[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                      BANK SECRECY ACT'S IMPACT ON

                       MONEY SERVICES BUSINESSES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 21, 2006

                               __________

       Printed for the use of the Committee on Financial Services



                           Serial No. 109-100


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, Jr., North          BERNARD SANDERS, Vermont
    Carolina, Vice Chairman          CAROLYN B. MALONEY, New York
RICHARD H. BAKER, Louisiana          MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware          GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SUE W. KELLY, New York               LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                PAUL E. KANJORSKI, Pennsylvania
JIM RYUN, Kansas                     MAXINE WATERS, California
STEVEN C. LaTOURETTE, Ohio           DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois               JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
GARY G. MILLER, California           RUBEN HINOJOSA, Texas
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
TOM FEENEY, Florida                  STEVE ISRAEL, New York
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            JOE BACA, California
GINNY BROWN-WAITE, Florida           AL GREEN, Texas
J. GRESHAM BARRETT, South Carolina   GWEN MOORE, Wisconsin
RICK RENZI, Arizona                  WM. LACY CLAY, Missouri
STEVAN PEARCE, New Mexico            JIM MATHESON, Utah
RANDY NEUGEBAUER, Texas              BARNEY FRANK, Massachusetts
TOM PRICE, Georgia
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 21, 2006................................................     1
Appendix:
    June 21, 2006................................................    53

                               WITNESSES
                        Wednesday, June 21, 2006

Abernathy, Wayne A., Executive Director for Financial 
  Institutions Policy and Regulatory Affairs, American Bankers 
  Association....................................................    41
Carbaugh, Don, Acting Associate Director for Regulatory Policy 
  and Programs, Financial Crimes Enforcement Network.............     7
Goldman, Gerald, General Counsel, Financial Service Centers of 
  America........................................................    39
Jaedicke, Ann F., Deputy Comptroller for Compliance Policy, 
  Office of the Comptroller of the Currency......................    11
Landsman, David, Executive Director, The National Money 
  Transmitters Association, Inc..................................    42
Mayer, Eileen C., Director, Fraud/Bank Secrecy Act, Small 
  Business/Self-Employed Division, Internal Revenue Service......     9
Milne, Philip W., President and CEO, MoneyGram International, 
  Inc............................................................    37
Taylor, Hon. Diana, Superintendent of Banks, State of New York, 
  on behalf of the Conference of State Bank Supervisors..........    12

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    54
    Kelly, Hon. Sue W............................................    57
    Abernathy, Wayne A...........................................    61
    Carbaugh, Don................................................    75
    Goldman, Gerald..............................................    82
    Jaedicke, Ann F..............................................    93
    Landsman, David..............................................   105
    Mayer, Eileen C..............................................   107
    Milne, Philip W..............................................   114
    Taylor, Hon. Diana...........................................   126

              Additional Material Submitted for the Record

    Statement of Isak Warsame....................................   139
    Statement of Western Union Financial Services, Inc...........   142
    Revised Interagency Interpretive Guidance on Providing 
      Banking Services to Money Services Businesses Operating in 
      the United States..........................................   156
Bachus, Hon. Spencer:
    Responses to questions submitted to Ann Jaedicke.............   160


                      BANK SECRECY ACT'S IMPACT ON



                       MONEY SERVICES BUSINESSES

                              ----------                              


                        Wednesday, June 21, 2006

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Baker, Kelly, Biggert, 
Feeney, Hensarling, Neugebauer, Price, McHenry, Maloney, 
Sherman, Moore of Kansas, Waters, Carson, McCarthy, Green, and 
Clay.
    Ex officio present: Representative Frank.
    Chairman Bachus. Good morning. The subcommittee will come 
to order.
    The purpose of today's hearing is to review the oversight 
and regulation of money services businesses (MSB's). More 
specifically, we will address the impact that the Bank Secrecy 
Act and related financial institution account discontinuances 
have had on MSB's.
    Despite expressions of concern by members of this Congress 
to both regulators and financial institutions to treat MSB's 
fairly, I remain concerned that financial institutions continue 
to unjustifiably sever their relationships with MSB's.
    MSB's provide a valuable service to consumers, and in some 
instances are the only financial services available to them.
    No one disagrees that banks and MSB's should comply with 
any money laundering guidance issued by their regulator. 
Nonetheless, terminating an entire regulated industry and 
forcing its customers into the underground financial system 
itself creates a significant money laundering risk.
    MSB's are regulated at the State level, and are required to 
comply with the Bank Secrecy Act at the Federal level. 
Currently, 28 States and the District of Columbia have 
regulations requiring MSB's to be licensed by the State banking 
agency, and some of these States have specific laws regarding 
transmittals abroad. In many of these States, an MSB has to 
submit to a rigorous review, including providing financial 
statements and internal audit reports and permitting background 
checks on owners and managers. Furthermore, the licensing 
process requires annual training, current BSA compliance 
programs, and the submission of a surety bond.
    Since the adoption of the USA PATRIOT ACT, MSB's have been 
required to adopt a written anti-money laundering compliance 
program and to conduct independent reviews of their programs.
    MSB's are also required to register with FinCEN and are 
examined for BSA compliance by the IRS. Certain MSB's are also 
required to file suspicious activity reports for transactions 
involving at least $2,000. In addition, MSB's are required to 
file CTR's for cash transactions of more than $10,000, and must 
also maintain information on fund transfers of $3,000 or more.
    Despite the increased regulation of MSB's, the bank 
regulators and their examiners have classified all MSB accounts 
as high-risk, regardless of whether there have been any actual 
problems.
    Banks have been required to investigate the money 
laundering compliance standards of the MSB's, forcing them to 
become the de facto regulator of these institutions.
    FinCEN and the Federal banking regulators have issued 
guidance twice. Unfortunately, in my opinion, the requirements 
continue to be vague, subjective, and burdensome to the banks.
    Over the past year, at least three national banks have 
ceased offering services to MSB's, and some State-chartered 
institutions have also discontinued service, and this is 
across-the-board blanket discontinuance by these institutions 
of all MSB's.
    In response to concerns raised over the previous year by 
MSB's and financial institutions, FinCEN issued an advanced 
notice of proposed rulemaking in March 2006. The comment period 
for the ANPR ends on July 10, 2006.
    I am hopeful that today's hearing and discussion will shed 
some light on this issue and be taken into consideration as 
FinCEN and the bank regulatory agencies move forward with the 
rule.
    In closing, I would like to ask unanimous consent that 
Congressman Rangel, the ranking member of the Ways and Means 
Committee, be allowed to participate in today's hearing.
    The Chair now recognizes the Ranking Member of the Full 
Committee, Mr. Frank, for his opening statement.
    Mr. Frank. Thank you, Mr. Chairman, I appreciate it, 
because I am not going to be able to stay, but this is 
something which I had raised.
    We, on our side, received a letter from our extremely 
distinguished colleague, Mr. Rangel, who is the Ranking 
Democrat on the Ways and Means Committee, but who also 
represents a district in New York where the MSB's play a 
significant role.
    Now, I should say that we have been concerned, many of us, 
from time to time, about potential consumer abuses with some of 
the irresponsible MSB's, and things like payday lending and 
elsewhere, but being concerned about abuses does not mean that 
you think that the function is useless, and I would like to get 
people at the lower end into banks. I think getting people 
banked is a good thing for them. We have pushed for that.
    Our colleague from California, Ms. Waters, has been a 
leader in trying to get lifeline banking to try and encourage 
people into the banking system, but with all of that, there is 
still a role for the MSB's, and it is a role that many lower-
income people are going to be relying on, and Mr. Rangel, who 
represents a district in which they play an important part, 
came to us, because he had heard from some of these entities 
that service his constituents that they were being turned down 
by the banks, and when we checked, it was one bank, in 
particular, that was cited as having turned these down, and we 
asked the bank what was involved. The bank's top people for 
this came to see our staff and said it is the uncertain 
atmosphere that has been created in the regulatory area, and 
sometimes, I will say to my friends and regulators, people hide 
behind you unfairly. Sometimes they have a legitimate point.
    It does seem to me that we have some uncertainty here, and 
obviously we want to prevent money laundering, but we all have 
a temptation to kind of overdo, in some cases, when the 
negative consequences of the overdoing do not fall on us, and I 
think this may be a case where the regulators have not been 
sufficiently sensitive to the impact uncertainty can have, and 
so, I am very glad that we have this hearing.
    I hope what will come out of this is a further movement 
towards a situation in which there is all the regulation we 
need.
    We obviously do not want there to be terrorist schemes 
being financed here.
    On the other hand, from what Mr. Rangel has said, and from 
what we have gleaned, it does seem to me that the impact has 
been greater than would be called for by terrorism. I do not 
think all of these MSB's in Harlem are potential terrorist 
financing entities, although we will defer to New York State's 
expertise in this, but I think that we probably--I think that 
this is one of these areas where we have conceptual agreement 
that we want regulation so that we do not have abuses, but we 
do not want to put legitimate market entities out of business.
    I do not think we have reached that level of accomplishment 
yet.
    So, I look forward to our being able to work together, and 
we will hear from the regulators, and then we will hear from 
some of the people in the business.
    I hope we can come out of this at some point fairly soon 
with a more specific set of regulations and with guidance and 
with some way for the businesses to look into it, because as I 
said, I think we are now in a position where the effect of the 
regulation is to shut down some businesses and deny people some 
services.
    I do not think anyone is to blame in the sense of anybody's 
set out to do something bad, but the interaction of regulators, 
banks, and businesses here is nothing, and what we hope to be 
able to do is, particularly between the banks and the 
regulators, promote the right kind of interaction, so we can 
have a degree of confidence, never certainty, that we have done 
everything we can to reduce the abuses.
    I also--as I said, I want very much to work with the 
regulators here, but also--I am a great believer in free 
speech, and I voted against fining people, people saying 
naughty words on television, but I would like to ban metaphors 
from use in discussions of public policy. I think it would be 
very helpful, but as long as it is still constitutional, I will 
say I do think, in the area--particularly in this area of 
regulation, we have told the regulators to find needles, and we 
should refrain ourselves from the instinct to build bigger and 
bigger haystacks as they look for the needles, and I think, in 
some cases, we may get into that direction.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you, Mr. Frank. Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. For, I think, the 
second time this month, I find myself in complete agreement 
with the ranking minority member. I am not sure who should be 
more worried, him or me.
    Mr. Frank. Mr. Chairman, point of personal privilege.
    Chairman Bachus. You are recognized.
    Mr. Frank. I will drop it.
    Mr. Hensarling. I knew I would regret saying that.
    Mr. Chairman, let me thank you first for holding this 
hearing.
    Along with Mr. Moore of Kansas, I helped author the 
regulatory relief bill for financial institutions, and 
throughout that exercise in legislating, we knew that each and 
every regulation that had been imposed upon our banking sector 
at one point in time made a lot of sense. Frankly, there are a 
number of regulations that still create benefits for our 
economy, and for our Nation, but too often, we never go back 
and we look at the cost, the costs that are being imposed upon 
this same economy and same Nation, and we often find out that, 
among other things, both the bureaucracy and Congress can often 
exceed--excel at unintended consequences, and so, I am glad 
that you are holding this hearing, because now we see a fair 
amount of evidence, if not alarming evidence, that a number of 
our financial institutions are deciding to drop MSB's as 
customers, and I think principally due to increased cost, to a 
lot of uncertainty, due to a lot of ambiguity, and we have to 
take a very serious look at what that means to our Nation, what 
is happening to the cost associated with the MSB's as, 
increasingly, they get dropped as bank customers.
    What is ultimately the impact upon low-income citizens, 
low-income neighborhoods?
    Is our Nation really more secure if we start to drive MSB's 
into the non-banking sector?
    Finally, how much duplication do we have here? Are we 
coming up with a system that essentially makes our financial 
institutions de facto regulators of MSB's when, apparently, on 
paper, we have a number of other institutions that are supposed 
to serve that purpose.
    So, Mr. Chairman, again, I thank you for holding this very 
important hearing, and I yield back.
    Chairman Bachus. I thank the gentleman from Texas.
    The gentlelady from New York, Ms. Maloney.
    Mrs. Maloney. I thank you so much, Chairman Bachus, for 
holding this very important hearing. The issue of bank 
discontinuance of check cashers is very important to my 
district, and to New York City, in general.
    I joined Mr. Rangel in requesting this hearing and, at one 
point, was a member of the city council partially within the 
boundaries of Congressman Rangel's district. So, I know 
firsthand that the financial services industry, in many cases, 
made a decision not to open banks in that area, so the check 
cashers were really the only way that many people could achieve 
services.
    So, they were very important, and I saw firsthand during my 
days on the city council the service that they provided to my 
constituents there, and continue to provide throughout New York 
City.
    I would like to especially welcome all of the witnesses, 
but especially my constituents, Superintendent Taylor, and 
Gerald Goldman of the Financial Services Centers of America.
    As a New Yorker, I know money services businesses form a 
very important part of the financial services district industry 
in my home town, and many of my constituents depend on their 
services for their financial needs.
    There are about 150 money service businesses in New York 
City, in over 750 locations, mostly in neighborhoods not served 
by banks.
    They employ about 4,000 New Yorkers, and serve many 
thousands more each day.
    In recent years, the money services businesses in my 
district have repeatedly asked me to help them with the problem 
of banks discontinuing check cashers' and money transmitters' 
accounts.
    Like all businesses, these need a bank account and access 
to bank services.
    In fact, because of their substantial cash flows, they need 
a bank with a local presence.
    This issue came to a crisis point 2 years ago in New York, 
when J.P. Morgan Chase, which serviced about 75 percent of the 
MSB's in New York State, announced that it was terminating all 
MSB customers.
    This left North Fork Bank as the sole bank doing business 
in New York with check cashers, and I understand even they have 
stopped doing business with money transmitters.
    In late 2004, shortly after the J.P. Morgan announcement, I 
spoke directly to senior J.P. Morgan Chase officers and asked 
them what their reasons were for discontinuing money services 
businesses.
    They said that the OCC guidance effectively required them 
to do so.
    I then called the Director of OCC, Jerry Hawke, and urged 
him to take a more balanced approach to this issue. I followed 
up with a letter, and he responded with a letter denying that 
the OCC was encouraging banks to cut off MSB's.
    Basically, the banks were pointing fingers at the 
regulators, and vice versa.
    I was, however, encouraged that the heightened scrutiny 
this issue was receiving from myself and others in Congress, 
including Chairman Bachus, led to the FinCEN conference in late 
spring of last year on this issue, which appeared from the 
reports to have been a very, very positive development.
    Right after the conference, I had the opportunity to ask 
Bill Fox, then-director of FinCEN, and Julie Williams, acting 
head of OCC, whether FinCEN would continue to support MSB's as 
viable financial institutions.
    Director Fox said, ``The check cashers are critical to the 
Nation's economy and to the world's economy.'' Rebutting 
critics who assert that MSB's are not regulated, he said, 
``They are regulated by us and the IRS enforces those 
regulations,'' as well as by the States that license them. He 
pointed out that MSB's are subject to the Bank Secrecy Act and 
make filings under that act.
    Fox and Williams attributed the discontinuance problem to 
what Fox called, ``a misperception by banks of the level of 
risk involved in doing business with this sector,'' and 
asserted, ``We are having success in educating them.''
    Unfortunately, this does not seem to have happened. If 
anything, the situation seems worse now. Banks seem to have 
been frightened by the amount of work required by the guidance.
    Even though the guidance said that banks should not 
arbitrarily treat MSB's differently, it requires banks to do 
much more due diligence than they have to for other types of 
business.
    MSB's are on the OCC's list of high-risk businesses, but so 
are car dealers, lawyers, accountants, investment bankers, 
broker-dealers, travel agencies, and leather goods stores, just 
to name a few.
    What does the OCC require in the way of due diligence for 
them? Is the standard higher for this particular industry?
    I would like to see the regulators adjust the guidance to 
the real level of risk.
    Frankly, FinCEN seems to have lost interest in advocating 
for a solution on this, and I am concerned that the other 
regulators do not see it as their responsibility to help MSB's 
function. I hope we can correct that by working together.
    If we do not, we will only drive MSB's and their customers 
underground, where they are much more susceptible to money 
laundering and fraud.
    Thank you very much for coming, and I look forward to the 
testimony.
    Chairman Bachus. Are there any more members wishing to make 
an opening statement? If not, at this time, I would like to 
introduce our first panel.
    Mr. Don Carbaugh is the acting Associate Director for 
regulatory policy and programs, Financial Crimes Enforcement 
Network, FinCEN.
    Ms. Eileen Mayer is the Director of Fraud/Bank Secrecy Act, 
the Small Business/Self-Employment Division of the IRS.
    Ms. Ann Jaedicke is the Deputy Comptroller for Compliance 
Policy, Office of the Comptroller of the Currency.
    At this time, I will ask Ms. Maloney to introduce our 
fourth witness.
    Mrs. Maloney. Thank you so much. It is my pleasure today to 
welcome my long-time friend, Diana Taylor, the superintendent 
of banks for the State of New York. Ms. Taylor has served in 
this position since 2003, and provides great insight and 
perspective into the field of financial services.
    Having worked in both the public and private sectors, she 
acted as the deputy secretary for finance and housing to 
Governor Pataki, served as the chief financial officer for the 
Long Island Power Authority, and helped found M.R. Beal & 
Company, an investment banking firm.
    I am looking forward, as always, to Ms. Taylor's testimony, 
as well as her responses to our questions about money services 
businesses.
    Thank you so much for being here, Diana.
    Chairman Bachus. Thank you. Let's start with Mr. Carbaugh 
and proceed.

