Most people think of anti-money laundering laws as being related to banks, credit unions, or stock brokers. However, there are some other businesses that handle money and have open accounts for their customers, and sometimes those businesses fall under the purview of federal anti-money laundering laws because they meet the definition of a “money service business” (MSB) under federal code. An example might be a licensed card room or an adult arcade, where customers put money into accounts or exchange it for chips, the house holds that money, and then cash prizes are sometimes paid out from those accounts and/or the customers withdraw the cash at their discretion (it should be noted that licensed casinos have their own set of anti-money laundering rules under the federal code and those rules differ slightly from the rules governing MSB’s).

What is Money Laundering and How is it Regulated?

First, what is money laundering?  It is the way criminals and terrorists run illegally-obtained cash through a business in order to convert it into some form of currency that is legitimate and traceable to a legal source—in other words, it’s how bad guys hide their ill-gotten gains. 

Our federal government wants to prohibit this activity and be able to more easily track it when it does happen, and that is why Congress passed the Bank Secrecy Act.  The Act requires the Department of Treasury to oversee financial institutions to make sure criminals aren’t laundering money.  They do this by requiring financial institutions to register, file reports, and keep records.

What must MSB’s do to comply?

1.  Register as a Money Service Business (MSB)

All financial institutions (including MSB’s) need to register with an entity called the Financial Crimes Enforcement Network (FinCEN).  FinCEN is a bureau within the Department of Treasury, and they’re tasked with safeguarding our financial system against money laundering and other financial crimes. The federal code has extensive definitions of what constitutes a financial institution, and more specifically, what institutions are considered MSB’s. Certain entertainment businesses as described above might not meet the definition and therefore won’t be required to register, but for reasons set forth below, they would still be wise to be familiar with AML laws.

2.  Create an Anti-Money Laundering (AML) Compliance Program

Registered financial institutions are legally required to have an AML Compliance Program.  However, even for entertainment businesses that don’t meet the definition of an MSB but still allow customers to play through pre-paid accounts, it is a very good idea to have an AML Program.  Having such a program will make banks, PayPal, and other money-changers more willing to work with these companies.  This is because these organizations are watched closely by FinCEN and they want their customers to stay in compliance so that they are not accused of assisting in any wrong-doing.

3.  Designate an Officer to run the AML Program

An MSB should designate an officer to run and oversee its compliance program.  This could be one of the owners of the company or it could be an employee.  This person should familiarize himself/herself with the AML compliance program.  He/she should also work to stay abreast of the laws that regulate AML.  Finally, he/she should be able to implement and run a program designed to train any employees who will be handling customers’ money so that those employees follow all the rules of the compliance program.

4.  Run an Annual “Check-Up” on the Program, to make sure it works

MSB’s are required to run an annual test on their program to determine if it is working properly and to ensure suspicious activity is being noticed and reported.  This can be done by an outside professional or by the company itself; however, it must be done by someone other than the Officer designated to run the program. 

Of course, full compliance with AML laws is far more involved and complex than what is described in this article; however, the four steps above are the standard pillars of AML compliance and they are a very good place to start.