of Remesas Quisqueyana in New York, said seven banks have closed his company’s accounts in recent years.

“I spoke to other companies and found that the transmitting industry, particularly the Hispanic transmitting companies, were targeted by banks to shut us down,” Armenteros said at MLA’s 6th Annual Money Laundering Conference in March.

“The letters never explain anything. We try to inquire about the reasons and never get an answer,” said Armenteros, whose firm has 500 outlets and is a leading transmitter to Latin America.

Starting in January 2002, MSBs must file suspicious activity reports. They already file reports on large currency transactions.