   STATEMENT OF DON CARBAUGH, ACTING ASSOCIATE DIRECTOR FOR 
 REGULATORY POLICY AND PROGRAMS, FINANCIAL CRIMES ENFORCEMENT 
                            NETWORK

    Mr. Carbaugh. Thank you, Mr. Chairman.
    Chairman Bachus, Ranking Member Sanders, and distinguished 
members of the subcommittee, I appreciate the opportunity to 
appear before you today to discuss initiatives that the 
Financial Crimes Enforcement Network is implementing under the 
Bank Secrecy Act relating to the money services business 
sector.
    Your leadership and commitment to understanding and 
publicly discussing the issues confronting this industry is 
critical not only to the safety and soundness of our financial 
system but also to our Nation's security.
    I am pleased to be here today with Eileen Mayer from the 
IRS, Ann Jaedicke from the Office of the Comptroller of the 
Currency, and Superintendent Taylor from the New York State 
Banking Department.
    Each of these agencies plays a vital role in implementing 
Bank Secrecy Act requirements. I am happy to say that we have 
forged a strong working relationship in our united effort to 
regulate the money services business industry.
    The Financial Crimes Enforcement Network has regulated the 
money services business industry under the Bank Secrecy Act 
since the 1990's.
    Issues surrounding the money services business regulatory 
regime, including the need to identify unlicensed and 
unregistered money services businesses, conduct robust Federal 
Bank Secrecy Act compliance examinations, and ensure access to 
banking services, continue to be at the forefront of our 
agenda.
    As you are aware, there has been mounting concern among 
FinCEN financial regulators and the money services business 
industry regarding the ability of money services businesses to 
obtain and maintain banking services. Many banks have stated 
their uncertainty as to the appropriate steps that they should 
take under the Bank Secrecy Act to manage potential anti-money 
laundering and terrorist financing risks.
    At the same time, the money services business industry has 
expressed concern that misperceptions of risk may be unfairly 
labeling them as unbankable.
    Individual decisions to terminate account relationships, 
when compounded across the U.S. banking system, have the 
potential to result in a serious restriction in available 
banking services to an entire market segment. The money 
services business industry provides valuable financial 
services, especially to individuals who may not have ready 
access to the formal banking sector.
    If money services business account relationships are 
terminated on a widespread basis, we believe that many of these 
businesses could go underground.
    This potential loss of transparency would, in our view, 
significantly damage our collective efforts to protect the U.S. 
financial system from money laundering and other financial 
crime, including terrorist financing.
    Clearly, resolving this issue is critical to achieving the 
goals of the Bank Secrecy Act.
    In March 2005, the Non-Bank Financial Institutions and 
Examinations Subcommittees of the Bank Secrecy Act Advisory 
Group jointly hosted a fact-finding meeting to solicit 
information from banks, as well as money services businesses, 
on issues surrounding the provision of banking services to the 
money services business industry. Subsequently, in April 2005, 
FinCEN and the Federal banking agencies issued interagency 
guidance to the banking industry on regulatory expectations 
when providing banking services to domestic money services 
businesses.
    FinCEN issued a companion advisory providing guidance to 
money services businesses on what they should expect when 
obtaining and maintaining banking services.
    Currently, based upon what we have learned at the March 
2005 meeting, and in subsequent discussions with other Federal 
and State regulators, law enforcement, and the industry, we 
have developed, and are implementing, a three-point plan, which 
is detailed in my written testimony, for addressing these 
issues.
    First, guidance that outlines with specificity Bank Secrecy 
Act compliance expectations when banks maintain accounts for 
money services businesses.
    Second, education that provides banks and bank examiners 
enhanced education on the operation of the variety of products 
and services offered by money services businesses and the range 
of risks that each may pose.
    Third, regulation that strengthens the existing Federal 
regulatory and examination regime for money services 
businesses, including coordinating with State regulators to 
better ensure consistency and leverage examination resources.
    We also continue to work closely with our colleagues at the 
Internal Revenue Service to enhance the examination regime 
through the development of revised Bank Secrecy Act examination 
procedures, information sharing, and examination targeting.
    Additionally, we continue to work closely with the 
Conference of State Bank Supervisors and State regulators on 
these issues.
    Executing individual agreements with State banking agencies 
will ensure better coordination and synergy with State-based 
examiners and improve consistency in examination processes.
    We also intend to continue working on developing indicators 
for law enforcement and financial institutions to help identify 
unlicensed and unregistered money services businesses.
    By providing law enforcement, banks, and other financial 
institutions with indicia of illicit activity, they will be 
better able to help us identify money services businesses that 
choose to operate outside of the regulatory regime.
    Lastly, I would like to comment briefly on our registration 
efforts.
    Identification of money services businesses subject to the 
Bank Secrecy Act requirements is an essential first step in 
effective regulation.
    Our effort to identify money services businesses begins 
with the Bank Secrecy Act requirement to register with FinCEN 
and maintain lists of agents.
    However, the industry is largely composed of small, 
unsophisticated businesses whose primary business is often 
something other than the money services that they provide, 
frequently to the poor and unbanked.
    Additionally, due to language barriers within certain 
communities, there may be confusion regarding the applicable 
regulations.
    We recognize that the complexity of our current approach to 
MSB registration may be contributing to a lack of registration, 
and we are working on solutions to provide a more efficient and 
reliable method for identifying money services businesses.
    In conclusion, Mr. Chairman, we are grateful for your 
leadership and that of the other members of the subcommittee on 
this issue, and stand ready to assist you in your continuing 
efforts to ensure the safety and soundness of our financial 
system.
    Thank you for the opportunity to appear before you today.
    I look forward to any questions you may have regarding my 
testimony.
    [The prepared statement of Mr. Carbaugh can be found on 
page 75 of the appendix.]
    Chairman Bachus. Thank you, Mr. Carbaugh.
    Ms. Mayer?

STATEMENT OF EILEEN C. MAYER, DIRECTOR, FRAUD/BANK SECRECY ACT, 
SMALL BUSINESS/SELF-EMPLOYED DIVISION, INTERNAL REVENUE SERVICE

    Ms. Mayer. Good morning, Mr. Chairman, and members of the 
subcommittee.
    I am pleased to be with you this morning to discuss the 
IRS's role in administering the BSA.
    Specifically, the IRS is responsible for examining for BSA 
compliance all financial institutions not currently examined by 
a Federal functional regulator. These entities include money 
services businesses such as check cashers, issuers of 
traveler's checks, and money transmitters, casinos, certain 
credit unions, dealers in jewelry and precious metals, and 
insurance companies.
    The largest of these groups is the MSB's. No one is sure 
just how big the universe of MSB's may be or how many of them 
are required to register with FinCEN under the BSA.
    What we do know is that, currently, there are more than 
24,000 registered MSB's. FinCEN maintains a list of registered 
MSB's on their Web site. The IRS is committed to our important 
role in enforcing the BSA.
    In late 2004, we created the Office of Fraud/BSA within the 
Small Business/Self-Employed Division. That is the office I now 
head. This allows us to utilize field agents whose sole 
responsibility is to examine MSB's, casinos, and other entities 
covered by the BSA but not monitored by traditional Federal 
regulators.
    Previously, agents conducting BSA exams were doing so as 
collateral duty to their more traditional income tax 
enforcement work.
    Today, we have approximately 350 BSA examiners in the 
field, and it is my hope that we will get the number up to 385 
in the not-too-distant future.
    This increased workforce is reflected in the number of 
Title 31 exams we have been able to conduct. In FY 2005, we 
examined 3,680 MSB's.
    Through late May of this year, we have almost exceeded that 
total, and expect to examine over 6,000 by the end of the 
fiscal year.
    We are also leveraging our resources with those of the 
States.
    In late April, Commissioner Everson announced agreements 
with 33 States and Puerto Rico to begin sharing BSA 
information.
    These agreements will allow the IRS and the participating 
States to share information and leverage their resources to 
ensure that MSB's are complying with their Federal and State 
responsibilities.
    We recognize, Mr. Chairman, that the money services 
business industry provides valuable financial services, 
especially to individuals who may not have ready access to the 
formal banking sector.
    It is a longstanding treasury policy that a transparent, 
well-regulated money services business sector is vital to the 
health of the world's economy.
    We find it regrettable that compliant MSB's are being 
rejected by banks over fears of potential non-compliance with 
BSA requirements. Our examinations do not support those fears.
    Of the over 7,300 MSB's that we examined last year, and 
this year thus far, there have been only 41 cases that merited 
referral to FinCEN for consideration of civil penalties or the 
IRS criminal investigations unit for possible criminal 
penalties. For the most part, the violations that we find are 
minor or technical in nature and can be corrected easily.
    When a minor or technical violation is noted, we issue a 
letter to the MSB listing the violation. Unless our letter is 
challenged, we expect those violations to be remedied in a 
timely manner, and to ensure that happens, our examiners will 
conduct a follow-up examination within 6 to 8 months.
    If no violations are found in the original exam, we issue a 
different letter showing that the business has been examined 
and no violations were found.
    Mr. Chairman, I hope my remarks this morning, as well as my 
written statement, submitted for the record, address many of 
the questions that the subcommittee has relative to the IRS's 
role with the BSA, and specifically its examination of MSB's.
    I will be happy to respond to any additional questions that 
the members of the subcommittee may have.
    [The prepared statement of Ms. Mayer can be found on page 
107 of the appendix.]
    Chairman Bachus. Thank you, Ms. Mayer.
    Ms. Jaedicke.

STATEMENT OF ANN F. JAEDICKE, DEPUTY COMPTROLLER FOR COMPLIANCE 
       POLICY, OFFICE OF THE COMPTROLLER OF THE CURRENCY

    Ms. Jaedicke. Thank you, Chairman Bachus, and members of 
the subcommittee. I appreciate the opportunity to discuss the 
Bank Secrecy Act's impact on money services businesses.
    Over the past couple of years, the OCC has taken many 
actions to help ensure that MSB's are not unfairly denied 
access to a bank account. For example, we participated in 
numerous meetings and conferences with representatives of the 
banking and MSB industries to help us understand the issues.
    With the other regulatory agencies, we issued interagency 
guidance and examination procedures that address MSB issues. We 
have provided instructions and training to our examiners on 
MSB's.
    As the regulator of national banks, the OCC has long been 
committed to ensuring that all Americans have fair access to 
the banking system and financial services. We recognize the 
positive role that MSB's play in this process, and the OCC is 
very concerned about the problems that MSB's are experiencing 
in obtaining banking services.
    The reasons some MSB's have lost access to banking services 
are complex and derive from a multitude of factors, including 
the risks presented by some MSB accounts, the costs associated 
with maintaining MSB accounts, and banks' concerns about law 
enforcement and regulatory scrutiny. Notwithstanding these 
concerns, there is still a significant number of national banks 
that continue to provide accounts and banking services to 
MSB's.
    OCC officials have met often over the last 18 months with 
various representatives of the MSB industry to better 
understand the problems MSB's face. For example, in March of 
2005, OCC representatives attended the fact-finding meeting on 
MSB's hosted by FinCEN. Later that month, the OCC hosted a 
teleconference for the banking industry in which we discussed a 
variety of issues, including MSB's.
    Also, the OCC participated in a nationwide teleconference 
on MSB issues hosted by the American Bankers Association. And, 
in April of 2006, the OCC again joined various Federal, State, 
and industry representatives at an MSB regulatory policy 
meeting sponsored by the ABA.
    All of these initiatives have helped to further the 
understanding of all parties, and we at the OCC are committed 
to continuing this dialogue.
    As our knowledge and understanding of MSB's and their 
issues have grown, our guidance has evolved. Along with FinCEN 
and the other Federal banking agencies, in April of 2005, we 
issued interagency guidance on MSB's. That guidance has since 
been incorporated into the Interagency Bank Secrecy Act and 
Anti-Money Laundering Manual and into our interagency training.
    More recently, on March 10, 2006, FinCEN issued an advanced 
notice of proposed rulemaking to solicit updated facts 
concerning MSBs' access to banking services, as well as 
recommendations regarding additional guidance or regulatory 
action that might address these concerns. The comment period 
closes soon, and the OCC will again work with FinCEN and the 
other Federal banking agencies to provide, if needed, different 
guidance to the banking industry that is clear and consistent. 
We commend the efforts of Director Werner for the leadership he 
has shown in addressing this important issue.
    The BSA has been the focus of regulatory, Congressional, 
and media attention for the past few years, and, certainly, 
there has been an increasing sense of urgency for all of us 
since 9/11. The intense focus on BSA compliance may have led to 
misperceptions about the OCC's policies and practices relating 
to MSB accounts at national banks, so let me be clear.
    First, the OCC is not the supervisor of MSB's and does not 
expect national banks to be the de facto regulators of their 
MSB customers. Second, the OCC does not, as a matter of general 
policy, require any national bank to close the accounts of an 
MSB or any other customer. Third, the OCC does not discourage 
banks from having MSB accounts. We expect banks that open and 
maintain accounts for MSB's to apply the requirements of the 
BSA, as they do with all accountholders, on a risk-assessed 
basis.
    Finally, the OCC has taken many steps to ensure that our 
examiners are acting in conformance with our agency policies. 
For example, when the interagency guidance was issued, we 
provided copies to every national bank examiner with 
instructions that it was to be followed immediately. As 
previously discussed, the interagency guidance has been 
incorporated into the interagency BSA manual, and Comptroller 
Dugan has directed that the procedures in the interagency 
manual be used at every BSA/AML exam. We have trained our 
examiners extensively on the procedures in the interagency 
manual.
    Perhaps most significantly, in the past year, senior OCC 
officials have held nationwide teleconference briefings with 
the entire national bank examination force. In those briefings, 
examiners were instructed that under no circumstances should 
they be directing or encouraging banks to close MSB accounts. 
We have been very clear in this regard.
    Mr. Chairman, the OCC salutes your leadership in this vital 
area. We also believe that important objectives are achieved 
when MSB's have access to banking services, consistent with 
anti-money laundering laws and rules. We stand ready to work 
with Congress, FinCEN, the other Federal banking agencies, and 
the banking industry to achieve these goals.
    Thank you.
    [The prepared statement of Ms. Jaedicke can be found on 
page 93 of the appendix.]
    Chairman Bachus. Thank you.
    Ms. Taylor.

