Despite their importance, MSBs continue to face significant regulatory and enforcement challenges.
Source: Homeland Security Investigations
Images: Courtesy
Money Services Businesses (MSBs) play an important role in our financial ecosystem, offering services such as currency exchanges, money transmission and check cashing. MSBs remain a cornerstone of the U.S. financial landscape, with 2025 figures indicating more than 25,000 registered MSBs operating nationwide and processing upwards of $540 billion in transactions annually (FinCEN, 2025). These institutions are particularly vital for the estimated 11 million undocumented aliens living in the United States, many of whom lack access to traditional banking services (Pew Research Center, 2025). According to the FDIC’s 2025 National Survey, 5.5 million U.S. households are still unbanked, highlighting the ongoing reliance on MSBs for essential financial transactions. Remittance activity continues to surge, with remittances sent from the U.S. to Latin America and the Caribbean reaching $165 billion in 2024, and approximately 74% of remittances to Mexico being processed through MSBs (World Bank, 2025; Banco de México, 2025).
Despite their importance, MSBs continue to face significant regulatory and enforcement challenges. In 2024, FinCEN levied more than $230 million in penalties against MSBs for anti-money laundering (AML) violations, including failures in customer identification and suspicious activity reporting (FinCEN, 2025). A 2024 GAO review found that 15% of MSBs had notable deficiencies in their AML compliance programs, particularly regarding Know Your Customer (KYC) protocols (GAO, 2025). These vulnerabilities are frequently exploited by criminal networks, with the Department of Homeland Security estimating that over $2.3 billion in illicit proceeds were funneled through MSBs in 2024, much of it associated with human smuggling and trafficking operations (DHS, 2025). MSBs’ accessibility and relative anonymity have made them a focal point in discussions surrounding undocumented aliens.
This article explores the legal implications, regulatory challenges and enforcement concerns arising from the intersection between MSBs and undocumented populations.1 MSBs are regulated under the U.S. Bank Secrecy Act (BSA) and must register with FinCEN. They are subject to:
- Anti-Money Laundering (AML) obligations
- Know Your Customer (KYC) protocols
- Suspicious Activity Reports (SAR) requirements
Despite these safeguards, MSBs often operate in high-risk environments due to limited customer identification procedures, high cash volumes and cross-border remittance capabilities. Moreover, undocumented aliens frequently rely on MSBs for remittance and basic financial services due to lack of access to traditional banking, need to send funds to family members abroad and anonymity and ease of use. While these services offer practical benefits, they also give rise to concerns such as identity verification gaps as many undocumented aliens use false or borrowed identifications. Other concerns such as regulatory evasion from informal MSBs which may operate outside legal oversight and finally exploitation risks as venerable populations may be charged excessive fees or become targets for fraud.
MSBs can inadvertently facilitate human trafficking by providing traffickers with accessible and relatively anonymous channels to move and disguise illicit proceeds. Traffickers often exploit MSBs to transfer funds across borders quickly, frequently structuring transactions in small amounts to avoid regulatory reporting thresholds. The less stringent customer identification procedures at some MSBs, particularly in areas with large unbanked or undocumented populations, allow traffickers to use false, stolen, or third-party identifications, making it difficult to trace the true origin or destination of funds. Additionally, traffickers may use victims or intermediaries to conduct transactions on their behalf, further obscuring the money trail and complicating law enforcement efforts.
MSBs are also commonly used to pay for operational costs such as travel, housing, and forged documents, as well as to collect and transfer payments that keep victims financially bound to their exploiters. The risks are heightened when traffickers utilize informal or unregistered MSBs, which may operate outside regulatory oversight and intentionally ignore AML and KYC requirements. These vulnerabilities underscore the importance of robust compliance measures and vigilant transaction monitoring within the MSB sector to help disrupt human trafficking networks and prevent the misuse of financial services for criminal purposes.
