APPENDICES Appendix L

Due Diligence Checklist for Agent Onboarding

If you operate agents (independent contractors who accept transactions on your behalf), you must conduct due diligence on each agent before activation and monitor them ongoing. This appendix provides a complete checklist for agent onboarding and ongoing monitoring.

Pre-Onboarding Assessment

Business Model Fit

[ ] Agent understands the transaction types we handle (remittance, exchange, prepaid cards, etc.)
[ ] Agent has confirmed their ability to operate a compliant business
[ ] Agent understands they are subject to our compliance policies
[ ] Agent has confirmed they understand customer identification requirements
[ ] Agent has confirmed they understand AML procedures they must follow
[ ] Agent's business model is aligned with our operations (hours, location, customer base)

Legal and Regulatory

[ ] Agent is authorized to conduct money services business in their location
[ ] Agent has appropriate local licenses (if required by their municipality)
[ ] Agent's proposed location complies with local zoning laws
[ ] Agent has signed Master Agent Agreement with us
[ ] Agent has signed AML Compliance Addendum
[ ] Agent has signed Customer Identification and Privacy Policy
[ ] Agent has signed Confidentiality Agreement
[ ] Agent has signed Indemnification Agreement
[ ] Legal review of all agreements completed

Beneficial Ownership Investigation

[ ] Full legal name of agent provided and verified against ID
[ ] If agent is an entity (LLC, corporation), beneficial owners identified
[ ] Beneficial ownership documentation obtained (articles of incorporation, LLC operating agreement, trust documents)
[ ] All beneficial owners screened against OFAC
[ ] All beneficial owners screened against sanctions lists
[ ] All beneficial owners background-checked (criminal records, regulatory history)
[ ] Adverse news search conducted on agent and beneficial owners
[ ] Business registration verified with state/local authority

Background Investigation on Agent

[ ] Government-issued ID verified as authentic
[ ] Address verified from government ID
[ ] Phone number verified and working
[ ] Email address verified and responsive
[ ] Criminal background check completed
[ ] No felony convictions
[ ] No misdemeanor convictions for financial crimes
[ ] No regulatory enforcement actions
[ ] Credit check completed (if relevant to business model)
[ ] Previous money services business regulatory history reviewed
[ ] Prior licenses with other MSBs
[ ] Prior enforcement actions
[ ] Reason for previous agent relationships ending
[ ] Professional references contacted (minimum 2)
[ ] Personal references contacted (minimum 2)

Financial Assessment

[ ] Agent's business plan obtained and reviewed
[ ] Financial projections reviewed for reasonableness
[ ] Agent's capital adequacy assessed
[ ] Operating capital: minimum $5,000-$25,000 recommended
[ ] Working capital: sufficient to manage float and settlement cycles
[ ] Banking relationship verified (agent has business account)
[ ] Bank provides written confirmation of account status
[ ] Agent's credit history reviewed (if available)

Sanctions and Compliance Screening

[ ] Agent name screened against OFAC SDN list
[ ] Agent name screened against FinCEN consolidated list
[ ] Agent name screened against state sanctions lists
[ ] Agent name screened against international sanctions lists
[ ] Beneficial owners screened against all lists above
[ ] If international agent: country reviewed for FATF high-risk designation
[ ] If international agent: country reviewed for US sanctions designation

Compliance Program Assessment

[ ] Agent has written procedures for customer identification
[ ] Agent has written procedures for customer screening
[ ] Agent has written procedures for transaction documentation
[ ] Agent understands daily/weekly/monthly settlement procedures
[ ] Agent understands our SAR filing procedures
[ ] Agent confirms ability to maintain customer records
[ ] Agent confirms ability to retain records for 5+ years
[ ] Agent confirms ability to respond to regulatory inquiries

Training and Certification

[ ] Comprehensive training session completed on:
[ ] Customer identification procedures
[ ] OFAC screening procedures
[ ] AML red flags and suspicious activity indicators
[ ] SAR filing procedures and confidentiality requirements
[ ] Transaction documentation and record retention
[ ] Know Your Customer principles
[ ] Compliance with state and federal law
[ ] Training documented with date, attendees, and topics covered
[ ] Agent signed attestation confirming training receipt and understanding
[ ] Agent passed compliance knowledge assessment (minimum score established)
[ ] Agent received written copy of compliance manual and operational procedures
[ ] Agent confirmed receipt and understanding of compliance manual

Operational Readiness

[ ] Agent has access to our transaction processing system
[ ] Agent system login credentials established and tested
[ ] Agent can submit customer information and transactions
[ ] Agent can access transaction history and customer records
[ ] Agent has reliable internet/connectivity
[ ] Agent has secure location for storing customer records
[ ] Agent has backup procedures for system outages
[ ] Agent's location has been visited by compliance or management (in-person verification)

