Money Transmitter License Law Firm
Lawyers to Help with Money Transmitter Issues
Cryptocurrency, blockchain tokens, securities, commodities, derivatives, and many other items of value are traded on “exchanges.” Large exchanges are regulated by governmental bodies, such as the SEC, CFTC, FINRA, and the like. Alternative Trading Systems “ATS” offer greater flexibility with less regulation. ATS platforms link up those who wish to buy with those who wish to sell. They are often computer operated “club-like” platforms allowing only subscribing members. Whale.Law lawyers help manage the needs of ATS platforms from inception, to registration, to conflict solutions.
FinCEN Governs the Money Transmitter under Federal Law
The federal government, forty-seven states, and the District of Columbia require licenses for money transmitter businesses. The federal license is administered by FinCEN, the Financial Crimes Enforcement Network of the United States Department of Treasury. The federal government refers to a “money transmitter” as a Money Services Business (MSB).
What is a Money Services Business?
FinCEN defines “money services business” as including any person acting as:
A Currency dealer or exchanger
A Check casher
An Issuer of traveler’s checks, money orders or stored value
A Seller or redeemer of traveler’s checks, money orders or stored value
A Money transmitter
The U.S. Postal Service
“A business is an MSB and must register if it conducts more than $1,000 in business with one person in one or more transactions (in any category of activity listed below) on the same day in one or more of the following services:
Money Orders
Traveler’s Checks
Check Cashing
Currency Dealing or Exchange
OR the business provides Money Transfer services in any amount.”
This registration is required under 18 USC §1960. FinCEN interprets each money services business as a financial institution. This opens the business up to many regulatory rules and obligations. See 31 CFR 1010.100(ff) (formerly 31 CFR 103.11(uu))
What is a “Money Transmitter?”
The test to determine whether a business is or is not a “money transmitter” varies slightly from jurisdiction to jurisdiction. However, there is general agreement that five elements make up the test. They are:
Is the business neither an originator nor the end receiver?
Is the business merely a conduit for the funds?
Does the business charge a fee for acting as an intermediary?
Does the business take custody (possession) of the money at some point?
Does the business touch fiat currency at some point?
Several aspects should strike you when looking at these elements.
First, there appears to be overlap in the elements. This is due to variations from jurisdiction to jurisdiction.
Second, whether cryptocurrency qualifies as “money” depends upon what cryptocurrency is being used.
Third, whether a particular cryptocurrency is “fiat” is open to interpretation.
Fourth, how does one interpret “custody” and “possession” when referring to a digital asset?
What Penalties Do Unlicensed Money Transmitters Face?
It is a felony to operate an unlicensed Money Transmitter business in any state. A felony is a crime punishable by more than a year in prison. Maximum sentences vary from state to state, with four years, and seven years in prison being common maximum sentences.
Unlicensed money transmitters also face fines of thousands of dollars per offense.
Follow this link to see enforcement actions of FinCEN for failing to license as a money transmitter.
There is Uncertainty as to How a Jurisdiction Will Declare a Money Transmitter
Cryptocurrency has been deemed a commodity, a security, and even fiat currency. So, from a regulatory compliance standpoint, how is a business to interpret whether it must meet money transmitter standards?
If one jurisdiction on Earth would interpret the business activity as a money transmitter, is a license required?
How about 50%
If one government would say the business is not a money transmitter, can a license be avoided?
The present regulatory environment has a degree of uncertainty. Too few jurisdictions have decided and made clear what is and is not expected of cryptocurrency businesses.
Operating as a Money Transmitter Throughout the United States? Expect Money and Time
Nationwide money transmitter businesses need to obtain licenses in each and every state in which they do business. This is a lot of legal work. This is a lot of paperwork. There are many fees and Bond charges. It will take time. It is normal for a crypto business to spend two years or longer getting all fifty money transmitter licenses. The amount of money spent will depend upon the business that applies, as some are simpler and easy to document (cheaper), while others are complicated and difficult to prove (more expenses).
The Dreaded Bond
Most jurisdictions require a money transmitter to obtain a surety bond. The amount of Bond needed varies widely, with some as low as twenty five thousand dollars, to others as high as one million dollars. Some states set the Bond amount based on business from previous years, which makes no sense (requiring to operate illegally to set a Bond), and eliminates startups. There is also a minimal capitalization requirement. The Bond is “Dreaded” because blockchain/crypto businesses cannot obtain a Bond in many jurisdictions. Thus, for many, operating (say a cryptocurrency exchange) in their principal place of business is not a legal option.
