Although most community banks will never have a customer who requires pouch activity service, it is important that you understand what it is and what the BSA/AML risks are. 

Examiners include a question about this type of activity in their BSA pre-exam questionnaire so you should have enough familiarity with the product that you don’t have to ask what it means. For example, your night deposit drop is a form of pouch activity. It is a service you provide to commercial customers to deposit cash and checks, but it has a very different risk than international pouch activity, which is what we are discussing in this article.

Overview

For our purposes, pouch activity entails the use of a carrier, courier (either independent or common), or a referral agent employed by the courier, to transport currency, monetary instruments, and other documents from outside the United States to a bank in the United States.

Referral agents are foreign individuals or corporations, contractually obligated to the U.S. bank. They provide representative-type services to the bank’s clients abroad for a fee. Services can range from referring new customers to the bank to special mail handling, obtaining, and pouching documents, distributing the bank’s brochures, applications or forms, notarizing documents for customers, and mailing customers’ funds to the bank in the United States for deposit.

Pouches can be sent by another bank or by individuals. Pouch services are commonly offered in conjunction with foreign correspondent banking services. Pouches can contain loan payments, transactions for demand deposit accounts, or other types of transactions.

Risk Factors

Bulk amounts of monetary instruments purchased in the United States that appear to have been structured to avoid the BSA-reporting requirements often have been found in pouches or cash letters received from foreign financial institutions. The monetary instruments involved are frequently money orders, traveler’s checks, and bank’s checks that have one or more of the following characteristics in common:

• The instruments were purchased on the same or consecutive days at different locations.
• They are numbered consecutively in amounts just under $3,000 or $10,000.
• The payee lines are left blank or made out to the same person (or to only a few people).
• They contain little or no purchaser information.
• They bear the same stamp, symbol, or initials.
• They are purchased in round denominations or repetitive amounts.
• The depositing of the instruments is followed soon after by a funds transfer in the same dollar amount.

Risk Mitigation

Your AML policies, procedures, and processes related to pouch activity should:

• Outline criteria for opening a pouch relationship with an individual or a foreign financial institution.
• Detail acceptable and unacceptable transactions.
• Detail procedures for processing the pouch, including employee responsibilities, dual control, reconciliation and documentation requirements, and employee sign-off.
• Detail procedures for reviewing unusual or suspicious activity, including elevating concerns to management.
• Discuss criteria for closing pouch relationships.
• All of these issues should be included in a written agreement or contract between the bank and the courier that details the services to be provided and the responsibilities of both parties.  
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