FINCEN lists several factors to consider when categorizing an entity as a high risk business (HRB). These include MSBs, Casinos, and Online Gaming. These HRBs must be identified for Enhanced Due Diligence and regularly monitored per a risk-based approach for AML Compliance.
When banking or deciding to not bank a certain category of HRBs, a Bank or Credit Union must consider additional factors that pose risk to the institution. This includes everything from the regulated nature of the business, the activity conducted, to the customers they serve. For example, in the case of USA, Cannabis Related Businesses (CRBs) pose an extraordinary level of risk to the financial institution because they not only fit the FINCEN definitions for high risk, but because (a) are highly regulated businesses from seed-to-distribution, (b) are still a prohibited activity at the Federal level, and c) are services that have plenty of social controversy, questionability, carry reputation risk.
The biggest risk to a Bank or Credit Union is not correctly identifying businesses that are HRBs, or beneficial owners of HRBs. This can lead to either banking a business that the financial institution publicly claims to not deal with as a matter of policy, or applying incorrect monitoring and risk controls on the high risk business. The harm to the institution as a result can be material.
HRB Check® screens specific lists within VisionIQ watchlist database to clearly identify MSBs, CRBs, Casinos, and Online Gaming. The data sources include Regulated Authority watchlists for illegal Money Service Businesses, public lists for registered casinos and online gaming businesses, state and provincial licensing data in USA and Canada for CRBs, and our Adverse Media database for persons and businesses with negative news associations to a high risk business or activity.
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As Marijuana and Hemp laws transform across the US and Canada, there is a growing opportunity for financial institutions to engage with CRBs as part of their business. In the US, for example, 37 states have allowed the legalization of Marijuana and many experts expect changes to Federal Law regarding Marijuana soon. However, institutions that are associated with CRBs must ensure that they uphold the strictest compliance in order to avoid problems with the highly regulated Cannabis Sector. Most companies recognize this risk yet struggle to find efficient and cost-effective ways of monitoring CRBs. They spend thousands, if not millions, on large compliance departments that are not designed or prepared for the niches that Cannabis compliance requires. The high risk status of CRB’s will not change, therefore, Regulated Entities, including Banks and Credit Unions must establish sound screening processes that will ensure that they stay compliant and avoid reputational risks.