ATM Sector Makes Progress Combatting Operation Choke Point

David Tente

The initiative would focus on banks and payment processors that formed "choke points" for identifying and rooting out suspected illegal activity. Red flags could include dramatic fluctuations in account balances, consumer complaints and anomalous financial behavior. It also specifically focused attention on those businesses that seemed most likely to abuse the system, including pawnshops, coin dealers and payday loan outlets. Exactly when off-premise ATM operators, which include vending and amusement companies, came under scrutiny is uncertain, but come under scrutiny they did. In early 2016, the Amusement and Music Operators Association reported that several of its members were notified by their banks that their accounts were being closed following a risk review.

Adding to the confusion and raising the temperature of the debate was the inclusion of escort services, companies marketing drug paraphernalia and purveyors of dubious credit repair schemes. The inclusion of gun dealers only fanned the flames of accusations of government overreach. This led some to believe OCP was nothing more than a political moral crusade all along, or that public officials viewed small ATM deployers as borderline criminals.

No doubt there are bad apples out there, but this kind of business profiling also targeted a significant number of perfectly law abiding small businesses. Even more distressing, some ATM operators saw access to their banks cut off by OCP at the instigation of the program's partners in the FDIC and other financial entities. Business relationships with local financial institutions that had existed for years, even decades, were suddenly severed without warning, or subjected to added compliance fees because they met some of the criteria of an illegal enterprise. In the most extreme cases, accounts unrelated to business operations were suddenly closed or banks simply refused to do business with ATM operators.

Specifically, operators saw their cash and settlement accounts targeted because the settlement accounts raised one or more red flags under the guidelines. Among the so-called warning signs were large fluctuations in monthly flow through accounts.

"Even a small ATM operator may take $50,000 in cash out of their accounts to fill machines," said David Tente, executive director the ATM Industry Association. "Then once their cash accounts get settled, that $50,000 is going to come back into the account again. So, one of the issues is that financial institutions don't understand how the business works, or what kind of controls are already in place to make sure there is no money laundering taking place through those ATMs."

The ATMIA encourages its members to sit down with their financial institutions and explain in detail just how their businesses work and what kind of controls are in place. "We encourage them to show bankers their transaction logs, so they have a better idea how money flows through their accounts," he said. "Explain how there isn't a risk of money laundering."

ATMIA and other trade associations are fighting back in Washington. The ATMIA joined forces with the Electronic Funds Transfer Association and Credit Union National Association, among other groups, to reign in some of the more egregious unintended consequences of the OCP. A bill to bring an end to OCP, called the Financial Institution Customer Protection Act (H.R. 766), passed the House of Representatives in February. A companion bill is currently in the Senate.

With passage of the bill seeming imminent, President Barak Obama threatened to veto the measure, claiming it would unnecessarily constrain regulators from protecting the U.S. financial system from money laundering, fraud and other financial crimes. For its part, the FDIC has responded by introducing more focused rules that are not only less damaging to small businesses, but may also make OCP more effective in identifying the bad players, which was its original intention. For instance, business entities that raise red flags are now reviewed on a case-by-case basis. It is no longer enough to profile a business by "reputational risk."

However, despite the regulatory easing of OPC, ATM account closures are still reported. But with president-elect Trump about to take office, the ATMIA and members of Congress are optimistic that additional steps can be taken to ease regulations even more.