  STATEMENT OF THE HONORABLE DIANA TAYLOR, SUPERINTENDENT OF 
BANKS, STATE OF NEW YORK, ON BEHALF OF THE CONFERENCE OF STATE 
                        BANK SUPERVISORS

    Ms. Taylor. Good morning, Chairman Bachus, Congresswoman 
Maloney--thank you very much for your kind introduction--and 
members of the subcommittee.
    I am Diana Taylor, superintendent of banks for the State of 
New York.
    I am pleased to be here today on behalf of the Conference 
of State Bank Supervisors to discuss the impact of Bank Secrecy 
Act compliance requirements on the availability of banking 
services through money service businesses.
    The New York State Banking Department is responsible for 
licensing, supervising, examining, and regulating MSB's that 
operate within our State's borders. The MSB's that we currently 
oversee, by State law, include money transmitters and check 
cashers.
    MSB's fill a need in many markets. For many individuals and 
families, especially in low-income and urban communities, MSB's 
may be the only means of access to cash or the only avenue for 
sending funds to family members abroad.
    In New York State, there is an enormous concentration of 
money transmitters and check cashers in only a few banks. Two 
banks provide services to 42 percent of our money transmitters, 
and two different banks provide services to 87 percent of our 
licensed check cashers. The two banks in New York that are the 
most active in providing these services to money transmitters 
are currently considering exiting this business.
    The departure will undoubtedly present a significant 
challenge to New York's MSB's, not only in the short term but 
in the long term, as well, as the decline in competition is 
likely to not only raise fees for these businesses but to make 
it that much more difficult to find any bank to do business 
with them.
    So, how do we solve this problem? Our solution must create 
incentives that ultimately serve to protect consumers, the 
banks, and the MSB's. Piecemeal stop-gap legislation is not a 
viable solution.
    The solution requires effort from all parties involved--the 
MSB's, the banking industry, State and Federal banking 
regulators, FinCEN, and the IRS.
    First, FinCEN should revisit its definition of an MSB. The 
current definition is too broad, with a threshold so low that 
it may capture more entities than intended. The definitions hit 
target entities whose primary business is providing financial 
services, rather than the entities that offer financial 
services only incidentally to their core businesses, such as 
supermarkets cashing checks for their customers.
    Two, regulators should consider further clarifications of 
standards.
    We, as regulators, should be able to develop simplified 
standardized requirements for MSB's that serve a lower-risk 
client base.
    This new standard could serve as a foundation for an 
advanced comprehensive BSA/AML program.
    Additionally, while the joint guidance issued by FinCEN and 
the Federal banking agencies did help clarify regulators' 
expectations for banks that serve MSB's, further guidance may 
also be necessary in two areas--appropriate due diligence when 
maintaining accounts for foreign providers of money services 
and identifying entities that may be operating covertly as 
MSB's.
    Third, we must continue to improve Federal and State 
coordination.
    Thirty-nine States have signed a memorandum of 
understanding (MOU) with FinCEN, and 35 States have signed with 
the Internal Revenue Service, to set forth procedures for 
sharing certain Bank Secrecy Act information.
    These MOU's, however, cannot entirely address a critical 
need for additional services at both State and Federal levels. 
We need access to additional training and a renewed commitment 
from FinCEN and the IRS to deliver on the promises of the 
MOU's.
    Federal and State regulators, FinCEN, and the IRS need to 
continue our efforts to deliver a consistent message to the 
banking industry about their obligations and rights.
    Fourth, we should create incentives to encourage banks to 
serve the MSB industry.
    We might consider offering CRA credit to banks that provide 
services to MSB's, since a significant segment of these 
businesses' customers are low-income individuals, households, 
minorities, and new immigrants.
    We should also seek out incentives for banks to offer MSB-
type services in unbanked and underbanked communities across 
the country.
    MSB's must continue to improve their risk-management 
systems, with continuing focus on the area of BSA/AML 
compliance.
    As MSB's make their commitment to compliance clear, banks 
may become more willing to provide services to these 
businesses.
    At the State level, we must continue to improve supervision 
of these entities.
    New York supervisory protocol for MSB's takes an integrated 
approach that focuses on risk management, with an emphasis on 
the compliance function, inclusive of BSA.
    Our FILMS evaluation system provides an early warning 
system about weakening conditions and a guide to where to look 
for noncompliance issues.
    Both CSBS and its counterpart organization, the Money 
Transmitters Regulators Association, have made a commitment to 
provide additional training and resources for State MSB 
examiners across the country.
    No silver bullet can solve this issue, and finger pointing 
is not helpful.
    This is an industry that is vital for many people.
    Licensing alone is not a panacea. It is also not helpful 
for banks to categorically refuse to do business with MSB's. 
Regulators must be consistent in their requirements for the 
industry. Everybody must work together.
    I commend the subcommittee for holding a hearing on this 
very important issue.
    Thank you.
    [The prepared statement of Ms. Taylor can be found on page 
126 of the appendix.]
    Chairman Bachus. Thank you.
    Mr. Carbaugh, the SAR's that the MSB's are required to 
file--does law enforcement review those SAR's?
    Mr. Carbaugh. Yes, they do, sir.
    Law enforcement around the country, through various, for 
example, high-intensity financial crime areas, have SAR 
activity review teams that review and assess individual SAR's 
that come in, and they distribute them based on their 
jurisdiction. So, yes, they are being looked at on that level.
    They are also being looked at on a more macro level at 
FinCEN to identify potential trends and patterns, and to look 
at the information in a more strategic way and to provide some 
proactive targeting of institutions when they are identified.
    Chairman Bachus. What is the last year that you all have 
reviewed those SAR's? Have you reviewed those that were filed 
last year?
    Mr. Carbaugh. One of the strategies that we have in place 
right now is actually looking at SAR's filed by depository 
institutions since the issuance of our guidance last year, 
where we said in our--in the guidance that if you identify a 
potential unregistered or unlicensed money service business 
that you believe is operating outside of the requirements--
    Chairman Bachus. Yes, I am talking about the licensed ones 
now. How long after they file the SAR's are you reviewing those 
SAR's?
    Mr. Carbaugh. Well, they come into the database very 
quickly, depending on how they are filed.
    Chairman Bachus. How many of the SAR's filed by MSB's last 
year resulted in criminal cases being brought?
    Mr. Carbaugh. I do not have that information. I would have 
to reach out to my law enforcement counterparts to obtain that.
    Chairman Bachus. Is that information available?
    Mr. Carbaugh. I would have to check with them.
    Chairman Bachus. Are you personally aware of whether any of 
them have resulted in criminal charges?
    Mr. Carbaugh. My understanding is that, yes, they have 
resulted in criminal actions, and we do have evidence that we 
put forth in our SAR activity review, which we publish twice a 
year, detailing cases where suspicious activity reports have 
resulted in prosecution.
    Chairman Bachus. Are the prosecutions from the SAR's that 
MSB's have filed--are they much greater in number and 
percentage than those filed by other financial institutions?
    Mr. Carbaugh. I do not have that information.
    Chairman Bachus. Could you get that information and supply 
it to the committee?
    Mr. Carbaugh. I would have to check with our law 
enforcement counterparts.
    Chairman Bachus. Okay.
    Thank you.
    Ms. Jaedicke, what is the OCC doing to discourage banks 
from severing their relationships with MSB's? I mean it is not 
working.
    You know, there was another major announcement this week of 
another major bank that actually says they are not going to 
extend banking services to MSB's. Is the OCC powerless to stop 
this?
    Ms. Jaedicke. I hope not, sir. The intent of the guidance 
that was put out last year, under FinCEN's leadership, was to 
provide more clarity around this particular issue, so that 
banks would feel comfortable servicing MSB's, and MSB's would 
know how to provide information to banks that would make banks 
more comfortable. So, I would again say that we should take a 
hard look at the comments that come in from the ANPR that 
FinCEN has issued and see if there are some changes we can make 
in the guidance that might help the situation.
    Chairman Bachus. Let me ask both FinCEN and the OCC. You 
are aware that some of the largest banks in America say that 
they are not going to continue to serve MSB's, and I think you 
both said you are very concerned about this. My question is 
what are you going to do about it?
    Ms. Jaedicke. Sir, as I said, we do not tell national banks 
which accounts to open or close.
    Chairman Bachus. OCC is powerless--if a whole industry--if 
banks are saying we are not going to deal with this industry--
the OCC--do you feel like you have any responsibility or any 
obligation to--
    Ms. Jaedicke. I think this is a multi-part problem, sir, 
that will require a multi-part solution.
    Chairman Bachus. Is there any obligation or responsibility 
on your part, when the major banks in this country say that 
they are not going to serve an industry, and they discontinue 
their services to that industry, do you--does the OCC have a 
statutory or regulatory duty or obligation to see that does not 
happen? It is not a loaded question. You are in charge of 
compliance.
    Ms. Jaedicke. Yes, sir.
    I think our duty and obligation is to provide clear 
guidance in terms of what our supervisory expectations are, and 
that is what we have tried to do. We are very concerned about 
the situation with the money services businesses and the 
discontinuance. We want to do what we can, what is within our 
power, although we are not the regulator of the money services 
businesses, we do not write the regulations for MSB's, but 
certainly our banks are some of the banks that are providing 
services to them. So, I think the best place for us to have 
influence is in the information and the guidance we provide to 
the financial institutions.
    Chairman Bachus. I do not know the answer to this question.
    Is there any statutory or regulatory obligation of banks to 
serve all industries, or can they categorically just announce 
that they will not serve certain industries or certain groups 
of people?
    Ms. Jaedicke. There are CRA obligations, sir, that have to 
do with lending, particularly lending to--
    Chairman Bachus. Or servicing accounts?
    Ms. Jaedicke. Right. Lending to a bank's communities, 
including low- and moderate-income areas.
    Chairman Bachus. If these are law-abiding companies that 
are subject to regulation, and they are complying with the 
regulations, is it a violation for banks to just publicly 
announce to the world that they are not going to deal with 
those companies anymore?
    Ms. Jaedicke. Not to my knowledge, sir.
    Chairman Bachus. Okay. Do you need such statutory power?
    Ms. Jaedicke. No, sir, I don't think so. I think the 
solution to this really lies with multiple parties. It lies 
with the OCC and the other Federal banking agencies. It lies 
with the States and the IRS, who need to provide even and 
vigorous supervision of the MSB's. It lies with the MSB's 
themselves, who need to make sure that they are in compliance 
with the regulations that apply to them.
    Chairman Bachus. You know, some of them are complying. They 
have not been guilty of any violations, and yet, they have been 
denied banking services by some of the country's largest banks. 
You are aware of that?
    Ms. Jaedicke. Yes, sir.
    Chairman Bachus. Okay.
    You said you do not like the regulations that have been 
imposed upon OCC or that you have to comply with? Is that the 
FinCEN regulations?
    Ms. Jaedicke. I am sorry, sir. Would you repeat that?
    Chairman Bachus. You made some statement that you did not 
like the regulations.
    Ms. Jaedicke. No, sir, I do not think I said that.
    Chairman Bachus. Okay.
    All right.
    Ms. Maloney?
    Mrs. Maloney. Thank you.
    Superintendent Taylor, in your testimony, you state that 
FinCEN's definition of an MSB does not differentiate among 
levels of risk within the MSB industry, and you gave several 
suggestions about how that definition should change based on 
targeting the entities whose primary business is providing 
financial services rather than entities that offer financial 
services only incidentally to their core business.
    What sort of a breakdown in definitions do you think would 
be helpful to properly regulate MSB's? If you would like to 
expand on any of your recommendations, you have the floor.
    Ms. Taylor. Thank you.
    What I was referring to is the entities that have a primary 
business of being an MSB. For instance, entities like a 
MoneyGram or a big check casher are subject, under the current 
regulations, to the same sets of rules and regulations as a--
for instance, a grocery store that is cashing checks as, you 
know, a courtesy to their customers or entities that carry out 
more limited businesses--for instance, just cashing payroll 
checks or government checks or something like that--and I think 
this is an area that needs to be explored, where maybe we could 
be a little bit more pointed in which types of entities get 
regulated how, so you do not have everybody getting swept up 
under the same group of regulations.
    I think that is something that we need to look into, and 
maybe we can do something there and maybe we cannot, but I 
think that we need to look at it.
    Mrs. Maloney. I would like to ask the Deputy Comptroller 
for Compliance in the OCC, Ms. Ann Jaedicke--one of the 
problems that we are hearing is, when I talk to some of the big 
banks--and I am not just talking about New York banks. I am 
talking about big banks in this country--a number of my 
colleagues, Mr. Frank and others, have mentioned that they have 
talked to these banks and they say we have to stop this service 
because the OCC is telling us to do that.
    Now, when I wrote to Mr. Hawke, and in your comments, you 
are saying you are not doing that, but there definitely is some 
misconnection, because they truly do believe that they are 
being told to discontinue the service, and so, that is my 
question.
    You say that you are not telling them that, but whatever--
there is a disconnect. They are pointing fingers back at you.
    How can you clear this miscommunication up?
    Ms. Jaedicke. We tried to clear it up in March of 2005, as 
part of the interagency guidance on MSB's that we issued with 
FinCEN and the other regulators. In that guidance, we made it 
clear that it was the bank's decision whether to keep open an 
account or close it. Also, as I said in my testimony, we made 
it very clear to our bank examination staff that it was not 
their job to decide which accounts should stay open or be 
closed; that was the bank's decision.
    Mrs. Maloney. Well, I tell you, we work on this committee 
and we try to figure out how to get financial services into our 
country.
    We are working very hard to try to get people who are 
unbanked into the banking system.
    It is a better way to track money laundering and to just 
track what is happening in our country, and everyone says that 
they want to help, but nothing seems to be happening, and I 
would like to ask everyone to just talk about what you think 
should happen, but right now, I would like to ask Don Carbaugh, 
how many MSB SAR's were filed last year, and of those that were 
found to involve money laundering, how many do you expect will 
eventually reveal actual criminal activity?
    Mr. Carbaugh. Thank you, Congresswoman.
    Last year, there were approximately 384,000 MSB SAR's filed 
by the money services business industry. Your question with 
respect to prosecutions or criminal activity, I cannot answer.
    That is a question that will, again, be a question for law 
enforcement.
    We at FinCEN do not have criminal investigative authority.
    Mrs. Maloney. Of those that were filed, do you know if any 
of them involved money laundering? Did any of them involve--I 
mean that is an important question.
    Mr. Carbaugh. Sure. The SAR's that are filed--there is 
information on the SAR's that the MSB has to check to determine 
what kind of activity they have identified, and many of those 
SAR's do indicate money laundering or Bank Secrecy Act 
violations.
    Mrs. Maloney. If you cannot get it to me today, I think a 
very legitimate question is how many MSB SAR's were filed and 
how many of them had money laundering or some problem with 
them, and so, I think it is important to see whether there is 
any correlation between criminal activities and your assertion 
that MSB's are high-risk.
    It may be that there has not been any money laundering in 
MSB's, and therefore, the high risk level should be removed.
    You may not have that information now, but you surely can 
obtain it, and I'd like to ask for it for the committee.
    My time is up, but if you have a comment, I would love to 
hear it.
    Mr. Carbaugh. Again, there were 384,000 filed last year.
    Just to your point, we do not suggest that all MSB's are 
high risk.
    In the joint guidance that was issued last year to the 
banking industry, we indicated that there were various levels 
of risk in the money services businesses industry, as there are 
with any other account holders or businesses that depository 
institutions would bank.
    Mrs. Maloney. To my question, how many MSB SAR's had any 
type of money laundering, that figure has to be out there.
    It may be that none of them had any money laundering. I do 
not know.
    I think it is a legitimate question; maybe you could get 
back to us.
    Mr. Carbaugh. We can get that information. Again, it would 
be suspected money laundering.
    Mrs. Maloney. Thank you.
    Chairman Bachus. Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    Mr. Carbaugh, on page 3 of your testimony, I think you said 
that if the MSB account relationships were terminated on a 
widespread basis and these businesses go underground, that this 
could significantly damage our collective efforts to protect 
the U.S. financial system from money laundering and other 
financial crimes.
    That is pretty strong language.
    Could you elaborate just how serious of a challenge this 
would be to FinCEN?
    Mr. Carbaugh. Sure.
    The challenge for us would be that, if there is a loss of 
transparency, then we have no indicators of activity that may 
be flowing through these types of businesses.
    When we bring them under the AML regulations, they are 
filing reports to us that are then used by law enforcement, 
that are obviously indicators of potential suspicious activity.
    So if, in fact, they go underground, that is that much 
information that we would not have available for law 
enforcement to potentially investigate,
    Mr. Hensarling. So, between the regulation and the 
legislation, if we do not get it right, these businesses are 
not necessarily going away; we are just simply going to lose 
their paper trail.
    Is that a fair statement?
    Mr. Carbaugh. I think that there is evidence to suggest 
that, correct.
    Mr. Hensarling. Ms. Jaedicke, I peeked ahead at the 
testimony of the next panel, and Mr. Abernathy with the ABA 
states in his testimony that the interagency guidance has not 
provided a firm enough separation between the low-risk and 
high-risk profiles on the MSB's, causing, in the opinion of 
ABA--and I have not seen a statistic saying that most banks are 
prompted to use a high-risk due diligence criteria and applying 
that to the MSB's.
    I think, in your own testimony, if I remember right, that 
banks are supposed to be using some amount of due diligence to 
differentiate between the two, but it sounds like they do not 
feel they have sufficient guidance on how to do that, and so, 
they are using the higher risk, which, to some extent, is 
perhaps helping the phenomena that Mr. Carbaugh is worried 
about.
    Can you detail how this interagency guidance defines low-
level risk versus high-level risk, and why, seemingly, 
financial institutions do not feel that they have too much 
ambiguity to apply it?
    Ms. Jaedicke. Certainly, sir.
    The guidance has examples of what low-risk money services 
businesses might be versus what high-risk money services might 
be and supplies some attributes. For example, it explains a 
low-risk money service business to be something like a check 
casher that would cash payroll checks for a local employer, and 
that would describe many of the money services businesses that 
we have here in the United States. As an example of a high-risk 
money service business, it gives a wire remitter that was 
remitting large and frequent wires to a country that was of 
money laundering concern to some part of the United States 
Government, either Treasury or the State Department or some 
other organization. So, we tried to make differentiations, with 
FinCEN's help, in the types of MSB's and give the industry 
examples of low-risk versus high-risk.
    Mr. Hensarling. At what point, if any, does a financial 
institution ultimately become responsible for the BSA 
compliance of its customer, because I believe a number of our 
financial institutions believe that, de facto, they are.
    Ms. Jaedicke. At what point does the bank become 
responsible for its--
    Mr. Hensarling.--for the BSA compliance of one of its 
customers.
    Ms. Jaedicke. We would not say that the bank was 
responsible for the BSA compliance program of the MSB. MSB's 
are required by regulation to have a compliance program. What 
the bank typically would do would be to simply ask questions of 
the MSB, if the bank felt it was necessary to do so for their 
due diligence program, questions about the MSB's own program, 
perhaps.
    Mr. Hensarling. You understand that a number of the 
financial institutions--apparently a great number of them, as 
we will soon hear testimony--believe that, de facto, they are 
being asked to do that and that they do bear some 
responsibility.
    You understand--
    Ms. Jaedicke. I do understand that, sir. All I can tell you 
is that the guidance was specifically intended to address that.
    Mr. Hensarling. Thank you.
    I am out of time.
    Chairman Bachus. Mrs. McCarthy?
    Mrs. McCarthy. Thank you, Mr. Chairman.
    It has been interesting hearing each one of you speak, and 
also reading your testimony, and it seems to me, obviously, 
with all of you sitting in front of us, we are sitting here 
