Guidance

Understanding risks and taking action for money service businesses

Updated 21 November 2022

About this guidance

This risk information identifies the key areas that money service businesses (MSBs) should consider as they carry out supervised business activities.

You must read this alongside the published MSB guidance and other relevant documents, including the National Risk Assessment 2020 and risk factor guidelines on the European Banking Authority website in chapter 4.

Risk characteristics

The services offered by MSBs are attractive to criminals who want to transfer illicit cash. An MSB may carry out one or more of the following services:

• money transmission (this includes informal value transfer systems such as hawala, fei chi’en and phoe huan)
• cheque cashing
• currency exchange

The National Risk Assessments published in 2015, 2017 and 2020 assess the risk of money laundering and terrorist financing to be high in the services offered by MSBs.

When illicit cash is involved, criminals may use MSBs to move money out of their hands into the financial system. The services provided by MSBs can also be attractive to those financing terrorism, who exploit the same vulnerabilities.

Law enforcement agencies have seen criminals use MSB services to launder money by:

• transferring criminal funds to overseas locations
• converting criminal cash into high denomination (usually foreign) notes such as the €200 or €500 note
• converting cheques derived from fraud into cash, or business and salary cheques into cash to help evade tax

Additionally, law enforcement agencies see criminals exploiting the vulnerabilities of MSBs by:

• organised crime groups seeking to control an MSB
• criminal groups targeting complicit employees in an MSB
• using ‘quick-drop’ deposit services offered by banks to supply criminal funds for the MSB to transfer overseas
• ‘third-party payment’ instructions to move funds received by the money transmitter service in the UK to a person not involved as a counterparty in the original transmission, possibly in a different country

It is important that MSBs understand and meet their obligations under the Money Laundering Regulations to protect themselves, their community and the UK. Any weakness in a business’s controls can be continually exploited by criminals to use, coerce or control the MSB to move their funds. Often these funds come from drug dealing, people smuggling or modern slavery and cause significant harm to society, communities and the lives of individuals.

HMRC expects MSBs to carefully assess and document the specific risks they face. They must establish policies, controls and procedures to address these risks and review them regularly to help prevent money laundering or terrorist financing.

Risks common to all MSBs

All MSBs need to be aware of the following risks:

• the widespread use of cash by criminals
• organised crime groups trying to infiltrate the MSB or corrupt its employees
• the use of anonymous ways to deposit cash
• criminals taking advantage of weak or inadequate policies, controls and procedures

Key risk indicator	Notes
A customer brings in large volumes of cash (read the ‘Additional information on key risk indicators’ section for more information).	Consider the appearance of the notes, for example if they look like street cash, they may be from illegal activity. If they are clean in appearance, they may be from a business hiding their income.
A customer only wants to deal with a particular person in your business.	Consider the indicators of transaction processing, which member of staff or agent is involved, any unusual times it was done and if it was done in quick succession. Some complicit staff create multiple transactions to appear to match bulk criminal cash handed over.
Cash deposits made from a customer directly into your bank account from multiple branches of the bank around the UK (read the ‘Additional information on key risk indicators’ section for more information).	Criminals may deposit cash directly into an MSB bank account, which can mean that you do not have sight of the cash or the person making the deposit.
A customer or representative makes multiple smaller deposits through a number of branches into your account.	Criminals may use anonymous deposits into MSB bank accounts, possibly assisted by complicit MSB staff to match transactions to the amounts deposited.
The person depositing the cash is not known to you and does not appear to have a link to your customer.	—
A customer travels a long distance in the UK just to use your MSB, when the same services are available nearer their home location.	—
There is no commercial link between the customer’s business and the MSB location, or the destination for the money transfer or third party payment destination.	—
Your MSB receives cash in Scottish or Northern Irish bank notes, when there are no customers using them in the area and no geographical links.	Consider if the customer has cash businesses in Scotland or Northern Ireland. Also consider if they sell goods or services that are unique and not readily available elsewhere, with customers across the UK. Law enforcement agencies have found criminals buying drugs in England but paying in Scottish or Irish notes.
Multiple customers using the same address or telephone number.	This could mean the customer is trying to hide their identity. Consider and put in place systems and controls to detect linked transactions to stop any attempts to abuse the MSB for money laundering and terrorists financing purposes.
The transaction makes no economic sense.	—

Money transmitters

Sub-sector risk — high

Money transmitters send money from one person to another, typically to or from the UK. This includes informal value transfer systems, such as Hawala, fei chi’en, phoe kuan, or others.

Large communities in the UK are reliant on these services, to send money to friends and family abroad.

Criminals use money transmitters to disguise the origins of criminal funds and to move money between different jurisdictions.

