Does your Bank have customers that own/operate their own ATM?
The Financial Crimes Enforcement Network (FinCEN) recently issued a statement on how to apply a risk-based approach for conducting customer due diligence (CDD) on independent Automated Teller Machine (ATM) owners/operators that is consistent with FinCEN’s 2016 CDD Rule requirements. FinCEN has received reports that independent ATM owners and operators were facing difficulties obtaining and maintaining banking services which creates a risk of not providing financial services to persons in underserved markets as ATMs offer fast and convenient access to cash.
Independent ATMs are in a variety of public and retail venues and are not owned by a bank. An independent ATM operator is an individual or an entity that is in the business of owning, leasing, managing, or otherwise controlling access to the interior of an ATM, including its internal cash vault. The independent ATM operator could be the same or different from the ATM owner; however, all types of independent ATMs, owners/operators require a bank account to supply cash and to settle the electronic funds transfers used to process the ATM transactions. This FinCEN statement is a reminder to Banks that not all independent ATM owner/operator customers are automatically higher risk nor do they pose the same risk of money laundering, terrorist financing, or other illicit financial activity.
What are the CDD Requirements?
Under the Bank Secrecy Act and Anti-money Laundering (BSA/AML) regulatory requirements, the Bank has implemented policies, procedures, and processes to develop a risk profile for its customers which would include any independent ATM owners or operators. Developing a risk profile using the Bank’s CDD procedures includes customer identification, if an entity, obtaining the identity of beneficial owners, currency transaction reporting, and suspicious activity reporting.
The Bank’s CDD procedures should allow the Bank to (1) understand the nature and purpose of the relationship, and (2) allow for ongoing monitoring to identify and report suspicious transactions and maintain/update customer information. Keep in mind that the CDD Rule does not require any additional due diligence for independent ATM owner/operator customers.
What to consider in a Risk-Based Approach?
There are usually no bank customers that automatically present a higher risk of Money Laundering and Terrorist Financing (ML/TF) or other illicit financial activity, however when reviewing the ML/TF risk for independent ATM owners or operators each has its own situation to consider including transaction volume, locations of ATMs, and source of funds to replenish the ATMs. Independent ATM owners or operators that replenish their ATMs with funds from their bank accounts are a lower ML/TF risk as the Bank knows the source of funds and can compare the volume of cash to the electronic funds transfer settlements for suspicious activity. However, independent ATM owners or operators that replenish ATMs from other or unknown cash sources could present a higher ML/TF risk since the source of cash would be difficult to verify.
Although FinCEN’s CDD Rule does not specifically require the collection of this information, there is additional customer information that could be helpful in determining the customer’s ML/TF profile:
- Organizational structure, including key principals and management.
- Information pertaining to the operating policies, procedures, and internal controls of the ATM owner or operator.
- ATM currency servicing arrangements, contracts, and responsibilities (e.g., cash vault services, third-party providers, and self-service).
- Information regarding the source of funds if the bank account is not used to replenish the ATM. Sources of cash may include proceeds generated by the core retail business of the owner, proceeds from a loan or revolving credit line, or cash originating from an account maintained at another bank.
- Location where the independent ATM owner or operator customer is organized, and where they maintain their places of business, including locations of owned or operated ATMs.
- Description of expected and actual ATM activity levels, including currency transactions.
- Information to better understand whether ATM operations are generally ancillary to other retail operations or the primary business of the independent ATM owner or operator customer.
Remember not all independent ATM owners/operators are equal.
FinCEN has issued this statement as a reminder that independent ATM owners/operators present various levels of ML/TF risks which do not automatically make the relationships higher risk. Banks are encouraged to provide financial services to customers based on their relationship and mitigate risks instead of turning the customer away, keeping in mind that using a risk-based approach for independent ATM owners/operators is consistent with existing CDD and other BSA/AML requirements.
CCI suggests sharing this information with your BSA professionals. As always, CCI is happy to help with any compliance-related questions.
Sincerely,
Jackie Smith