because we are thinking, okay, how are we going to fix this 
problem.
    I know New York State is going to have some legislation in 
front of their committee--that was in your testimony--that 
would require banks to get your permission in order to close an 
MSB account. Could you go further into detail on your concerns 
with this requirement?
    I think the one thing I am hearing is that everybody is 
going by these requirements, but nobody seems to be talking to 
each other on how to handle this.
    New York State has, at least, come up with some solution, 
where the Federal Government--have you all talked together, all 
of you, to try and figure out what we can do to make sure that 
everybody is on the same page, so that our MSB's can serve the 
people they need to, and certainly protect our banks that have 
an obligation to make sure that we are not money laundering.
    Ms. Taylor. I will start with the New York State 
legislation problem and then go to the Federal regulations to 
answer your question.
    As far as the proposed legislation in New York State, what 
it would require is that any bank that told an MSB that it was 
going to close its account--it would have to get written 
permission from the superintendent of banks in order to do 
that.
    I think this is a very, very bad idea for exactly the 
reasons that Ms. Jaedicke said before.
    Regulators are not in the business of telling their 
regulated institutions who to do business with or who not to do 
business with.
    We set up guidance and guidelines and regulations, and each 
bank in this free country of ours is free to do business with 
whomever they choose.
    However, what we can do, and what we are trying very hard 
to do at the New York State Banking Department, is to put in 
place--which I think we have done--a system of rating and 
examining and supervising the MSB's, which hopefully will bring 
them up to par in the BSA compliance area. We have done a lot 
of work in this area, and it is starting to show some success.
    The money transmitters who have gone through our system--
they are on their second round. The first round, there were 
some very severe BSA compliance problems. Approximately two-
thirds of the businesses were not up to standard.
    The second time through, it is about two-thirds who are up 
to standard.
    In the check-cashing area, there are some very severe 
compliance problems, and we are working with our constituents 
to make sure that they put the systems in place that they need 
in order to comply with the rules and regulations.
    Mrs. McCarthy. Thank you.
    Ms. Jaedicke. I would just like to say that the Federal 
bank regulators and State bank regulators are spending a great 
deal of time trying to work on this issue. We have met 
repeatedly as a group, and we have met with the trade 
associations for the MSB's, and we have met with the ABA to try 
to find solutions.
    Mr. Carbaugh. I would add that, as was previously 
mentioned, FinCEN took the lead last year in conducting a fact-
finding meeting on this issue, worked very closely with our 
counterparts in the Federal banking agencies to develop and 
issue a policy statement, as well as joint guidance, on this 
issue, and since there has been some evidence of continued 
discontinuance--and again, I think we are taking the lead in 
that, in March, we issued an advanced notice of proposed 
rulemaking seeking comment on this very issue, and that 
rulemaking closes on July 10th, and at that point, we will 
certainly assess all comments and recommendations provided to 
us, and make some decisions about appropriate steps to take at 
that point.
    Mrs. McCarthy. I guess my concern is--because I am also 
hearing from my MSB's that, you know, as they try to go into 
new entities, you know, to join with a bank or a credit union, 
they will not even consider them anymore, because they are 
hearing of all the other larger banks that are actually pulling 
out.
    Obviously, we want to work with the bankers. We also want 
to work with those that are serving the underserved 
communities.
    So, I guess that is going to be up to us to see how we are 
going to come up with those answers.
    I yield back the balance of my time.
    Chairman Bachus. Thank you.
    Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    Mr. Carbaugh, you say in your testimony that many banks 
have stated their uncertainty as to the appropriate steps that 
they should take under the Bank Secrecy Act to manage potential 
anti-money laundering and terrorist financing. Those are your 
words.
    In your opinion, is this due to the lack of regulatory 
guidance?
    Mr. Carbaugh. No.
    I think that there might be misperceptions about the 
guidance.
    Again, we worked collaboratively with the Federal banking 
agencies when this issue was raised last year to develop some 
very specific guidance that details what our expectations are 
when they open and maintain accounts for money services 
businesses.
    Those requirements and expectations are similar to that of 
any other business that a banking organization would bank, and 
the types of risk assessments that they would conduct pursuant 
to those types of accounts, as well.
    Mr. McHenry. You also talk about certain MSB's going 
underground.
    How would they do that?
    Mr. Carbaugh. One is not registering with FinCEN and not 
licensing with any potential State requirements, and then 
conducting business through, for example, a banking 
organization without being in compliance with those basic 
compliance requirements under Federal, as well as potentially 
State--
    Mr. McHenry. Have you seen that?
    Mr. Carbaugh. Yes, we have evidence, through suspicious 
activity reports, of that occurring.
    Mr. McHenry. How significant?
    Mr. Carbaugh. I think it is significant enough to certainly 
pay attention to, and we are certainly developing a strategy to 
identify unregistered money services businesses and put in 
place a broad spectrum of compliance and enforcement strategies 
to address that issue.
    Mr. McHenry. I would like to also echo what the chairman 
requested, some statistics in terms of what--you talk about 
385,000 suspicious activity reports last year, right?
    Mr. Carbaugh. Correct.
    Mr. McHenry. You know, in terms of what that is doing, I 
mean how many of those have netted anything, we would like to 
hear that, because perhaps we are generating too much paper for 
you, or not enough, and you know, unless we have the 
statistics, we are not going to be able to judge.
    Mr. Carbaugh. We will get those statistics for you.
    It is also important to note that it is a database of 
information, and one SAR that is filed will not necessarily 
result in an action, but looking at the database as a whole and 
linking different pieces of information together may present a 
very different picture, and that is important, too, I think.
    Mr. McHenry. Moving to Ms. Jaedicke, you are popular today. 
I think it is because of your name, so easy to say.
    Ms. Jaedicke. Yes, sir, it is fun.
    Mr. McHenry. Yes.
    You mentioned the diversity in MSB's--size and mom-and-pop 
versus Fortune 500.
    Ms. Jaedicke. Yes.
    Mr. McHenry. How are the regulations affecting these--is it 
across the board? Is it affecting certain areas more than 
others?
    Ms. Jaedicke. You mean in terms of the bank discontinuance 
issue?
    Mr. McHenry. Yes.
    Ms. Jaedicke. Which types are losing accounts more 
frequently?
    Mr. McHenry. Yes.
    Ms. Jaedicke. I do not know that I would have that 
information.
    Maybe Ms. Taylor would know better for the State of New 
York.
    Mr. McHenry. Ms. Taylor?
    Ms. Taylor. I think the best way to answer that is to say 
that everybody is complaining about the same issue. If a bank 
says that it is not doing business with money service 
businesses anymore, that includes the big ones and the small 
ones.
    I would say that you could ask the next panel that 
question, also, but it is our experience that it is pretty much 
across the board, I think.
    Mr. McHenry. Is there a certain type that would have a 
greater risk for money laundering?
    Ms. Taylor. Who are you asking?
    Mr. McHenry. You, Ms. Taylor.
    Ms. Taylor. Okay.
    Well, it depends on the business. There are a lot of 
different characteristics of--
    Mr. McHenry. That is what I am asking.
    What characteristics would say that there is a greater 
risk?
    Ms. Taylor. If money is being--large amounts of money are 
being transmitted overseas, large checks being cashed, if 
there--
    Mr. McHenry. What I mean is the type of business--mom-and-
pop versus a Fortune 500.
    Ms. Taylor. It is hard to say, because it depends on the 
compliance systems.
    If the compliance systems are in place to catch trends and 
transactions to lead people to go look at them, then that's one 
thing.
    I think that any business, large or small, that does not 
have a good compliance system is a very high risk situation, no 
matter what kind of business it is conducting.
    Mr. McHenry. Ms. Jaedicke, would you like to comment?
    Ms. Jaedicke. I would add to that that it sometimes can be 
more difficult--I am not saying they are inherently more 
risky--but it sometimes can be more difficult for the very 
small MSB's, the mom-and-pop-type MSB's, to have robust 
compliance programs. Of course, they do not need as robust a 
compliance program as does a big MSB, but it is sometimes 
difficult for them to find qualified people to help them design 
a program, and that can make a difference sometimes in bank 
discontinuance.
    Mr. McHenry. Thank you, Mr. Chairman.
    Ms. Taylor. Can I add to that?
    Mr. McHenry. Go right ahead.
    Ms. Taylor. Thank you.
    We had a situation recently where there was a newspaper 
article which was written about a city in western New York 
which complained that there were several--as in many--check 
cashers that were unlicensed, operating in the city, which were 
charging exorbitant rates to their customers. This is 
problematic on a couple of levels.
    One, they are charging their customers exorbitant rates, 
which is not good.
    Two, they were unlicensed, unregistered entities, and so, 
we need to know about those.
    A lot of these mom-and-pops do not even know that they have 
to be registered.
    So, the really small ones that are below everybody's radar 
screen--you have to actually go out in the community and see 
them before you can find out what they are doing and whether or 
not they are registered and licensed.
    So, that is a very big problem, too, and those, I think, 
are very high risk.
    Chairman Bachus. Thank you.
    Mr. Clay?
    Mr. Clay. Thank you, Mr. Chairman, and I thank you for 
holding this hearing today, and I appreciate the panel's 
participation.
    Many banks cite the risk associated with dealing with 
unlicensed MSB's, and it is required that MSB's register with 
the Treasury.
    The Patriot Act also prohibits anyone from knowingly 
operating or owning a money transmitting business without a 
license in a State that requires one or without registering the 
business with the U.S. Treasury.
    This question is for the entire panel.
    Why does it seem that all MSB's are generally put into the 
same category of risk regardless of whether they are licensed 
or have a strong record of compliance? How do banks quantify 
and distinguish between the risk of unlicensed MSB's and those 
that are licensed?
    We can start with you, Ms. Taylor.
    Ms. Taylor. One of the things that we have been very 
definite with our banks about is, if we find that they are 
doing business with unlicensed money service businesses, that 
is a very bad thing.
    The first question they should ask any money service 
business that comes to them for an account is whether or not 
they are licensed.
    Doing business with unlicensed money service businesses is 
not a good idea.
    Mr. Clay. What happens when you find out they are not 
licensed?
    Ms. Taylor. We tell them, if they are not licensed, then we 
ask them to close the account, and we go to the money service 
business and tell them that they need a license in order to 
operate in this State, and if they do not get a license, you 
will be penalized.
    Mr. Clay. Ms. Jaedicke.
    Ms. Jaedicke. I would say that is a significant issue for 
the banks that we deal with, as well. One of the threshold 
questions for them when they're opening an account for an MSB 
is, are you registered with FinCEN, are you properly licensed 
with the State? Sometimes MSB's do not understand the licensing 
requirements, and the banks will, in some cases, try and help 
them to understand those requirements.
    They will print the licensing forms off of the Web site; 
they will explain to the MSB what they need to do. But, if the 
MSB then does not follow through, that leaves the bank with 
what they view as a rather serious situation, because the MSB 
is operating outside of the requirements of the law.
    Mr. Clay. Then they are immediately stopped from doing 
business with the bank?
    Ms. Jaedicke. Well, I would not say they are immediately 
stopped. I would say that banks will close accounts for MSB's 
that have not gotten licensed and registered, once the bank has 
made the MSB aware of the requirement, if, indeed, they were 
simply unaware.
    Mr. Clay. Thank you.
    Ms. Mayer?
    Ms. Mayer. Congressman, as you know, the IRS is charged 
with enforcing compliance with the BSA by MSB's, and so, we do 
not have anything, really, to do with banks.
    However, whether or not MSB's are registered is obviously 
an important issue for us, and at the moment, we are working 
with FinCEN, we have put a special emphasis on trying to find 
MSB's that are not registered and have pushed out several 
thousand non-registration cases into the field in order to find 
these MSB's that are not registered and to get them registered, 
to bring them into compliance with the law.
    Part of what we do in our efforts is to educate businesses 
that we find through various sources and try to bring them into 
compliance with the law.
    Mr. Clay. Any idea of how many MSB's, percentage-wise, are 
not registered or that may be registered?
    Ms. Mayer. That is the $64,000 question. You know, there 
are estimates all over the place of how many MSB's there really 
are.
    We know that there are 24,000 MSB's that have actually 
registered.
    Mr. Clay. I see.
    Okay.
    Thank you.
    Mr. Carbaugh, anything to add?
    Mr. Carbaugh. I would just echo that licensing with the 
State, if required, and registration with FinCEN, if required, 
is one of the most basic requirements under our regulations for 
MSB compliance, and we have outlined that, actually, in our 
guidance to the banking industry, as well, and the guidance 
also details the steps that a banking organization should take 
when they do identify an institution that they believe is 
operating outside of the law, and therefore, in potential 
criminal violation under Title 18, and that is to file a 
suspicious activity report. We are looking at that information 
right now and providing data to the Internal Revenue Service 
for outreach and examination purposes.
    Mr. Clay. Do you see any flaws in the current guidance for 
banks and the guidelines for the banks? Do you see any flaws?
    Mr. Carbaugh. Well, I think the guidance is very detailed 
and lays out expectations, and it is important to note that we 
also, at the same time, issued a companion piece of guidance to 
the MSB industry indicating what they should expect whenever 
they open and maintain accounts at a banking organization.
    One of the things, as I mentioned before, that we are doing 
is the issuance of the advanced notice of proposed rulemaking 
to ascertain if there is anything else we can do in this area 
as far as guidance or changes to regulations.
    Mr. Clay. Thank you. I thank the panel for their responses.
    Thank you, Mr. Chairman.
    Chairman Bachus. Mrs. Kelly?
    Mrs. Kelly. Thank you.
    Ms. Jaedicke, the OCC ombudsman program allows banks to 
complain about examination issues in a forum that is free from 
negative consequences, but MSB issues do not appear in the 
ombudsman's summary of cases and published documents. How many 
cases have been raised with the ombudsman about the BSA and the 
MSB issue since last year, and what was their deposition?
    Ms. Jaedicke. I do not actually know, Ms. Kelly, how many 
have been raised. To my knowledge, there have not been any, but 
I will be happy to check and find out.
    Mrs. Kelly. With the chairman's permission, I would like to 
insert in the record--I have here the summary of the cases, and 
there is not one case on MSB that appears here that was brought 
up to the ombudsman by the banks.
    Chairman Bachus. Without objection.
    Mrs. Kelly. Thank you. It seems to me that we can err on 
the side of getting too much information, and I really 
appreciate, Mr. Carbaugh, that you are looking to try to figure 
out what to do.
    It is a Catch-22, because we do not want people to go down 
under where we do not know what is going on financially. We 
need to see what is going on out there in order to protect 
America, but to do it right does require a very delicate hand 
in various ways.
    It appears that no banks have complained to the OCC about 
the regulatory problems with MSB's, which may mean that they 
are simply refusing to take the MSB business, and this is a 
problem.
    I had one president of a major bank say to me that he was 
getting rid of all of the MSB's.
    This is a New York bank, and he said that he was not going 
to do any MSB business, and he just simply canceled all their 
accounts.
    This is not helpful for them, it is not helpful for the 
bank, and it is not helpful for all of us as regulators, but 
what we need to do is not, I think, try to write a piece of 
regulation that is going to impose something again, before we 
understand how to do it properly.
    That is why I appreciate, Ms. Taylor, your being here and 
your talking about the fact that you are concerned about over-
regulating. It would indicate to me, from your prior testimony 
to Ms. McCarthy, that you are going to recommend that the 
Governor of New York veto the bill that has passed the State 
Senate and the Assembly banking committee, because you think 
that it is a bad idea.
    Is there a way that you can put in place a better situation 
than you have now with regard to rating and supervising the 
MSB's so that people will understand?
    I think part of our problem is that the general public--and 
especially people who do not use banking systems and need 
MSB's--need to have education that there can be a certification 
out there, and they can go--when they are getting their check 
cashed--and find a certificate posted on the wall.
    That may be all we actually need to see.
    I would be interested in the comments of you, Ms. Taylor, 
on that, and then I have one more issue I am going to try to 
pick up here.
    Ms. Taylor. Thank you, Mrs. Kelly, and that is really the 
crux of what we are trying to do in New York State to alleviate 
the situation, which is to educate people, especially in the 
money services businesses, to supervise, examine, and license 
them in a way that is very similar to how we license--or 
charter, supervise, and examine the banks.
    We have put into place a system called the FILMS system, 
which is unique to the money services businesses.
    They are different than banks. They are very short-term. It 
is not credit-based, so much. Liquidity is a big requirement. 
So, there are different characteristics that you look at in a 
money services business than you do in a bank.
    So, what we are doing is, in taking our money services 
businesses through the licensing process, which has been made 
much more stringent over recent years than it was before--so, 
it is a lot harder to get a license, and it means something 
when you have a license, and our examination procedures are 
much more rigorous than they were in the past.
    So, what we are hoping happens is that the banks become 
more comfortable with doing business with money services 
businesses licensed by us, knowing that they do--will have the 
compliance systems in place that are necessary, and I have to 
say, in addition to that, we have worked very hard with CSBS to 
take that system out to the other States in the country.
    We have a pilot program--
    Mrs. Kelly. I am going to run out of time here, but I do 
need to ask one more question of Ms. Jaedicke.
    It is about the Arab bank in New York. It was fined by the 
OCC and FinCEN for BSA violations. The Arab bank, in spite of 
paying a record fine, continues to insist that they were the 
victims of persecution and that they violated no U.S. laws.
    I would like to know when the OCC is going to release the 
summaries of their investigation.
    I think that investigation's summaries show directly the 
threat that Arab Bank did pose to this country, and that we 
were justified, at the OCC, and FinCEN were justified in 
levying that fine.
    When are you going to release those records?
    Ms. Jaedicke. That is a supervisory matter, and, to my 
knowledge, we do not intend to release the records.
    Mrs. Kelly. Okay. Thank you.
    Chairman Bachus. Thank you. I would like to ask additional 
questions. Are there any other members that would like to do 
follow-up? All right.
    My first question--and I will just ask this to OCC or 
FinCEN or IRS or even Ms. Taylor. Do you know of any instances 
where an MSB itself was convicted of money laundering or 
terrorist financing? I am talking about the MSB itself.
    Any cases, Mr. Carbaugh? You all would maintain a database 
on that, wouldn't you?
    Mr. Carbaugh. Again, that would be law enforcement 
information, and I would have to defer to my law enforcement 
counterparts.
    I do not know if Eileen can speak on behalf of IRS criminal 
investigations.
    Chairman Bachus. None that you know of. Is that right?
    Mr. Carbaugh. Well, I think we can point to the SAR 
activity review.
    Chairman Bachus. I am not talking about the SAR's which 
they file on their customers. I am talking about the MSB 
itself.
    Mr. Carbaugh. Right. I think we have some evidence in a 
publication that we have called the SAR Activity Review, in 
which law enforcement provides us information on cases that 
have been supported by the filings of suspicious activity 
reports, and I believe there are cases in there that relate to 
MSB's.
    Chairman Bachus. Are they licensed, registered MSB's?
    Mr. Carbaugh. It could be both. Again, I would have to get 
back to you.
    Chairman Bachus. Could you get me that information?
    Mr. Carbaugh. We can get you some information, yes.
    Chairman Bachus. Okay.
    Now, as far as if their customers are engaged in money 
laundering, the indication of that would either be--I mean they 
would file SAR's and you would have to review that information.
    So, it would be a good thing actually for them to go to 
MSB's, because that is a regulated industry, and then you would 
get a SAR, right, as opposed to going underground.
    Mr. Carbaugh. It is very important that they stay 
transparent to us, as I mentioned in my testimony.
    Chairman Bachus. So, it is actually very important that 
these customers--even if the customers are engaged in money 
laundering--very important that they go through a regulated 
