Published on October 4th, 2017 | by sirtheta82
Why Banks Shut Down Accounts Due to Money Order Deposits
This article exists solely to provide information on why money order deposits lead to account shutdowns. This article should not be construed as, nor relied on for, any advice – legal or otherwise.
Bank account shutdowns due to money order deposits are an inevitability if you’re doing high volume, with some banks—such as Chase—being much more aggressive about shutdowns than others. In this article, I’ll explore some of the general and specific reasons that money order deposits lead to bank account shutdowns.
Do note that this article is written from the perspective of someone who is not in, or intimately familiar with the inner workings of, the bank industry.
Bank account shutdowns due to money order (MO) deposits are a result of anti-money laundering (AML) policies and is called de-risking. The creation and implementation of policies to comply with AML regulations is required by the Bank Secrecy Act (BSA). The BSA has been expanded over time, most importantly by the USA PATRIOT Act, which levies greater penalties in an attempt to combat terrorist financing.
Money laundering is conventionally split into 3 phases: placement, layering, and integration. Placement is the initial entry of to-be-laundered money into the financial system while layering is the transfer and conversion of to-be-laundered money through the financial system to make it more difficult to trace. MO deposits typically trigger policies meant to identify the placement and layering phases (moreso the latter).
Though this is tangential to the article, it’s useful to note that the BSA is also why Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) are required. A CTR must be filled out whenever a customer deposits $10,000 or more in currency; avoiding this requirement by depositing less than $10,000 at a time is strictly illegal and called “structuring”.
A number of sites have made the claim that splitting MO deposits across multiple banks or accounts, often done in order to mitigate the risk of a shutdown, can run afoul of structuring regulations. A CTR states that “currency” is defined as “coin and paper money of the United States or any other country, which is circulated and customarily used and accepted as money”. MOs are not currency.
SARs are a different ballgame and can be filed regardless of the manner of a transaction.
Level of Risk
Banks tailor their AML policies to their level of risk. Banks in High Intensity Financial Crime Areas (HIFCAs, see FinCEN.gov) must have more robust policies than those in other areas of the country; likewise for banks with a significant base of foreign customers.
Banks also tailor their AML policies to their risk vectors, which depend on the phase(s) of money laundering they are vulnerable to.
Chase Bank…and CitiBank
Conducting a quick review of their locations and foreign assets, we can posit that Chase Bank is quicker than many others at shutting down customers who deposit MOs because they have (comparably) a very high level of risk.
A map of their brick-and-mortar locations (see Wikipedia) shows that many of their 5,269 US branches (by number and by percent) are located in HIFCAs: SoCal, NoCal, Arizona, South Texas, Chicago, New York, and South Florida.
Of the 1,808 banks US-charted banks with more than $300 million in consolidated assets, Chase is by far the biggest, with consolidated assets of $2,082,803,000,000 (trillions). Foreign assets stand at $483,355,000,000 (billions), or 23.21%, of their consolidated assets—the 5th highest percent of the 1,808 banks. Indeed, the next highest percent after Chase is only 7.16%!
The only bank with a worse risk profile is CitiBank, which only has 736 branches (~1/8 as many as Chase) but a far higher percent in HIFCAs (see Wikipedia). CitiBank has the 4th-most consolidated assets at $1,349,581,000,000 (trillions). CitiBank’s foreign assets stand at an astounding $523,413,000,000 (billions), or 38.78%, of their consolidated assets.
Chase Bank and CitiBank have, respectively, 34.79% and 37.68% of foreign assets among the 1,808 qualifying banks. (Total: 72.47%.)
(Data from the Federal Reserve Statistical Release “Large Commercial Banks”.)
(This data is not the only reason Chase Bank is so sensitive to deposits; for example, the regulatory risks –see the fines in the HSBC scandal – are a big driving factor.)
We can also posit that credit unions are generally less likely to shut down accounts for MO deposits because they are smaller and deal less with foreign assets. Additionally, since many credit unions deal locally (instead of nationally), those located outside of HIFCAs generally don’t have branches in HIFCAs that would require tougher AML policies.
In other cases, credit unions are simply unacceptably lax. (North Dade Community Development Federal Credit Union is a rather infamous example – they were eventually liquidated by the NCUA for their willful violations of AML laws.)
MO deposits can trigger various “red flags” depending on the level of activity. Sudden MO deposits inconsistent with past activity? Large value and/or volumes of MO deposits? Deposits of sequentially numbered MOs? All can (and eventually will) trigger a red flag.
A specific policy that it’s easy to trigger of is a bank’s velocity rules, which are implemented at nearly all banks. Though the specific implementation varies by bank, they look at how fast money enters and leaves accounts. Large MO deposits used to quickly pay off a credit card can thus trigger a review due to a velocity rule, especially when out of character for previous account activity.
Due to their nature, AML policies are proprietary and kept undisclosed. The policies discussed here are thus only a rough sketch of why MO deposits might trigger AML policies and lead to account shutdowns.
If you care about your relationship with a bank, consider directing your MO deposits elsewhere.