Key risk indicator	Notes
Regular high value retail or business customers with no link to the destination of the money (read the ‘Additional information on key risk indicators’ section for more information).	Most transactions are family-related and are small cash-based payments. Business transactions are normally linked to the destination of the money. If customers do not fit this profile, they present a higher risk.
The customer has no family link to the destination of the money.	Most transactions are family-related. Customers that do not fit this profile present a higher risk.
Large one-off transactions, particularly if they are made in cash.	—
Moving money to high risk jurisdictions. High risk jurisdictions are more likely to be linked to money laundering or terrorist financing.	You should carefully consider the purpose and nature of any transaction to or from these jurisdictions. Read the advisory notice on money laundering and terrorist financing controls in overseas jurisdictions on GOV.UK for further information.
Smaller combined cash payments from agents, MSB customers or van service collections delivered to the main MSB or credited to your bank account without clarity of how the transactions are broken down.	This type of activity is used by criminals to mix criminal funds into larger MSB money movements.
An MSB requests that the cash taken in from the UK MSB is not paid into the country of the payee. Instead the settlement amount is paid to a third country, often with an unrelated invoice for a movement of goods, as a third party payment.	Third party payment is used by professional money launderers to get money to their chosen location. In some cases, the cash received by the UK MSB is criminal funds (the money paid out by the overseas MSB is either clean or criminal). In other cases, the cash received by the UK MSB is clean (but the money paid out by the correspondent MSB overseas is criminal funds). In either case, the instruction to the UK MSB (either directly by the money launderer or through the correspondent MSB) to move the funds to a third country is often accompanied by an invoice to justify the transfer. This may be the case even though the supplier or customer on the invoice may not be linked to the overseas MSB or payees.
Multiple customers sending funds to a single payee.	This type of activity could be an attempt to keep transactions below the threshold for due diligence checks or financing terrorism. Consider and put in place a system to identify transactions linked by payee.
Sharing of login details amongst checkout operators or MSB agents’ staff.	This can lead to unauthorised use of the systems and leaves the business open to abuse by criminals seeking to launder money or fund terrorism. MSBs should assign each staff member their own login credentials and monitor their use to prevent misuse, such as transactions being completed outside normal business hours. Staff should be trained regularly to recognise and deal with situations which may be related to money laundering and terrorist financing. MSB must provide training to agents to make sure they have an adequate understanding of relevant money laundering and terrorist funding risks.
Agents posing as customers to misuse systems without independent verification.	MSBs using agents for their business have a responsibility to make sure the agents have the right internal controls to prevent any abuse of systems. To minimise money laundering and terrorist financing risks, monitor and test the transactions, and review agents’ internal controls on a regular basis.

Currency Exchange

Sub-sector risk — high

These businesses, sometimes referred to as bureaux de change, change money from one currency to another, most commonly providing cash to the customer. Currency exchangers are widely used by the public to convert currency when travelling abroad.

Identified as high risk by the National Risk Assessment, criminals use currency exchangers to change large volumes of low denomination notes into high denomination notes that can be easily transported. They may change money to facilitate further criminal activity or use the currency to buy overseas assets.

Key risk indicator	Notes
Bulky volumes of low denomination notes changed for easily transported high denomination notes.	Criminals use MSBs to convert street cash into higher denomination foreign notes as a precursor to smuggling cash across borders.
Cash is poorly presented. Alternatively, Scottish or Northern Irish bank notes are presented in England (read the ‘Additional information on key risk indicators’ section for more information).	May be exchanging low denomination notes from drug dealing (dirty looking street cash or drug residue on notes) for clean higher denomination currency.
Any request to buy or sell €500 notes or quantities of other high denomination notes is potentially suspicious and should be treated as high risk, requiring you to do enhanced due diligence checks, submitting a suspicious activity report if appropriate.	The sale of high value notes, in any currency, entails a significant money laundering risk. All major UK banks and financial institutions agreed not to sell €500 notes.
The customer is willing to accept a poor rate of exchange.	Some customers will accept poor exchanges if the business does not have enough currency to cover the size of the transaction.

Forex

Sub-sector risk — high

Forex businesses provide remote currency dealing and money transmission services. Users are usually corporate customers and typically make remote, high value transactions from bank to bank.

Identified as high risk by the National Risk Assessment, forex businesses are attractive to criminals, as they can use them for quick, large overseas remittances.

Key risk indicator	Notes
A high proportion of the customer’s income is being deposited into the forex MSB either for currency trading or money transmission.	These accounts are typically used for large overseas remittances and are therefore attractive to money launderers. You should consider whether the customer’s behaviour makes sense and matches what you know of them. You may also want to consider if they are being used as a front for illicit activity.
The counterparty to the transaction receives further instructions not to pay out the funds to the original account, instead paying on to another account in another jurisdiction.	Third party payments are used by professional money launderers to get money to their chosen location. In some cases, the cash received by the UK MSB is criminal funds (the money paid out by the overseas MSB is either clean or criminal), and in other cases the cash received by the UK MSB is clean (but the money paid out by the correspondent MSB overseas is criminal funds). In either case, the instruction to the UK MSB (either directly by the money launderer or through the correspondent MSB) to move the funds to a third country is often accompanied by an invoice supposed to justify the transfer. This may be the case even though the though the supplier or customer on the invoice may not be linked to the overseas MSB or payees.
The customer asks the business to transfer money quickly from one account to another.	Criminal entities receive the proceeds of fraud or fraudulent tax repayments into a business account. They quickly move receipts from their account to other accounts in banks or MSBs as part of the laundering process.