industry so that law enforcement can discover those activities.
    Mr. Carbaugh. It would be important, also, for the MSB then 
to report that activity, pursuant to requirements.
    Chairman Bachus. Now, do you know of any evidence or any 
cases when MSB's were not reporting those transactions?
    Mr. Carbaugh. I would defer to Ms. Mayer on that from an 
examination standpoint.
    Chairman Bachus. Ms. Mayer?
    Ms. Mayer. Mr. Chairman, I do not know specifically, but I 
would be happy to ask our examination folks if we have any 
information that we can share with you and get back to you.
    Chairman Bachus. You have the MSB itself, and you know, I 
have not heard that any of those are guilty--I have yet to hear 
any evidence or any testimony or anybody say, oh, yes, you 
know, there are--particularly licensed, registered MSB's which 
are engaging in money laundering or terrorist financing, and 
then the customers of the MSB's--as long as the MSB's are 
filing the reports and the SAR's they are supposed to file, I 
mean that is all you can ask them to do, I would think.
    Mr. Carbaugh. They have to have an anti-money laundering 
program that is designed to detect--
    Chairman Bachus. Right.
    Mr. Carbaugh.--and report and have appropriate controls in 
place, correct.
    Chairman Bachus. Would you supply me any cases where 
licensed, registered MSB's did not do that, you know?
    Mr. Carbaugh. Again, we will look at that, in cooperation 
with--
    Chairman Bachus. I guess there are literally thousands of 
examples of MSB's which have not been charged with any criminal 
activity or that have developed such programs, but despite 
that, the banks have discontinued their business with those 
MSB's. You know of some of those, I suppose, don't you? We hear 
reports every day.
    Mr. Carbaugh. Again, on the discontinuance issue, you know, 
I have to defer comment until the advanced notice of proposed 
rulemaking is final, so that we can then assess the findings 
and comments and recommendations.
    Chairman Bachus. You need to know some of this information 
I am asking you before you finalize the rule. I mean if you 
address the problem, you need to sort of be informed about what 
the problem is and the extent of the problem.
    Mr. Carbaugh. Sure.
    Ms. Jaedicke. Mr. Chairman, may I just add that there have 
been MSB cases subject to prosecution, and we can provide some 
of that information.
    Chairman Bachus. Sure.
    Ms. Jaedicke. I do not have it with me today.
    Chairman Bachus. I just looked at the information that is 
available on the internet, and there are three of them; one was 
in 2003, one was in 2004, and one was in 2006, and they 
actually--and one case involved, really, misconduct by the 
bank, not the MSB, is my understanding, just from reading the 
account. So I know of three cases.
    I think this is, you know, Delta National Bank, Hudson 
United Bank, and Bank Atlantic.
    Ms. Jaedicke. Yes.
    Chairman Bachus. Not all of them actually involved the MSB. 
Sometimes it was a failure of the bank.
    My last question--are banks responsible for reviewing the 
MSB's customers' activities and to monitor the transactions 
conducted by the MSB's customers?
    In other words, the banks--are they responsible for 
monitoring the MSB's customers, and to what extent, and should 
they be, and are they capable of doing that?
    Ms. Jaedicke. I would say no. Specifically, the banks are 
not responsible for monitoring the individual customers of 
MSB's. That would be extraordinarily difficult to do, Mr. 
Chairman--
    Chairman Bachus. Oh, I agree.
    Ms. Jaedicke.--because some of the customers of MSB's do 
not necessarily have an ongoing, long-term relationship with 
the MSB.
    Chairman Bachus. Right.
    Ms. Jaedicke. But what we do often see banks do is have 
some general understanding of the type of customer that the MSB 
does business with.
    Chairman Bachus. Right.
    Ms. Jaedicke. They do not know the individual customer, but 
they know that the MSB is servicing a particular customer base 
that sends wires to a particular country or that kind of thing.
    Chairman Bachus. Sure.
    In certain cases, it ought to be our policy, I would think, 
to encourage the MSB's to monitor those transmissions and to 
report them, but beyond that, you know, I am not sure that the 
MSB can even refuse--unless they have some grounds--refuse 
business.
    Ms. Jaedicke. The MSB's are required by regulation to have 
a BSA program that would include doing some of those types of 
things.
    Chairman Bachus. Sure.
    So, it is my understanding that the answer to my question, 
though, is that the banks are not responsible for reviewing MSB 
customer activities, nor for monitoring in any way the 
transactions engaged in by MSB customers.
    Is that right?
    Ms. Jaedicke. There is no overt obligation for them to do 
that. Where I think this becomes very confusing, though, sir, 
is when an MSB brings to the bank transactions that the MSB is 
facilitating on the part of a customer and the bank facilitates 
these transactions via a wire to somewhere else, then the bank 
becomes involved.
    Chairman Bachus. Does there need to be some clarification 
as to exactly what the bank's responsibility is, and as to 
whether any responsibilities extend to the MSB customers?
    Ms. Taylor. I would say part of the problem here is it's 
very similar--and correct me if you think differently--to the 
correspondent banking problem.
    You know, how far do you have to go down into your 
customer's customer, and what we really look at is patterns of 
activity. Is it something that is a pattern throughout, you 
know, a series of transactions and the bank does not pick that 
up, but we do. Then that becomes a little bit of a problem.
    We try and--and we look at all of the businesses, you know, 
with the same sort of criteria.
    Chairman Bachus. Correspondent banks self-certify, right?
    Ms. Jaedicke. Yes.
    Chairman Bachus. Okay. I have no further questions.
    Ms. Maloney.
    Mrs. Maloney. I would like to ask FinCEN--has FinCEN ever 
brought an enforcement action against an MSB?
    Mr. Carbaugh. Yes, we have. As a matter of fact, we brought 
a civil enforcement action last month against one MSB, and I 
think since 1999, we have had seven MSB-related enforcement 
actions, including in 2003, an enforcement action with Western 
Union.
    Mrs. Maloney. Well, this is becoming a tremendous problem 
in New York. Many banks are not providing any services, by 
their choice, and the two smaller banks that are now still 
doing business with MSB's--there are rumors that they may be 
bought by larger banks that will not provide the service.
    So, this is a crisis in New York, and that is why you see 
the New York State assembly and Senate passing out a bill to 
maintain MSB support by banks, which the superintendent has 
raised some objections to, and others have raised objections 
to.
    So, my question is, if banks decide they do not want this 
business and it is a service that many people need--we want 
financial services. We want the underground economy to go into 
financial services. What would be your reaction to legislation 
that would allow money service businesses to open up accounts 
directly with the Federal Reserve Bank? Would there be any 
objection? What would be your response to a legislative action 
for money service businesses to open up accounts with the 
Federal Reserve?
    Mr. Carbaugh. That is a policy issue that would really 
require some very senior-level input and coordination through 
various compartments of the Department of Treasury.
    I am really not in a position to make a statement on that 
issue.
    Mrs. Maloney. I mean we have to have the service. So, if 
everybody is going to--we have to--what would your reaction be?
    Mr. Mayer. I have absolutely no knowledge or experience in 
that, so I cannot really answer your question.
    Mrs. Maloney. OCC.
    Ms. Jaedicke. I do not either, Congresswoman Maloney.
    Mrs. Maloney. Ms. Taylor.
    Ms. Taylor. That is something for the Federal Reserve to 
take up.
    Mrs. Maloney. What you have all said is that you are 
meeting, and that you are thinking about it.
    What action are you taking? What policy are you putting in 
place?
    Is there any comment from any of the panel--everybody is 
talking to everyone. You have been talking for years. There 
have been conferences.
    What action are you taking?
    Mr. Carbaugh. Again, I think, as was mentioned in my 
testimony, FinCEN took the lead last year in pushing this issue 
forward, in holding the fact-finding meeting, and then working 
with our colleagues at the various Federal banking agencies to 
develop an issue--a policy statement on this issue.
    Mrs. Maloney. Do you have the policy statement?
    Mr. Carbaugh. The policy is that banks are not the de facto 
regulator of MSB's, and subsequent to that, we issued very 
specific joint guidance on expectations for the banking 
industry, companion guidance to the--
    Mrs. Maloney. Who is the regulator on MSB's? FinCEN?
    Mr. Carbaugh. At the Federal level, for compliance with the 
BSA, we have delegated examination authority to the Internal 
Revenue Service.
    Mrs. Maloney. So, the Internal Revenue Service is the 
regulator of MSB's.
    Another approach is, should we have a separate regulator 
for MSB's?
    Is that an approach that might help?
    Mr. Carbaugh. Again, that would be a policy-level decision, 
you know, of senior levels within the department, and certainly 
something for your consideration.
    Mrs. Maloney. Any comment on--what specific action are you 
taking?
    Mr. Mayer. Well, at the IRS, we are actually delegated the 
examination authority to make sure that MSB's are in compliance 
with BSA. So, what we are trying to do is to be out and to be 
picking the places that we examine in a risk-based way, based 
on the knowledge that we have from our databases and from what 
we get--leads from law enforcement, so that the banking 
industry can be assured that MSB's are complying with the anti-
money laundering regime, with the BSA, and so that they are not 
being used in a way that would in some way endanger their 
relationship with the bank.
    That is what we can add to this mix.
    Ms. Jaedicke. I believe that we can try to do more to 
alleviate the uncertainty, if it exists, among national banks 
in terms of what their roles are vis a vis the MSB's, and to 
try to alleviate the concerns they have with the regulators and 
how they view these accounts.
    Ms. Taylor. In New York State, we have instituted the FILMS 
rating system.
    We have upgraded our examination and licensing of these 
institutions.
    We will work toward trying to provide CRA credit to banks 
and other incentives for banks to do business with MSB's.
    We actually have something in New York State called the 
Banking Development District Program, which creates incentives 
for banks to put branches in underserved areas, and we are 
working very hard, together with our Federal counterparts and 
the other States, through CSBS, to make more uniform the 
regulatory process and to educate the examiners and train 
examiners in these systems.
    Mrs. Maloney. Thank you very much.
    Chairman Bachus. Thank you.
    Ms. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman.
    I guess the question I have to ask is--the MSB's--I mean, 
basically they are serving people that--of very small 
paychecks, and I would tend to think that if--certainly, all of 
us are concerned about national security and money laundering--
that if anybody deposited or tried to, you know, send a large 
amount of money out of the country, I would have to think that 
would be very minute and a red flag would go up.
    I mean one of the problems that we have seen, especially in 
the underserved communities, is that banks do not want to go 
into those areas, for a number of reasons. Most of their 
customers are not going to open up a checking account or a 
savings account, because their weekly check is what they are 
living on, on a day-to-day basis.
    So, I am having a hard time understanding the problems that 
we are having with the MSB's, because they are serving a 
community that the bankers do not--it would not be worth their 
effort to open up a bank in that area. They are serving a 
situation, and again, as far as the security goes, anyone that 
comes in and is going to be sending a large amount of money 
overseas, or tracking it, that is going to be a red flag.
    So, I am having a hard time understanding this whole 
problem that we are dealing with.
    Can someone clarify it?
    Ms. Taylor. Thank you.
    You are right. The majority of the transactions that take 
place are very small transactions.
    However, we have found situations at check cashers in New 
York State where checks for $400,000 are being cashed. We have 
to find this.
    These compliance systems have to be in place to find this. 
Nobody is going to tell us, you know, unless a SAR is filed.
    It has to be a licensed institution.
    So, there--these institutions are used for criminal 
purposes in some instances, and we need to have the systems in 
place to make sure that when that happens, we can find out 
about it and we can direct it to the appropriate authorities to 
look into what exactly is going on.
    Mrs. McCarthy. I would take it that those particular areas 
where they are looking at those kind of checks being--coming 
in, and obviously, we should be--they are probably not 
licensed.
    Ms. Taylor. Maybe, maybe not. We have several 
investigations underway right now, some licensed, some 
unlicensed.
    Mrs. McCarthy. Well, that is where you prosecute, but I 
would tend to think that would be not the norm on the majority 
of MSB's serving the small communities.
    Ms. Taylor. One would hope.
    Mrs. McCarthy. Thank you.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    I appreciate the panel's testimony. I think it was very 
helpful to us.
    Oh, I am sorry, Mr. Baker.
    Mr. Baker is recognized.
    Mr. Baker. Thank you, Mr. Chairman. I slipped in late, and 
just wanted to present a few observations for the record.
    I do not recall whose testimony that it was I read 
attributing these facts. It appears that there are about 40 
million people who are unbanked, who have need of financial 
services. Individuals who, for example, may be in south 
Louisiana, who get a Social Security check and need to have 
that cashed for their daily activities.
    The trouble that I think has occurred is that, if that 
person is cashing and the money service entity is required to 
substantiate the activity, therefore report back to the bank 
and the bank take responsibility for that conduct, what we are 
missing is an appropriate nexus between the act of negotiation 
and the requirement to report, as opposed to someone who has, 
for example, a check from Casino Rouge in Baton Rouge for 
$128,000, who appears to be cashing these checks on a regular 
basis, who the money service organization may have reason to 
conclude that there is a reason for me to ask these questions, 
as opposed to the wholesale requirement creating the potential 
regulatory liability for the institution, the financial 
institution, who has no reason nor ability to conclude the 
difference between the 80-year-old cashing of the Social 
Security check and the 30-something cashing of the $100,000 
casino check.
    Now, has there been--anybody can give me a study that shows 
there is statistical prevalence--are there regions of the 
country--say, New Orleans--where we have aberrantly high 
criminal records relating to liquidity, or if we are going to 
get into Oklahoma, where we have maybe a aberrantly high number 
of retireds and they are cashing Social Security--has there 
been any kind of study to say this is why we are pulling the 
trigger on this gun, or is it just a systemic, let's check 
everybody out and make sure nobody is sneaking by us that we do 
not know about? Could anybody comment on that, please?
    Mr. Carbaugh. I would say that the system that we have in 
place with respect to the anti-money laundering requirements 
for the money services business is a risk-based system, and 
certainly, it is up to the money service business, under their 
obligations, to assess the risks of all of--
    Mr. Baker. Let us back up just one second. From the money 
service business back to your level, what is it, or is there 
anything, that triggers this high level of responsibility based 
on data, analysis, formula? How do you determine it?
    In other words, in rural communities, where there is very 
little probability of somebody money laundering at a $100 
level, as opposed to someone in an urban area who is money 
laundering at $100,000 per week, is there a difference between 
the two, or are the standards uniformly the same?
    Mr. Carbaugh. The standard is a risk-based standard, and 
the reporting requirement for MSB's is activity that is $2,000 
and above. So, there is a threshold requirement for reporting 
suspicious activity.
    Mr. Baker. So, if somebody sells a bass boat and deposits 
$2,200, they are in.
    Mr. Carbaugh. If it is deemed suspicious.
    Mr. Baker. How would one know? Is it the way they approach 
the check casher or their clothing? You are not going to tell 
me this is racial profiling, I hope. I mean you are telling me 
it is a risk-based model. Describe the risk. How is it imposed?
    Mr. Baker. Again, it would be up to the institution to 
determine--
    Mr. Baker. So, it is a risk-based model where the check 
casher has to determine what the risks are.
    Mr. Carbaugh. Correct.
    Mr. Baker. Can you understand why there would be resistance 
to that level of responsibility? It would be like me hiring a 
guy to paint my house. I do not tell him what color, but when 
it is done, I will tell him if I like it or not.
    That is an unacceptable regulatory standard.
    If we are going to apply sanctions in the market for 
inappropriate conduct, we have to describe what the 
inappropriate conduct looks like. You have not described it. We 
are saying that there is a risk associated with laundering 
money, but we are not telling the person at the gatekeeper 
level what it is they must look for. We are saying you describe 
the risk, you enforce it, and if you get it wrong, we will tell 
you about it later.
    Mr. Carbaugh. We have provided some guidance and indicia of 
suspicious activity.
    Mr. Baker. I am sorry to be picking on you, but you had the 
misfortune of answering me.
    The point is, from our side and policy side, if we are 
going to pass this criminal statute and we are going to say you 
go to jail because you do something, we have to be very 
specific, and then artful defense lawyers take us to task that 
we have not been specific enough, and therefore, the person 
gets off.
    In this case, we have generally described a conduct which 
we do not like, and we find unbecoming, but we have not really 
said what it is, and yet, there is a market consequence to a 
regulatory determination that this institution did not oversee 
the MSB with sufficient degree of professionalism, therefore 
there is a consequence, and a result, financial institutions 
withdraw from the market, and people who have that $800 Social 
Security check, or $2,200 Social Security check, are left 
without services.
    All we are saying is that there is a social consequence to 
this policy that is unacceptably high in light of an undefined, 
ill-defined, or improperly defined risk.
    Sure, we know there is money laundering, but it happens at 
videotape rental stores, where people come and pay for rentals, 
but they do not rent the movie.
    Hello?
    That is a real problem. Or people who pay for professional 
service for which there is no service. That is a whole lot 
different from a low-dollar--and $2,000 is an incredibly low 
standard.
    I think anybody in the money laundering business who is 
really in it is going to looking at a significantly higher 
cash-out number than $2,000.
    There are a lot of used trailers--and I am an expert on 
used trailers in Louisiana--and bass boats and a lot of other 
items that are sold customarily in the cash market for under 
$10,000 on a regular basis, and although the outside view may 
be different, most of them are legitimate and without question.
    I thank the chairman for his leniency on the time, and I 
yield back.
    Chairman Bachus. Thank you, Chairman Baker.
    Ms. Carson, you are recognized.
    Ms. Carson. Thank you very much, all of you distinguished 
and informed panelists, for being here today. I have two 
concerns.
    Number one, I read just yesterday that the overdraft fees 
that are collected by financial institutions far exceed the 
profit that you derive from any other investment. My concern 
is, do you want to continue to rely on that as the stabilizing 
asset, the overdraft fees that you collect from consumers--
    Chairman Bachus. Ms. Carson, this is actually a hearing on 
the MSB's.
    Ms. Carson. Sorry about that.
    Chairman Bachus. Okay.
    Ms. Carson. I just thought I would catch them while they 
were here.
    I apologize, Mr. Chairman.
    Chairman Bachus. Thank you.
    I am not sure that this panel handles those issues. I mean 
if you do, and you wish to respond to Ms. Carson's statement, I 
am sure it would be helpful.
    Ms. Carson. I will let you off the hook. I do not think you 
want to respond.
    Thank you very much.
    Chairman Bachus. Thank you, Ms. Carson. I am not sure, in 
fairness to the panel, if they were prepared to answer.
    Ms. Carson. Right.
    I have a visitor out here, and I will be right back, Mr. 
Chairman.
    Chairman Bachus. Thank you.
    That concludes the testimony of this panel.
    In closing, I would like to ask unanimous consent that 
Congressman Rangel, a member of the Ways and Means Committee--
in fact, the ranking member--be allowed to offer a written 
statement into the record.
    I also have a written statement submitted by Western Union 
Financial and an additional statement by Isaac Warsame that I 
would like unanimous consent to introduce into the record.
    This panel is discharged. Thank you for your attendance.
    At this time, we would welcome the second panel.
    Mr. Price is going to chair the second panel, and I have 
read the testimony of the second panel and commend them for 
their testimony.
    Mr. Price. [presiding] Good morning, almost afternoon. We 
appreciate your joining us today and your patience on our 
schedule.
    I also want to just mention that, although there may not be 
many members here, your statements and your input into this 
process is extremely important and greatly appreciated.
    The second panel we will have before our subcommittee 
today--I want to welcome Mr. Philip Milne, president and CEO of 
MoneyGram International; Mr. Gerald Goldman, general counsel 
for Financial Service Centers of America; Mr. Wayne Abernathy, 
executive director for financial institutions, policy, and 
regulatory affairs for American Bankers Association; and Mr. 
David Landsman, executive director of the National Money 
Transmitters Association.
    I want to also say that, without objection, your written 
statements will be made a part of the record and that each of 
you will be recognized for a 5-minute summary of your 
testimony, and we thank you so much for joining us today, and 
with that, I recognize Mr. Milne.