The Money Transmitter Under State Law
The states have not adopted a uniform definition of a Money Transmission so its definition may vary state to state. Any business performing money transmission is subject to money transmitter license requirements.
The “No Action” Letter – Crypto Businesses That Probably Are Not Money Transmitters
The No Action Letter is an option for a crypto company that feels it does not meet the requirements of a money transmitter, but still wishes for a more formal regulatory “go ahead.” The manner to obtain a “No Action” letter varies from state to state. However, the process is straightforward. One determines who issues the money transmitter licenses. Formal correspondence is prepared, asking for a “No Action” letter. The correspondence sets out the language of the particular state’s test, the circumstances of the blockchain company, and why the test is not met.
Is a Lawyer Required to Get a “No Action” Letter?
No lawyer is required for a “No Action” letter. The chances of success are substantially lower without a lawyer drafting it. This is typically not an expensive legal bill. The business must consider:
How important is getting the ”No Action” letter?
How closely does the business come to meeting the money transmitter test?
How available are the assets to pay for the lawyer to draft the correspondence?
A decision can then be made. If rejected, then the blockchain business needs to decide whether to apply for a money transmitter license, or “risk it.”
Money Transmitter Licensing in Missouri
Missouri operates the following website to license a money transmitter:
Missouri’s Sale of Checks Law, per §§361.700-361.727, provides for licensing by the Missouri Division of Finance of companies involved in the sale of money orders and traveler’s checks, electronic transmission of funds, bill payment, or issuance of stored value cards.
The purpose of Missouri’s Sale of Checks Law is to ensure that funds are paid according to their terms. A related regulation is found at 20 CSR 1140-12.010. Applications for money transmitters must be submitted through the Nationwide Mortgage Licensing System (NMLS).
In January 2005, Missouri’s Commissioner of Finance implemented new policies and procedures regarding bonding and certified audit requirements as well as obliging Sale of Checks licensees to provide documentation of registration under the Federal Money Services Business law. Look to this link for more information. For more information, please see commissioner’s message of January 4, 2005, to Sale of Checks Licensees.
Missouri’s application fee is currently $300 which covers the application/investigation cost as well as the license fee until the following April 15 at which time and annually thereafter another $300 fee is due.
Are there “Easy” Places to Obtain a Money Transmitter License?
It is understandable to obtain a Money Transmitter License is a “soft” jurisdiction. “Lenient” states include:
The thinking may be that being licensed in one jurisdiction will be a mitigating circumstance to a regulator. Another thought may be that one state license will provide cover for other state activities. There is some justification for this rationale. The Full Faith and Credit Clause of the United State Constitution requires all states to recognize the laws of each other state. Thus, one driver’s license allows you to drive in all fifty states. One marriage license recognizes your marriage in all states. However, this does not apply to crime. In short, an Iowa Money Transmitter License does not make legal Missouri money transmitter activity, any more than a Colorado marijuana sales license lets one open a weed shop in St. Louis.
Obtaining an unnecessary Money Transmitter License is a lenient jurisdiction can backfire. FinCEN and state authorities may view such activities as:
Admission that the business meets the definition of a Money Transmitter
That business management is intentionally violating Money Transmitter laws
That business management is seeking to conceal its Money Transmitter crimes
A business that likely meets the definition of a money transmitter is wise to obtain a license or No Action letter in any state in which it operates.
Are Their Alternatives to Obtaining a Money Transmitter License?
It is possible to piggyback a money transmitter license by partnering with a financial institution that is already licensed. Partners include:
Sponsor bank acting as custodian
3rd party sponsor
The process typically takes three to four months. You will need to provide the bank with your Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance materials. Understand you will have to begin using your sponsor bank’s AML/KYC procedures. You will need to create a time-motion flow of funds diagram. You will need a list of all jurisdictions in which you will operate. You will have to create an evidence-based twelve month business projection. You will also need to determine the average transaction size you anticipate. There is no flat fee. You will have to start using the sponsor bank’s services, like card processing, ACH, and the like.
Helpful Money Transmitter Organizations
There are several trade organizations. These include:
These organizations exist for several purposes:
Educate, consult, and advise decision makers
Create uniform laws
Create uniform procedures
Make regulation efficient and effective
Assist money transmitters
Foster innovation in the payments industry
Do you have Money Transmitter legal issues?
Contact the Blockchain Crypto Lawyers at Whale.Law if your business needs legal guidance on money transmitter licenses, no action letters, or sponsor banks.