Money Transfer Questions and Answers
The following is not written by a lawyer, and is not legal advice. -ed.
A money transmitter writes:
"Hello David, Are we are obliged to have exposed the pricing with the cost of transfers that we execute?"
The short answer is yes: if known, the transmitter is obliged to reveal all costs associated with the transfer. (I can send you the citation if you want.)
Some lawyers might argue that money transmitters were subject to Regulation E all along. I disagree.
But such arguments are now academic because the new Dodd-Frank act has been passed so it is now the law of the land, and such disclosures in writing are required by Dodd Frank.
Enforcement and rules are a separate matter because those depend on the CFPB first defining ‘Larger Institutions’ and then the CFPB reaching out to do the regulating.
But you are left with some legal exposure anyway, in case some consumer (or consumer group) wanted to use Dodd-Frank as grounds for a law suit.
The chances are extremely low that that will actually happen, of course.
But two such class-action lawsuits against the larger money transmitters were brought and did prevail around the time period 1999-2001.
The case law, therefore, pretty much brought everyone into line, without any statute, as to written disclosures on our foreign exchange rates and f/x profit.
I am not an expert in local or state consumer protection laws, so I am not qualified to say anything one way or the other on those grounds.
Even without state and local laws, as described above yes, there is a legal case against non-disclosure, as a general practice.
But the business case is even stronger: assuming you want the customer to come back, why would a money transmitter want to hide the price of a send?
The customer may feel overcharged if you tell him the price, but if you do not tell the price, he or she may feel over-charged and deceived, as well.
Usually, this question comes up in regard to costs that are hidden from the money transmitter, such as unanticipated service charges or taxes deducted on the paying end, or exchange rates that cannot be predicted.
A one-time sender or first-time sender, may not know or think to ask what the charges are.
Or, the customer may wrongly assume they are making a deposit, when in fact, they are making a money transfer.
But most customers I know usually ask how much the charges are right away. And they are very ‘plugged-in’ to feedback and alternatives from friends and relatives who send money also.
So, again, the short answer is yes: if known, the transmitter is obliged to reveal all costs associated with the transfer.
I was reminded today that my response below did not address the question of how aggressive your initial and ongoing due diligence has to be on a foreign correspondent.
I addressed the KY Correspondent folder, but neglected to address the KY Correspondent procedure.
Of course, that is the most important thing: what do you have to do to reach a comfort level that you have sufficiently verified all the nice components of the KY Correspondent folder, described below?
Well, I can only ascribe my oversight to lack of time: the KY Correspondent procedures would be a worthy subject for a whole other piece, as would the whole part on country risk, which is also missing.
And yes, site visits are an important part of the procedure.
I need to come up with a standard 'know-your-correspondent' folder and a 'know-your-correspondent' procedure for the manual. What are the main elements I should include?
Besides country risk, there are basically four subjects your documentation should address, if applicable:
1. Identity of owners and their clean record (background, character, etc.)
- Identify their key managers, also.
- Some latitude is OK if you are dealing with an exchange-listed company or a highly-regulated bank....you should still 'know' any key owners.
2. Corporate existence and authorization to perform the type of business they are doing.
3. Write up a risk assessment on the correspondent as a business, and keep it up-to-date. Evaluate the quality of their AML program and its adequacy to manage those risks you have identified. Documentation you should have in your file includes things such as their written compliance materials, who did their most recent review, etc.
4. Operational Risk Assessment and Management:
- This is related to point #3, but more detail-oriented and it involves both of you. The method of working together, in day-to-day operations, should have some risk assessment done, and procedures put in place to mitigate any risks identified. Some AML-related provisions and undertakings should be written into your contract you both will sign. Some items might seem too detailed or changeable for inclusion in the contract, and might be left for separate discussion.
- Some examples of this might be:
a) Agreed dollar thresholds for CIP and KYC...includes how much sender information you will report to them, or to each other, and at what thresholds.
b) What to do if you discover a problem with a transaction after it has begun (e.g. consult with each other).
c) How do they pay out? Do they work through agents or 3rd parties? If so, what are their control measures do they have in place, what records do they keep and are prepared to share, what business rules do their computers follow and enforce, could they detect structuring if it occured, etc.