  STATEMENT OF PHILIP W. MILNE, PRESIDENT AND CEO, MONEYGRAM 
                      INTERNATIONAL, INC.

    Mr. Milne. Good morning, Mr. Chairman, and members of the 
committee. My name is Phil Milne and I am the president and CEO 
of MoneyGram International. I am very pleased to speak with you 
today about the bank discontinuance problem and anti-money 
laundering compliance by MSB's.
    MoneyGram is a payment services company operating in 170 
countries through more than 92,000 agent locations. We are 
licensed by the States and comply with the Bank Secrecy and USA 
Patriot Acts.
    MoneyGram is also a member of the Money Services Round 
Table, along with American Express, Western Union, Comdata, 
Travelex, Sigue, and Ria.
    The bank account problem is not a stand-alone issue. It is 
tied to compliance and the challenges faced by MSB's in 
complying with the Federal laws and the variety of 
interpretations of those laws by State banking departments that 
regulate MSB's.
    We believe fixing the bank discontinuance problem will also 
improve overall compliance by MSB's.
    We are dedicated to the fight against money laundering and 
terrorist financing, but we also need banking services and the 
Federal Government's help to ensure continued access to banks.
    Initially, the bank account problem impacted mom-and-pop 
stores and check casher locations.
    However, 2 months ago, Bank of America informed MoneyGram 
that it would be terminating its long-term relationship with 
us.
    This was not just a simple deposit account but, rather, a 
global banking relationship that generated millions of dollars 
in fees annually for Bank of America.
    While Bank of America is only one of the many banks with 
which MoneyGram conducts business, its decision to terminate 
our account relationship was, and is, a serious issue.
    In the meantime, in order to help our agents, MoneyGram has 
been negotiating with banks to establish special accounts, and 
hiring armored cars to serve agents who have had bank accounts 
closed. These actions, however, increase MoneyGram's cost.
    A key point that gets lost in the discussion regarding bank 
relationships and compliance requirements, is that all of these 
issues cost money, which, in turn, leads to higher fees for 
consumers.
    So, what is driving this exodus by the banks from MSB's? We 
believe it is the banks' fear of their own regulators.
    The guidance increased the problem because it raised 
bankers' fears that they are responsible for policing the 
compliance programs of MSB accountholders.
    Now, I would like to offer the committee a few suggestions 
on how this issue might be solved, as well as how compliance by 
MSB's might be improved.
    First, the existing guidance must be rescinded. New 
guidance must clarify that banks are not required to evaluate 
the quality of an MSB's compliance program, nor are they 
expected to monitor the activities of MSBs' customers. A draft 
of new guidance which embodies these concepts is attached to my 
testimony.
    Second, an incentive should be provided to banks to resume 
serving MSB's, such as the Community Reinvestment Act credit.
    Other incentives might also be effective, but there must be 
something to entice banks to reestablish accounts for MSB's.
    Third, consistent enforcement of the anti-money laundering 
laws as they apply to MSB's is needed. Many States are 
interpreting the Federal money laundering laws in their own 
way, which has caused confusion and compliance challenges for 
MSB's.
    MoneyGram urges Treasury and FinCEN to establish their 
preemptive authority to interpret and enforce the Bank Secrecy 
Act and related Federal laws.
    An important offshoot of this suggestion is the need to 
create a system that can provide a consistent regulatory 
framework for the MSB industry.
    MoneyGram is proposing an optional Federal licensing regime 
for MSB's that would be available to entities that operate in 
multiple jurisdictions and would be mandatory for any entities 
that operate in States that do not license their activity.
    A Federal license would also help banks gain greater 
confidence in the regulatory oversight applied to MSB's.
    Fourth, standards for MSB's as to what constitutes an 
effective compliance program must be established. We understand 
FinCEN is working with the IRS on an exam manual, and we 
applaud this effort. The absence of standards has left the MSB 
industry with no clear direction on which measures to take in 
order to establish an effective compliance program.
    MoneyGram appreciates Congress holding a hearing on this 
important issue.
    We recognize that Congress cannot solve the problem by 
ordering banks to serve MSB's, but we believe that, through its 
oversight and budget authority, Congress can compel Federal 
regulators to take appropriate action. MoneyGram requests that 
Congress continue to monitor the bank discontinuance problem 
and that Congress hold Federal regulators accountable for 
implementing a workable solution by years-end.
    In conclusion, I want to thank you, Mr. Chairman and 
members of the committee, for the honor of having the 
opportunity to present testimony on behalf of MoneyGram. We 
appreciate your concern with this issue, Mr. Chairman, and we 
hope you will view us as a partner in this effort and call upon 
us for whatever assistance we can provide.
    Thank you again.
    [The prepared statement of Mr. Milne can be found on page 
114 of the appendix.]
    Mr. Price. Thank you, Mr. Milne. We appreciate your 
testimony, and your full testimony, as I mentioned, will be 
made a part of the record.
    Mr. Goldman, general counsel for Financial Service Centers 
of America, we welcome you.

