Laundering laws, terror policy hurt check-cashers

Some national and regional banks are dropping as customers check-cashing operations and other money-service businesses over concerns the firms aren't following federal guidelines meant to thwart money laundering and terrorist financing.

Without banking services, a handful of money services businesses have closed in Maryland, according to the state Department of Labor, Licensing and Regulation. Those businesses often operate in low-income neighborhoods where residents rely on them to cash paychecks and transfer money to families in other countries.

Regulators fear those residents might be forced to turn to loan sharks and other illegal means for their banking needs, should more financial institutions follow suit.

"From our perspective, you're shutting out a large portion of our population when you shut down check-cashers," said Joseph E. Rooney, state deputy commissioner of financial regulation. "If you close these accounts and they can't operate, you're driving the money underground."

Bank of America Corp., Provident Bankshares Corp. and SunTrust Banks Inc. are among banks in the Baltimore region that have severed ties with money-service businesses. Check-cashers typically depend on banks to clear checks and provide cash by allowing them to draw against checks that have been deposited but not yet cleared.

The local money-service industry was dealt another blow last month when check-kiting allegations surfaced against A&B Check Cashing, which had a string of stores in Baltimore.

State regulators have said that A&B was involved in a possible kiting scheme that victimized Baltimore County Savings Bank, Carrollton Bancorp and Global Express Money Orders Inc.

Brian Satisky, co-owner of Colleen Inc., parent of A&B, couldn't be reached to comment. All of A&B's operations have been closed, and Colleen has filed for bankruptcy protection in U.S. Bankruptcy Court in Maryland.

Baltimore County Savings Bank started shutting down accounts held by money-service businesses last month after the bank discovered that it lost $6.9 million in the alleged kiting scheme, according to David Meadows, the bank's general counsel. The bank had already stepped up monitoring of the accounts, and fewer than six customers were affected by the account closures, he said.

"Based on what happened with the Colleen company, management made the decision just to get out of that business," Meadows said.

An estimated 12 million people are classified as "unbanked" in the United States. Without access to traditional banking such as checking accounts, many use money-service businesses to cash checks or obtain money orders to pay bills.

The business cashes more than 180 million checks a year with a total value of more than $60 billion, generating almost $1.5 billion in fee revenues, according to the Financial Service Centers of America, a trade group.

About 500 check-cashers and 80 money transmitters operate in Maryland, Rooney said.

"We serve this whole segment of the population that either banks don't want to deal with or that find it's easier and more efficient to deal with us," said Neil Goldstein, owner of Gold's Check Cashing, which has two offices in the Baltimore area.

Goldstein is filling in for Brian Satisky as president of the Maryland Association of Financial Service Centers. Goldstein acknowledged that federal rules have added more paperwork to check-cashers' duties but said business owners are following the law.

Some banks say it takes too much time and money to monitor accounts held by money-service businesses, and they worry they would be held liable if something went wrong.

Under the Bank Secrecy Act and the Patriot Act, enacted after the Sept. 11 terrorist attacks, money-service businesses are required to follow a web of regulations, including a requirement that they file reports about suspected illegal activity.

"We thought it was pretty clear that we are liable if we're providing that banking relationship and they're not following procedures," said John King, Provident Bank's regional president in Baltimore. He said the bank decided last year to shut down accounts held by about 70 money-service providers.

"It was a tough decision for us because we also know that these are good companies and it's a needed service," King said.

Shirley Norton, a spokeswoman for Bank of America, said the banking giant has dropped accounts with some money-service clients in the past year. She also noted regulatory concerns as a reason for the move.

SunTrust Banks, of Atlanta, which has several branches in Southeastern and Mid-Atlantic states, began notifying money-service clients in May that their accounts would be closed, spokesman Mike McCoy said.

Federal regulators have said they are concerned about the account closures. The Financial Crimes Enforcement Network under the Treasury Department, or FinCen, recently sought input from the industry on how to ensure those banking relationships are maintained.

"We asked what we could do to make sure check-cashers retain their banking services," said Anne Marie Kelly, a spokeswoman for the center.

"But we can only do so much under our legal authority, and at the end of the day, we can't force banks to keep accounts," she said.

The issue made its way to Capitol Hill last month. At a hearing of the House Financial Services Committee, Ann F. Jaedicke of the Office of the Comptroller of the Currency said that her agency is concerned that money-service businesses are having trouble obtaining banking services. She also told lawmakers that while most of those businesses have never been associated with money laundering, some do present a "heightened risk" of enabling the crime.

Baltimore County Savings Bank acted swiftly to close accounts of money-service businesses last month, sending letters to notify them that the bank would stop accepting deposits within days. "We're working with customers to ensure they are able to transfer their funds," Meadows said.

Carrollton Bank and Global Express have said they lost $3 million to alleged check kiting by A&B Check Cashing. In general, such schemes are a kind of shell game using accounts at separate financial institutions. The FBI is investigating the allegations.

Banking officials said they were tipped off to potential problems at A&B when Alec Satisky, co-owner of Colleen and Brian Satisky's brother, committed suicide at the company's headquarters June 22.


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