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Compliance Alliance Featured Q&A

Question:

One of our business customers cashes payroll checks for its employees. Do they need to register as a Money Services Business?

Answer:

Generally, no – a business that only cashes its own payroll checks for its employees likely doesn’t meet the definition of a Money Services Business under the BSA – specifically, in the capacity of a “check casher.”

Under 31 CFR 1010.100(ff)(2), a “check casher” money service business is defined as a person (i.e. any of the legal entities defined under 31 CFR 1010.100(mm)) that accepts checks / monetary instruments in return for currency (or a combination of currency and other monetary instruments) in an amount greater than $1,000 for any person on any day in one or more transactions.

However, the regulation goes on to state that whether a business is considered a “check casher” is “a matter of facts and circumstances” (aren’t all great BSA considerations?) and wouldn’t include a company that only does one the following:

“(A) A person that sells prepaid access in exchange for a check (as defined in the Uniform Commercial Code), monetary instrument or other instrument;

(B) A person that solely accepts monetary instruments as payment for goods or services other than check cashing services;

© A person who engages in check cashing for the verified maker of the check who is a customer, otherwise buying goods and services;

(D) A person who redeems its own checks; or

(E) A person that only holds a customer’s check as collateral for repayment by the customer of a loan.”

As touched upon above, a business that only cashes checks that it issues (payable to its own employees) likely doesn’t meet the definition of a check casher (and in turn, an MSB) because, based on the facts presented in the question, it is not offering check cashing as a service to the general public. FinCEN more directly stated this stance in its guidance:

“If a business only cashes its own employees’ payroll checks, is it a money services business?

As a service to its employees, Business A cashes employee payroll checks issued to the employees by Business A. It does not cash any other checks. These checks may be cashed in amounts exceeding $1,000 per person per day in one or more transactions, which is the threshold for the Bank Secrecy Act definition of a check casher that qualifies as a money services business. Is Business A money services business if it offers this service? Does it matter if Business A charges a fee for this service?

Answer: Business A does not meet the Bank Secrecy Act definition of a check casher if it only cashes its own employees’ payroll checks. If a business provides its employees with currency in exchange only for payroll checks issued by the business, we do not consider the business to be “engaged in the business of a check casher.” Consequently, to the extent that a business only cashes its own employees’ payroll checks it is not a money services business. Whether or not a business charges a fee for conducting these transactions is immaterial. However, if a business cashes checks other than its own business checks in an amount exceeding $1,000 for any person in one day in one or more transactions, the business would be defined as a check casher under the Bank Secrecy Act and be required to register as a money services business and be obligated to comply with all applicable Bank Secrecy Act programmatic, recordkeeping, and reporting requirements.” FIN-2006-G005

Stop me if you’ve heard this before – but, as always, the bank should be sure to review any other relevant facts/factors specific to the business in question, as well as its own CDD, CIP, and BSA / AML policies and procedures, as applicable.

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