STATEMENT OF GERALD GOLDMAN, GENERAL COUNSEL, FINANCIAL SERVICE 
                       CENTERS OF AMERICA

    Mr. Goldman. Mr. Chairman and members of the committee, my 
name is Gerald Goldman. I serve as general counsel to FISCA, a 
national trade association of over 6,000 neighborhood financial 
service providers in the United States.
    We serve millions of people engaging in tens of millions of 
small financial transactions.
    As every business does, we rely on banks for our connection 
to the American financial system. For the past 6 years--this is 
not a new issue. For the past 6 years, banks have been 
abandoning us, first as a trickle and then continuously 
accelerating, so that now few banks are willing to service us, 
and when they go, that will be a disaster for the people we 
serve.
    Six years ago, in response to my questions, then-FinCEN-
Director Sloan said that the bulk of MSB's are law-abiding 
individuals, are providing legitimate services, and that, in 
his view, the MSB industry as a whole is no more a risk than 
any other business.
    He said that 6 years ago.
    Six years have passed.
    In the course of those 6 years, two FinCEN directors, the 
Secretary of the Treasury, the Comptroller of the Currency, and 
the ABA and many Members of Congress have all, on the record, 
acknowledged that our industry is a key component of a healthy 
financial sector and that it is very important that we have 
access to banking services. In fact, in 2004, in a letter to 
Congresswoman Maloney, which she mentioned, OCC Comptroller 
Hawke noted the important role that money service businesses 
play, and stated that, absent extraordinary circumstances, the 
OCC would not direct or encourage any national bank to refuse 
their accounts. Just 6 months earlier, Comptroller Hawke, 
appearing before this very committee, stated that MSB's should 
not be dropped by banks as a class, and should be treated on a 
case-by-case basis.
    All of these same public officials acknowledge that our 
industry has an exemplary record of Bank Secrecy Act 
compliance, and you heard today the flimsy aspects of a number 
of violations.
    In fact, former Director Sloan stated that our industry--
and I am quoting him now--``has set the standard for the 
financial services industry in the fight against money 
laundering, financial crimes, and terrorism,'' and the record 
shows that there have been very few violations.
    Most of these public officials believe that bank 
discontinuance of our industry is just plain wrong.
    We all agree on that.
    In the past 12 months, there have been no less than three 
hearings--one in the Senate, one in the House, one by FinCEN 
itself--documenting the bank discontinuance problem. To its 
credit, the ABA has courageously recognized this problem and 
supports a solution.
    In April 2005, we know that FinCEN issued its guidance, 
which has gotten nowhere.
    Despite all of these valiant efforts, despite all of these 
statements, results have been illusory and to no avail. Not one 
bank has reversed its termination policy. In fact, no banks are 
even here today--terminating banks.
    Banks continue to terminate check cashers. None of those 
banks, as I said, are here.
    For 6 years, we have had support by public officials, we 
have had no evidence of money laundering and no evidence that 
we discovered any terrorists, and yet bank discontinuance 
continues.
    We conclude--this is our conclusion, on behalf of the 
industry that I represent--all efforts at regulatory change 
have failed and will continue to fail and will not solve this 
problem.
    Regulation is not the answer. Its effort is hopelessly 
mired, and you saw it here in the last 2 hours, in a 
bureaucratic maze. We believe that it is time for legislative 
intervention before more real damage is done.
    It is time for either absolution or compulsion. It is time 
to absolve banks of an unreasonable burden upon them to monitor 
and regulate our industry.
    The only alternative to absolution is to compel the banks 
to treat us fairly, as they would any other business, and it is 
clear to me and to us that this compulsion alternative is 
politically less achievable.
    We believe that there will be wide support by banks and 
MSB's for legislation which gives force to the policy of the 
MSB guidance that banks will not be held responsible for their 
customers' compliance with Bank Secrecy Act or other 
regulations.
    To accomplish this, we are supporting a legislatively 
adopted self-certification program where MSB's will certify 
that they are in compliance with all the requirements of anti-
money laundering laws, with swift and strong penalties for 
false certification.
    We believe that our industry has taken and must continue to 
take responsibility for its own compliance obligations. Banks 
should not be called upon to become our regulators, and that is 
what has happened, no matter how you slice it.
    We also believe that any legislation should eliminate the 
OCC designation of our industry as being high-risk, which took 
us down this road in the first place.
    This would send a strong, clear message to the banks and 
other regulators that, by legislative action, we are going to 
turn a corner.
    Finally, we stand ready to work with members of this 
committee, the ABA, and other MSB's on an urgent basis to craft 
the legislation proposed.
    We believe that if this is not done, we will be back here a 
year from now talking about the same problem or, even worse, 
talking about a bigger problem.
    So, let us go back to fighting money laundering. Let us not 
destroy a viable industry which serves hundreds of thousands of 
customers.
    The facts demand no less.
    Thank you.
    [The prepared statement of Mr. Goldman can be found on page 
82 of the appendix.]
    Mr. Price. Thank you so much, Mr. Goldman. I appreciate 
your passion.
    Mr. Abernathy, we welcome you today. Mr. Abernathy is 
executive director for financial institutions policy and 
regulatory affairs with the ABA.

    STATEMENT OF WAYNE A. ABERNATHY, EXECUTIVE DIRECTOR FOR 
FINANCIAL INSTITUTIONS POLICY AND REGULATORY AFFAIRS, AMERICAN 
                      BANKERS ASSOCIATION

    Mr. Abernathy. Thank you, Mr. Chairman, and members of the 
subcommittee.
    Our anti-money laundering program today increasingly 
focuses on the legal activities of law-abiding people rather 
than on detecting and deterring crime and stopping terrorists.
    Of course, this is not what we all intended, but it is the 
result that we have, and nowhere is this more evident than in 
its application to money service businesses.
    In many situations, banks have raised fees to cover added 
compliance costs.
    Some banks have discontinued accounts for MSB customers 
after a case-by-case analysis of their perceived money 
laundering regulatory risk.
    Other banks have concluded that serving MSB's, in general, 
is not an attractive option, given the bank's reputation risk 
or regulatory risk tolerance.
    The result has been unfortunate for all parties. Banks lose 
customers, customers lose access to banking services, and too 
many financial activities move off of the financial main street 
and into the shadows.
    It will take supervisory, regulatory, and perhaps even 
legislative change to redress this.
    Last year, FinCEN and the banking agencies took the 
important step of issuing interagency guidance and an 
interagency examination manual.
    Despite all the good intentions, the guidance and the 
manual have fallen short of their goals.
    More is needed to fulfill the policy pronouncement that 
ensured banks are, ``not expected to act as the de facto 
regulators of the money services business industry,''.
    It is increasingly evident that the IRS and the States have 
taken concrete steps to oversee compliance by MSB's with the 
BSA and AML obligations.
    If any gap remains, it is not for the banks to fill but for 
State and Federal Governments to address by applying direct MSB 
supervision.
    The guidance in the manual should be amended to reflect and 
reinforce this reliance on the established Federal-State 
supervisory regime.
    Supervisory expectations that a bank consider whether an 
MSB operates consistent with its legal obligations should be 
satisfied by a questionnaire executed and certified to by the 
MSB, reciting its implementation of the components of an AML 
compliance program. Similar questionnaires, for example, have 
been developed and used by banks to ascertain the BSA 
compliance posture of foreign correspondent banks.
    Our members know the importance of providing all legitimate 
customers throughout all segments of society with banking 
services.
    An underlying challenge is that there exists in the United 
States and in all countries a large pool of individuals outside 
of the financial mainstream. These individuals are often 
accustomed to using informal--and sometimes very informal--
financial services providers. Governmental actions that 
discourage people from entering banks also make anti-money 
laundering goals far more difficult to achieve.
    Therefore, it is the view of the ABA that the current MSB 
bank regulatory environment must change if we are to advance 
the goals of effectively serving all market segments, while 
reducing the risks of money laundering and terrorist financing.
    ABA urges that State regulators not criminalize the efforts 
of banks that, in good faith and with reasonable diligence, 
enable MSB's to conduct business. Otherwise, the risks of 
unwarranted criminal litigation and unfounded injury to 
reputation will adversely impact a bank's risk assessment for 
providing account services to MSB's, and those services will 
likely diminish.
    ABA believes that consistency in implementing regulatory 
policy can be promoted by conducting joint industry and agency 
training. Placing bank staff, MSB agents, and examiners in the 
same room to hear the same explanations helps ensure a 
consistent message, consistently communicated, and most 
importantly, it reinforces the teamwork approach that is likely 
to prove most successful in cutting off the flow of funds for 
criminal activities.
    Neither banks, their customers, nor our BSA/AML efforts are 
served by driving a regulatory wedge between banks and 
legitimate MSB's, pushing large segments of America's economy 
into the shadows.
    The members of the ABA will continue our support for 
efforts to improve the regulatory process so that we can all 
focus more on stopping criminal activities and avoid efforts 
that too often target legitimate businesses and their 
customers.
    Mr. Chairman, we thank you and the members of this 
subcommittee for your leadership in this effort.
    [The prepared statement of Mr. Abernathy can be found on 
page 61 of the appendix.]
    Mr. Price. Thank you very much, Mr. Abernathy. We 
appreciate your participation today and your entire testimony.
    Now, Mr. Landsman, executive director of the National Money 
Transmitters Association, we welcome you.

 STATEMENT OF DAVID LANDSMAN, EXECUTIVE DIRECTOR, THE NATIONAL 
              MONEY TRANSMITTERS ASSOCIATION, INC.