Enforcement And National Security Implication:
Recent federal actions2 have highlighted the role of MSBs in facilitating activities involving undocumented aliens such as smuggling networks as MSBs have been implicated in laundering proceeds from human trafficking operations, and criminal aliens with financial ties to unregulated MSBs. In response, DHS initiatives have emphasized deportation and financial disruption of undocumented aliens and the prosecution of these networks. These developments underscore the need for enhanced interagency cooperation and stricter compliance enforcement.
To mitigate risks and uphold financial integrity, the following steps may abate the gaps:
- Enhanced KYC protocols: Require biometric verification or government-issued ID for all MSB licensing and operational transparency.
- Community outreach by educating undocumented populations on the legal financial alternatives and consumer protections.
- Establish cross-border coordination by collaboration with foreign regulators to monitor remittance flows and prevent abuse.
Conclusion:
The intersection of MSBs and undocumented aliens presents a complex legal and ethical landscape. While MSBs offer essential services to marginalized communities, they also pose a significant risk when exploited by criminal networks or operated without proper oversight. A balanced approach of combining regular rigor with humanitarian sensitivity is essential to safeguard both national security and individual dignity.
Red Flag Indicators
Customer Identification
- Customer provides inconsistent or suspicious identification documents (e.g., expired or forged IDs, foreign passports without visas).
- Use of multiple or different forms of identification in a short period.
- Reluctance or refusal to provide identification or personal information.
- Customer uses an address or phone number that cannot be verified or is known as a “drop” address.
- Customers appear unfamiliar or evasive when asked about the source of funds or transaction purpose.
Transaction Pattern Red Flags
- Frequent transactions just below reporting thresholds (structuring/smurfing).
- Multiple transactions conducted by the same individual or group in different locations within a short timeframe.
- High volume of transactions with no apparent economic or lawful purposes.
- Transactions inconsistent with customer profile or stated occupation (e.g., undocumented individual sending large remittances).
- Rapid movement of funds through multiple accounts or MSBs.
- Large cash deposits followed by wire transfers to high-risk or sanctioned jurisdictions.
Behavioral Red Flags
- Customers are overly nervous, reluctant to engage, or overly insistent on secrecy.
- Use of third parties or intermediaries to conduct transactions without clear explanation.
- Customer provides conflicting information regarding employment, residency, or family details.
Geographic Risk Red Flags
- Transactions involving high-risk countries known for corruption, terrorism financing, or weak AML controls.
- Frequent transactions to or from countries with large undocumented migrant populations.
- Remittances sent to or received from regions with known human trafficking or smuggling activities.
Suspicious Transaction Red Flags
- Use of multiple small transactions to avoid detection/reporting.
- Transactions involving unusual or complex structures with no clear economic rationale.
- Customer attempts to avoid AML controls (e.g., refusing to provide information, insisting on cash).
- Frequent cash deposits followed by intermediate wire transfer or withdrawals.
Documentation and Recordkeeping
- Missing, incomplete, or suspicious documentation supporting the transactions.
- Altered or forged documents submitted for identification or transaction verification.
- Discrepancies between documentation and actual transaction activity.
Internal Control and Reporting
- Failure by the MSB to conduct proper due diligence on high-risk customers.
- Lack of or inadequate suspicious activity reporting (SAR) for transactions involving undocumented individuals or unusual patterns.
- Poor employee awareness or training on detecting red flags specific to undocumented aliens and related fraud.
For more insight into Money Services Businesses and additional red flag indicators, please refer to the previous Cornerstone issue:
- October 2024 – Issue #57 – Complicit Money Service Business (MSB)
- 31 C.F.R. Part 1022: The primary regulation outlining specific program requirements, reporting obligations, and recordkeeping rules that MSBs must follow. It details the anti-money laundering (AML) program that MSBs must implement. ↩︎
- Geographic Target Order (GTO): In March 2025, FinCEN issued a GTO for specific ZIP codes along the U.S.-Mexico border. The order lowered the mandatory cash transaction reporting threshold for MSBs from $10,000 to $200. The GTO aims to disrupt illicit financial activity by making it more difficult for Transnational Criminal Organizations (TCOs) to use MSBs for money laundering and human smuggling. ↩︎
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