Cheque Cashers

Sub-sector risk — high

Cheque cashers exchange cheques made payable to a customer for cash. The cheque is then signed over to the cheque casher. Those who are unable to open a bank account, or do not have the time to wait for the cheque to clear and want to use the funds immediately, may use cheque cashers.

Identified as high risk by the National Risk Assessment, HMRC considers cheque cashers to be lower risk than other MSB sub-sectors. Criminals may use cheque cashers to hide their income from HMRC, evading any tax, or to cash fraudulent cheques.

Key risk indicator	Notes
Customer presents cheques from multiple sources payable to a person or business.	Fraudsters pay in cheques from victims, for example from romance, boiler room or wine investment fraud. You may then be used to convert these cheques into cash.
Customer is unable to provide satisfactory evidence of the source of the funds.	This could be a sign that the cheque is linked to fraud or tax evasion. Tax evaders try to hide income by cashing payments received by cheque, avoiding paying any tax on the income.
Cheque comes from a scrap metal dealer.	To combat metal theft, scrap metal dealers cannot pay cash for scrap metal. Some criminals may convert cheques from scrap metal dealers to cash, so that the remain anonymous.
The customer is difficult to identify.	Customers who are seeking to avoid identification may be using fraudulent or unpayable cheques.

Additional information on key risk indicators

Read more information on what to consider for some key risk indicators.

Considering the appearance and origin of bank notes

A key risk across all MSBs is the widespread use of cash by criminals seeking to launder money or finance terrorism.

It is important for you to consider how cash is presented to you. Is it all bundled up or is it just loose bank notes, does the presentation match the explanation for the cash? For example, if your customer tells you that they withdrew the money from their bank account, then higher value notes may be in thousand-pound bundles, contained by a bank wrapper and are not likely to be rough bundles with rubber bands holding them together.

When the customer claims the cash came from a casino win, it is likely to be wrapped in that casino’s slips, and you could undertake further customer due diligence checks with the casino.

If your customer only operates in England, you should consider where the Scottish or Northern Irish notes comes from. If they have an operation in Northern Ireland or Scotland is it likely that they will carry such high value notes across the country. If your customer claims people travel long distances to their business in southern England, is this credible?

It is important that you satisfy yourself that the evidence supports where the cash comes from. If not, should you stop the transaction and submit a Suspicious Activity Report (SAR)?

Multiple cash deposits directly into your bank account from multiple branches around the UK

The payment of cash directly into your business bank account can pose a significant risk of money laundering. Criminals and their associates prefer direct deposits, it makes them anonymous and allows multiple people to deposit criminal cash on behalf of one customer. Direct deposits into your account, or through the use of third party cash collectors or van services, also removes your ability to see what the cash looks like.

You are responsible for anti money laundering checks on such deposits, not the bank or the third party cash collection business. You must be able to demonstrate what your procedures are to monitor bank deposits or cash collection pickups, be able to identify who put cash in to your business bank account or passed it to the collector, challenge any unexpected deposits, amounts or unexpected locations, and if relevant complete a SAR.

It is also important for you to consider if the deposits and deposit locations match what you know of the customer. For example, are the deposits being made in locations or multiple locations remote from the customer? If the customer is a retail customer, sole proprietor or small business, how are they able to deposit cash in multiple locations across the UK on the same date at the same time?

Regular high value or business customers with no link to the destination of the money

For third party payments, it is important for money transmitters to consider if the transaction underlying this payment makes commercial business sense. For example, if an invoice shows a sale of goods from a Hong Kong manufacturer to a customer in India, how is this related to your correspondent MSB in Europe? Are the goods stated on the invoice likely to be of commercial use or value in the stated destination country? Do the supplier and customer appear to trade in such goods when checked using open source material, such as the internet?

If your correspondent MSB is instructing you to move money or value to a third country in this way, it is important to remember that they are your customer in respect of this subsequent money or value transfer. Therefore, normal risk assessment, controls, payer and payee information, and customer due diligence obligations apply. If the correspondent MSB states they are acting on behalf of another party, this may increase the risk further, and you may need to consider further checks on the identity of the true customer.

There are higher levels of risk if you are involved with supply chains of goods, but do not have physical sight or control of the goods, particularly if you do not have a relationship with the seller or buyer. Third party payment invoices are sometimes manufactured by criminals (the invoice does not relate to any sale of goods) or are amended to change the bank account details to one controlled by the money launderers. The ‘invoice’ is simply used to try to claim some legitimacy for the movement of the money.