    Mr. Landsman. Thank you, Mr. Chairman. I am David Landsman, 
executive director of the National Money Transmitters 
Association.
    The NMTA was founded in 1999 to voice the concerns of 
State-licensed remittance companies, or LRC's, of the United 
States.
    Currently, we have 43 member companies, which collectively 
handle over $17 billion a year in migrant worker remittances.
    I would like to thank the subcommittee on behalf of our 
members for allowing me to appear before you today. I would 
also like to express our gratitude to Congressman Charles 
Rangel, who has consistently shown his concern for the negative 
impact these account closings are having on our customers and 
their families, on the many countries that depend on 
remittances for their survival, and on the effectiveness of our 
Nation's anti-money laundering, or AML, strategy.
    No one knows the exact amount, but we estimate that 
outbound remittances from the United States total at least $60 
billion annually.
    The approximately 620 American LRC's that handle these 
remittances have never faced more peril than we do today.
    Banks are crucial to the operation of our business, and 
they are no longer willing to work with us, citing regulatory 
concerns.
    These regulatory concerns are well-founded, but not because 
of any real money laundering risk. Banks get into trouble for 
having us as customers because Federal banking regulators have 
incorrectly classified all money service businesses, or MSB's, 
as high risk, and make no distinction within that stereotype 
between licensed and unlicensed remittance companies.
    Now, these attempts to protect the banking system from the 
risk LRC's pose have backfired badly by threatening to destroy 
the best ally law enforcement has in the fight against money 
laundering.
    If financial institutions are the first line of defense in 
our Nation's war against terrorist funding, then we LRC's are 
the special forces.
    No sector of the financial industry has better compliance 
programs, a cleaner record, or is more essential to our 
Nation's AML efforts than LRC's.
    The average remittance we send is approximately $243, 
hardly a size conducive to money laundering.
    Although regulators say that they do not hold banks 
responsible for our supervision, that is exactly what is 
happening.
    Under such conditions, it does not make sense for any bank 
to keep us as a customer, no matter how profitable our accounts 
are for them.
    According to the New York State Banking Department's own 
survey, 42 percent of New York LRC banking relationships hang 
by a thread and are concentrated at only two banks.
    If this situation is not remedied, and soon, then the ranks 
of LRC's all across the country, not just New York, will be 
decimated.
    Unscrupulous, unlicensed operators will no doubt fill the 
void left by our departure.
    Regulators without legislative guidance have steadfastly 
refused to grant any sort of protection that would allow banks 
to rely on our State licenses.
    In order to solve this problem, we recommend the following 
steps.
    Number one, remove the onus of supervising us from the 
banks' shoulders by law as soon as possible.
    This may be done by officially recognizing some or all 
State licenses, defining all measures a bank is expected to 
take when opening our accounts, and making those measures 
practicable.
    Banks would still have to verify our licenses and remain 
alert for red flags, as usual.
    The LRC may be required to sign a self-certification form 
similar to the one used in foreign correspondent banking 
relationships.
    Number two, start regulating LRC's at the Federal level 
with a voluntary, non-preemptive Federal AML certification that 
would involve initial application and vetting, published rules 
and standards that must be followed to maintain certification, 
and regular examinations and reports.
    The current regulation of MSB's we have at the Federal 
level is not good enough. Create an MSB supervision department 
at FinCEN, and end the unfortunate division of AML 
responsibilities that currently exist between FinCEN and the 
IRS.
    Let the MSB registration program gradually be replaced by 
something more meaningful that would give those firms that so 
desire a pathway to the credentials that it takes to get bank 
accounts.
    Regulate the agent population through licensees like us, 
rather than trying to herd over 200,000 retail locations, most 
of which are mom-and-pop shops.
    number three, our industry needs to take the first steps 
toward self-regulation. This would involve industry-driven 
training, standard setting, certification, and disciplinary 
procedures. While this is something that we ourselves need to 
do, government can help by encouraging LRC's to join together.
    I thank the subcommittee once again for the opportunity to 
have our opinions heard.
    [The prepared statement of Mr. Landsman can be found on 
page 105 of the appendix.]
    Mr. Price. Thank you so much, Mr. Landsman. We appreciate 
your testimony and that of each of you. I want to once again 
assure you that all staff and members have received your full 
testimony and that it will be included in the record.
    I would like to ask a few questions, just to try to shed a 
little light, because Mr. Goldman, your frustration and passion 
is clear, and it is shared by many folks. I think one of the 
things that is not understood by most folks is the consequence 
of having the banks go, and their service for MSB's, to not you 
and not me but to the individual on the street, if you would 
not mind commenting a little bit about what those real-life 
consequences are, and maybe some others would like to comment, 
as well.
    Mr. Goldman. I think it is pretty clear that the millions 
of people who use our services are the people who benefit from 
the fact that our services are serviced by banks.
    If we eliminate the bank from the process, we cannot 
perform the service, and if we cannot perform the service, I do 
not know where it is going to go, but it will go someplace, 
because the need for our service will be the same with or 
without the banks.
    Mr. Price. So, what does that mean to Mr. or Mrs. Smith on 
the street?
    They would pay more for the services that you all are 
currently providing?
    Mr. Goldman. Well, Mr. and Mrs. Smith certainly, I believe, 
would pay more in an underground economy, unregulated, than it 
is now, and so, the people in those income groups, who now rely 
on us, are going to have an enhancement in the course of their 
receiving their financial services, and the banks are not--the 
banks are not going to pick up that service.
    They have rejected serving us to serve these people. They 
are not going to serve them.
    They have not up to now, and they are not going to serve 
them directly.
    Mr. Price. Mr. Abernathy?
    Mr. Abernathy. Although I would generally agree with that, 
I would differ with it a little bit. Banks are increasingly 
providing services to populations of all stripes and locations 
and financial situations, but it is very difficult to penetrate 
many particular population groups for cultural reasons and a 
host of other causes, all causes that we are trying to 
overcome. That is why that important role is played by money 
service businesses.
    It is painful to a banker to tell somebody no, we cannot 
provide services to you. We are in the business of providing 
services.
    What it means to a Mr. or Mrs. Smith, when they cannot have 
that access, is they are further alienated not only from 
financial services but from the mainstream of our society, in 
general, and I think that there are multiple consequences that 
come from that.
    Mr. Price. I think that we have done a poor job educating 
folks on that point.
    Mr. Milne, did you have a comment?
    Mr. Milne. Yes. I think there are many consequences, Mr. 
Chairman.
    I think one is access. As our agents are shut down, it 
limits the access points for consumers for these valuable 
products and services.
    Two, I think, as was brought out in the panel this morning, 
we provide very valuable information to law enforcement in 
terms of anti-money laundering and law enforcement activities, 
and once again, those activities will get pushed underground as 
access is limited for those consumers, and then, finally, as I 
pointed out in my testimony, as we scramble to get the agents 
that provide our products and services to consumers bank 
accounts, we are ending up hiring armored cars, setting up bank 
accounts for them, and we have been really working hard to 
drive the pricing down for things like wire transfers, and this 
is going to increase our costs.
    Mr. Price. Mr. Landsman?
    Mr. Landsman. Yes. One of our members is a company called 
Dahabshil, and the subcommittee has his testimony, Mr. Isaac 
Warsame. Around the time that he was getting his major bank 
account notification of closure, 2 weeks ago, the Islamic 
fundamentalists were taking over Mogadishu, and they are the 
largest transmitter to Somalia.
    I think that is pretty clear.
    So, the consequences to the consumer, of course, will be 
understandable.
    They will pay higher prices.
    They will have to give cash to friends and relatives who 
are traveling there.
    It will take longer, it will be less convenient for them, 
but the consequences to national security are tremendous.
    Dahabshil has an excellent compliance program. They take 
ID, they make reports, and they keep records, and most of their 
wire transfers are incredibly small, they are like $25, but if 
they do not survive, then all of this money will be going to a 
very dangerous place in the world with absolutely no control on 
this end.
    Mr. Price. Given those comments and given the fact that I 
think it is readily apparent and certainly all would agree that 
no one desired to make the banks a de facto regulator of the 
MSB's, and not meaning to put you on the spot, but given the 5- 
to 6-year history of this recognition, clearly, by all 
involved, why do you think that no change has occurred in a 
positive direction? I will let anybody fall on that sword who 
wants to.
    Mr. Goldman. First, it took a few years for these 
regulators to really recognize and acknowledge the extent of 
the issue.
    So, we will give them the first 3 years, and the last 3 
years, I think there is some inherent bureaucratic inertia, and 
you know--very interesting--I would like to make two 
observations.
    One is that we have not heard from the banks that have 
terminated.
    You know, we have never really talked to the--and I think 
there is a wealth of knowledge that we could get from the banks 
that have terminated, and I suspect that they would agree that 
there is no clarity. They are being asked to be the regulators.
    You will get all the war stories, and I think it is that 
there is no czar here.
    There is nobody who is prepared or willing in the 
regulatory system to take the bull by the horns and say--I 
would say Mr. Fox, with all due respect, did really take the 
bull by the horns. I think, unfortunately, he left for a bank, 
but the reality is that he started to take the bull by the 
horns, and even he, himself, if you were to talk to him in the 
quiet of his office, recognized his own limitations. I mean all 
you have to do is re-read the testimony, and I'm not here to 
criticize the regulators, okay, but you reread the testimony of 
the regulators, and you know, they do not have all the answers, 
they do not have any direction, they all have pieces of the 
action, you know, but nobody has--nobody has taken it by the 
horns, and that is why I have said that I really believe, 
genuinely, that it has come time for the legislative body to 
make a statement, a legislative body to pass legislation and 
say, you know, no more blanket high risk and no more banks 
being asked to regulate the industry, and until that happens, 
we are having a lot of meetings, we are having a lot of 
conferences, we are having a lot of hearings, but nothing is 
happening.
    The other thing I did want to say, to correct the record 
with Mr. Abernathy, is that he is correct. I mean the banks are 
making an effort in their own way to service non-bank 
customers.
    The reality, I think, is that that is a long-term process, 
but the answer to your question, I think all you have to do is 
reread the testimony of the regulators today, and you have to 
ask yourself a lot of questions.
    They are proving the point that somebody has to take the 
bull by the horns, and as far as we can see, the real 
candidates for doing that are the legislators.
    Mr. Price. My time has expired, but if anybody else has a 
comment about that--
    Mr. Abernathy. Just briefly, Mr. Chairman, I think that 
there has been a lot of progress, but it has been insufficient.
    You can heat water up, but until it gets to 212 degrees, it 
does not boil, and the progress has been sort of one step 
forward, one step back.
    We did get guidance.
    The guidance did not quite do it. It is better than it was 
before.
    It said some good things, but while saying some good 
things, it also created some ambiguities. When you give the 
ambiguity to an examiner without clear guidance, then the banks 
are left in the lurch, and that is a real problem that we have.
    The way the law is written, there is a position of 
leadership, and that is at FinCEN.
    It is interesting, the way the BSA is written, the Treasury 
Secretary, FinCEN--they have the responsibility for 
administering BSA. It is delegated from there to the bank 
regulators, but the policy maker is at FinCEN.
    While Mr. Fox was there, I think a lot of progress was 
being made.
    We would like to see that kind of progress continue, and 
then maybe we can get the water to boil and get something done.
    Mr. Price. Let me recognize Ms. Maloney for a round of 
questions.
    Mrs. Maloney. I would like to thank everyone for their 
testimony, and I would like to ask, what steps do you take to 
ensure that the members of your association or agents who are 
part of your network are reputable, and what kind of screening 
do you perform?
    Mr. Goldman. Well, first of all, we provide manuals which 
have gotten the respect and support of FinCEN.
    We were the first industry to provide manuals about 
responsibilities.
    We provide training programs.
    We have numerous meetings with members of our association.
    I think that, without question, anti-money laundering--the 
imposition of anti-money laundering compliance is--it is not--
it is our second most important priority. It is only second to 
the issue of bank discontinuance, and we are participants with 
FinCEN in DSAG, starting back when Peter DeGinis was there.
    We worked from the beginning--we have worked for 15 years 
to be compliant, and I think that the proof is in the pudding.
    When you get the results that you asked from FinCEN, you 
are going to find that there is little, if any, noncompliance, 
other than technical noncompliance, with Bank Secrecy Act laws. 
So, you know, we are kind of beating a dead horse here.
    I mean the point of the matter is that we have not--
notwithstanding what Mr. Abernathy said, with all due respect, 
we have not made progress. Not one bank has come back.
    Not one bank that terminated us in the last 6 years has 
seen fit to come back, and not--and in fact, more banks are 
terminating us, and what I am saying is that you reach a point 
where you say something dramatic has to be done, and what we 
are suggesting is that it may be time for Congress to make a 
statement, because as I said, Madam Maloney, when you were not 
here for the moment, that my fear is that we are going to be 
back here next year listening and saying the same things that 
we said this year, and we said if you look back at the 
testimony in prior Congressional hearings on this issue, you 
will see the same things were said then.
    So, we are kind of--we have to accept the fact that we 
bogged down and mired down.
    Without placing responsibility on anybody--I am not even 
placing responsibility on a particular regulator. I am saying 
the regulatory process is not working, and I think it needs 
some direction, and I said in my oral testimony, I think two 
areas that we have to--I noted two areas that I think we have 
to deal with.
    Mr. Milne. Mrs. Maloney, maybe I could just touch on that 
question, as well.
    At MoneyGram, we really take compliance and anti-money 
laundering very seriously, and really consider ourselves a 
partner with FinCEN and Treasury and the IRS in combatting 
that.
    We start from the basic level of know your agent. We do 
background checks on all the agents that our services are 
provided through, run them through the OFAC list, look at 
criminal records.
    We provide them with anti-money laundering training and 
compliance materials, help them set up their program, always go 
back and review that training with them at a later date, and of 
course, we run all the transactions through our computer 
system, looking for suspicious activity and any types of 
patterns.
    So, we have a comprehensive compliance and anti-money 
laundering program, not only because we have to, but because it 
is the right thing to do.
    Mrs. Maloney. Well, as I testified and said earlier, in New 
York City, we have roughly 150 money services businesses in 
over 750 locations.
    They employ 4,000 New Yorkers and serve many thousands each 
day, and with this discontinuance, it is causing a huge 
problem.
    You heard the superintendent of banks speak forcefully 
against the New York State legislature's action to force the 
banks to do this business, and the banks have repeatedly said 
that they do not want to be the regulator; they are not a 
regulator.
    I would like to ask each member of the panel, what do you 
think of the proposal that I put forward earlier that if the 
banks are not providing this service, then have the--let us 
legislate and have the Federal Reserve serve as a bank to this 
financial service industry, the MSB's, and starting with you, 
Mr. Goldman, what is your response to that proposal?
    Mr. Goldman. I wish I had one.
    I am not familiar enough with how that would work and 
whether it would or not.
    Mrs. Maloney. They would serve as a bank, and you would be 
able to use, you know--they would be the bank to the MSB's.
    Mr. Goldman. I am not sure whether they could do that on a 
local basis. I am not clear on whether--
    Mrs. Maloney. With legislation, they could. They cannot 
now. If we pass legislation that said, since there is no 
banking services for the MSB's and they are providing services 
that are needed by thousands of people, that as a last resort, 
MSB's can bank through the Federal Reserve.
    Mr. Goldman. Well, as I said, if they could serve as the 
check cashers' bank, at least on its surface, it appears to me 
that we would have no objection. At least we know we would have 
one bank.
    Mrs. Maloney. Mr. Milne, do you have a comment?
    Mr. Milne. I am not an expert on what level of service the 
Federal Reserve could provide on a local level for the 
depository requirements that these smaller MSB's have, although 
I do agree with you that Federal preemption, I think, is a 
necessary part of this, and whether it is the Federal Reserve 
or it is FinCEN, somebody who has oversight on MSB's at a 
Federal level, an optional--maybe charter at a Federal level--I 
think would bring a lot of credibility to the industry, and I 
think would help on an interpretation, a consistent 
interpretation of AML and compliance laws across the country.
    So, I think, you know, preemption at a Federal level from a 
regulatory standpoint would be a huge step forward.
    Mrs. Maloney. Mr. Abernathy?
    Mr. Price. The gentlelady's time has expired, but you are 
welcome to continue.
    Mr. Abernathy. Certainly, Mrs. Maloney, this would be with 
the benefit of only having the chance to think about it since 
you presented the question and not having given it long-term 
thought. I would wonder whether such a proposal would change 
fundamentally the nature of the Federal Reserve, which right 
now serves as a backstop to the retail financial system. To 
then put them into that posture might move them into the retail 
sector of the economy, and I am not sure that that is where we 
want the Federal Reserve to be.
    Mrs. Maloney. If the retail banks in our country refuse to 
provide this service--and we are a country that believes in 
free enterprise, we believe it has made this country great.
    The superintendent of banks raised constitutional questions 
of requiring them--the banks are saying it is unfair, that they 
are not regulators, they are providing services.
    If this service is not provided anywhere else and it is a 
service that benefits people--you know what I find unusual 
about this--and I want to share this with the chairman.
    We constantly have meetings, in this committee and others, 
about how we provide services to needy neighborhoods.
    Here we have MSB's--they are in all neighborhoods, but in 
certain neighborhoods in New York, they are the only financial 
services there.
    So, sometimes there are proposals--let us create a Federal 
bank or a State bank that will go in and provide these 
services, and yet, that would be great expense, great overhead, 
and yet, a service that is there is essentially being cut off 
to many people, and we need to have some answer that respects 
free enterprise, respects the fundamentals of this country, but 
the fact that the New York State legislature and the New York 
State Assembly and Senate are passing bills requiring banks to 
do business in certain areas--this shows the crisis level that 
it has reached in New York State.
    There are rumors that the two smaller banks may be bought 
by bigger banks that will not provide the service. Therefore, 
this whole service, reaching hundreds of thousands of New 
Yorkers, would not be there. Then, if that was cut off, 
immediately there would be a crisis meeting in this committee, 
how do we get the banking services and check cashing services 
into the communities.
    You know, so we have to think creatively of how we can work 
in the free enterprise system and our constitution to provide 
these services, and if the Federal Reserve is the backstop, 
maybe they need to be the backstop to this.
    Maybe they need to create a place where we can have this 
transaction take place so that the service continued to help 
hundreds of thousands of people.
    So, that is where the thought came from, because there are 
a lot of problems here, but everyone agrees that the service 
should continue, and maybe if you put the bill forward, maybe 
FinCEN and OCC would come out with some regulations that 
clarify where we should go.
    Could we hear Mr. Landsman's--
    Mr. Price. That is what I was about to say. I appreciate 
you sharing that with me and the committee, and if Mr. Landsman 
would comment, please.
    Mr. Landsman. The NMTA is the primary sponsor of the bill 
you are referring to, and I agree with you, it is a desperation 
measure.
    We are concerned that it not be interpreted as a coercive 
measure against the banks. Rather, we are trying to find some 
way to give them the safe harbor, the protection that they can 
feel comfortable banking with us without having people point 
fingers at them.
    In fact, your suggestion was used by the Government of 
Dubai, I understand, when they had similar problems because of 
severe money laundering concerns. The banks were closing the 
accounts of money exchangers there, but the money exchangers 
were incredibly important money transmitters, because of all 
their migrant labor that comes from south Asia, mostly.
    So, the central bank did step in there, but Dubai is a very 
small country.
    The thing that we need the banks for very much is to get 
small deposits from the agent location into the branches of the 
major banks that are right next door.
    So, if an agent of ours has 1,000 or 2,000 dollars that he 
has collected from the public, he can walk right next door and 
deposit it to our account.
    That is the fastest, cheapest, and safest way for us to run 
our business.
    Other than that, we have to send an armored car, and it 
just does not pay, because the money that it costs for an 
armored car service and the additional delay is practically all 
the money we ever make on it.
    Mr. Price. Thank you for that. The gentlelady's time has 
expired. I appreciate your participation.
    I want to thank each of the panel members again for your 
participation and your testimony.
    The Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing, and without objection, the hearing record will remain 
open for 30 days for members to submit written questions to 
these witnesses and to place their responses in the record, and 
with that, this hearing is adjourned.
    [Whereupon, at 12:43 p.m., the subcommittee was adjourned.]
                            A P P E N D I X



                             June 21, 2006
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