Financial Controls

[ ] Settlement account established and verified
[ ] Daily/weekly settlement procedures documented
[ ] Reconciliation procedures established
[ ] Agent understands their commission/compensation structure
[ ] Agent compensation structure documented
[ ] Payment schedule established and confirmed

Insurance and Risk Management

[ ] Confirmation that agent maintains appropriate insurance
[ ] Certificate of Insurance obtained (naming our company as loss payee)
[ ] Insurance covers:
[ ] General liability
[ ] Professional liability
[ ] Cyber liability (if handling customer data)
[ ] Crime/fraud coverage
[ ] Bond requirements discussed and documented (if applicable)

Documentation Collection

[ ] Copy of agent's government-issued ID
[ ] Copy of agent's social security number or tax ID
[ ] Copy of business license/registration
[ ] Copy of articles of incorporation (if entity)
[ ] Beneficial ownership documentation
[ ] Bank statements (recent, showing active account)
[ ] Proof of business address (utility bill, lease, etc.)
[ ] Professional references (letters or contacts)
[ ] Background check results
[ ] OFAC screening results
[ ] All signed agreements

Initial Monitoring Period (First 30-90 Days)

[ ] Weekly check-ins with agent scheduled and completed
[ ] Agent submitting transactions as expected
[ ] Customer identification quality assessed (spot check of files)
[ ] No red flags or compliance issues identified
[ ] Settlement procedures operating smoothly
[ ] Agent has not reported compliance concerns
[ ] Compliance with reporting procedures observed

Formal Activation Decision

[ ] All items above completed and documented
[ ] Compliance officer recommendation: ☐ Approve ☐ Conditional Approval ☐ Reject
[ ] If conditional: specific conditions documented and agent has agreed
[ ] If reject: reason documented and agent notified
[ ] Approval signed by Compliance Officer and Operations Manager
[ ] Agent formally activated in system
[ ] Agent provided written confirmation of activation status

Ongoing Monitoring (Quarterly Minimum)

[ ] Compliance contact: monthly or quarterly check-in scheduled
[ ] Transaction volume reviewed against expectations
[ ] High-volume agents: individual transactions spot-checked for compliance
[ ] Customer identification files reviewed (sample of 5-10 most recent)
[ ] OFAC screening results reviewed to ensure all transactions screened
[ ] SARs filed by agent (if any) reviewed for appropriateness
[ ] Agent's customer complaints or regulatory inquiries reviewed
[ ] Agent's financial position assessed (if changes noted)
[ ] Agent's compliance with settlement procedures verified
[ ] Beneficial ownership changes investigated (if any indication of change)
[ ] Regulatory action or news on agent or beneficial owners checked
[ ] In-person audit of agent: minimum annually, recommended semi-annually
[ ] Records reviewed for compliance
[ ] Customer files spot-checked
[ ] Physical location inspected
[ ] Agent interviewed regarding compliance and operations

Escalation and Remediation

If monitoring identifies compliance issues:

[ ] Issue documented and severity assessed
[ ] Agent notified and given opportunity to respond
[ ] Remediation plan established if possible
[ ] Retraining on specific procedures
[ ] Additional oversight period
[ ] Specific conditions (e.g., no new customers until corrected)
[ ] Compliance monitor follow-up scheduled
[ ] If issue not corrected: escalation to management and possible termination
[ ] Termination decision documented with clear explanation

Termination Procedures

When an agent relationship is ended:

[ ] Reason for termination documented
[ ] Agent notified in writing with explanation
[ ] System access disabled immediately
[ ] Outstanding settlements processed
[ ] Agent compensation finalized
[ ] All customer records obtained from agent
[ ] Records transferred to company custody
[ ] Release agreement signed by agent
[ ] Indemnification agreement invoked if necessary
[ ] File closed with termination summary

Practical Implementation

This checklist is comprehensive and detailed. For small operators with few agents, you can use it as-is. For larger operators with many agents, you might streamline by:

Creating simplified versions for low-risk agent locations
Using vendor due diligence services to automate background checks
Developing standardized training modules that agents take online
Automating monitoring alerts in your transaction system

However, all elements should be addressed in some form. Regulators expect MSBs to know their agents and to verify they're compliant.

Documentation Standards

For each agent, maintain a due diligence file containing: - All completed checklist items - All supporting documentation - Training records and attestations - Monitoring reports - Any communications regarding compliance issues - Copies of all agreements

Files should be organized, easily accessible, and retained for minimum 5 years after agent termination.