Annual Independent Review / Audit: Your BTM Company’s Crucial Safeguard

In 2020 alone, financial regulators levied more than $10 billion dollars’ worth of penalties against companies that violated federal Anti-Money Laundering (AML) policies and Bank Secrecy Act obligations.

Regulatory Position

Title 31 of the Bank Secrecy Act sets forth rules and regulations that apply to and bind money services businesses.  And any U.S. company that owns and operates even a single Bitcoin Teller Machine (BTM) is a money services business required to comply with Title 31.

Among other obligations, the Bank Secrecy Act requires money services businesses to develop, implement, and maintain a compliant, risk-based AML program within 90 days of establishment.  The program must also provide for an independent review function. The independent review focuses on ensuring that a company’s AML program prevents money laundering and terrorist financing while adhering to applicable regulations and the companies’ own policies and procedures.

Federal regulators can enforce drastic civil, administrative, and criminal penalties against an entity that violates AML initiatives or the Bank Secrecy Act.  Importantly for BTM companies, the applicable regulations frequently change and often omit or leave open to interpretation how BTM companies fit into the regulatory scheme.  Consequently, an independent review allows companies to properly address non-compliance, mitigate ongoing violations, and protect itself against fines and penalties.

Who Reviews

FinCEN, the Bank Secrecy Act’s enforcing agency, recognizes that some companies may have limited cash flow to pay for licensed auditors but must still implement an independent review function due to their characterization as money services businesses.  Accordingly, the Act does not require that a certified public accountant or a third-party consultant conduct the independent review; any officer or employee (or group thereof) can do it, except the compliance officer appointed in the companies’ AML program or the compliance officer’s direct report.  Nevertheless, the independent review is a complex and tedious investigation that requires specialized knowledge of BTM money services businesses and the inconsistently applied regulatory framework that governs them.

What is Reviewed

An independent review should include a thorough and unbiased appraisal of each required element of the company’s AML compliance program.

An appropriate review necessarily includes (a) recommending improvements to the company’s policies and procedures; (b) noting any non-compliant activities occurring within the business; (c) documenting any conduct that is inconsistent with internal policies and procedures; and (d) reporting any missing policies or controls required under the Bank Secrecy Act.

Moreover, a properly conducted independent review will check off each applicable regulatory requirement.  For money services businesses, some requirements that a properly conducted independent review will examine include (a) documented policies and procedures detailing the company’s compliance efforts, (b) the appointment of a compliance officer who is responsible for ensuring that the company meets all of its Bank Secrecy Act and AML obligations, and (c) comprehensive AML training for staff.

The review should also contain an appropriate transaction analysis to confirm that transactions are processed in accordance with the Bank Secrecy Act, additional regulatory reporting and record-keeping requirements, and the company’s own policies, procedures and controls.

When to Review

According to FinCEN, the frequency in which a money services business should conduct independent reviews depends on the business’s risk assessment, which considers the businesses products, services, customers, and geographic locations. Typically, money services business should aim to conduct an independent review on a yearly basis. Moreover, an expedited independent review may be warranted if the money services business has expanded its operations into new territories and activities.

Conclusion

Despite the complexity and tediousness of an independent review, it is a requirement set by the Bank Secrecy Act. If you’re not sure when your last annual review was completed, we can help. BTM Compliance has been providing these reviews to money services businesses since 2017 and will be able to provide you with guidance on how best to address any gaps in policies or procedures that could lead to problems down the line. Contact us today for a free consultation or to schedule your independent review!

About the Author

Cody Karras is the lead BSA Compliance Officer of BTM Compliance, LLC which is a Veteran-owned and operated company providing federal compliance services to operators of the Bitcoin ATM industry. Prior to working at BTM Compliance, Cody received his Juris Doctor from the University of Florida and Bachelor of Science from Florida State University. Cody is a Certified Anti Money Laundering Specialist, has worked for the Florida Attorney Generals Anti Trust Department and was a law clerk at several business law firms. You can connect with him on LinkedIn here.

*This blog article cannot and does not contain legal advice. The information is provided for general informational purposes only which factually based on research, personal experience, and is not a substitute for professional advice from your own legal counsel. Accordingly, before taking any actions based upon such information, we encourage you to consult with your legal counsel. We do not provide any kind of legal advice. The use or reliance of any information contained in this blog is solely at your own risk.