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On March 24, FinCEN issued FIN-2016-G002 to supplement guidance issued in 2011 regarding aspects of its Prepaid Access Final Rule. FIN-2016-G002 provides answers to a list of frequently asked questions related to the following areas: (i) the relationship between de minimis cash refund requirements under state law and the exemption in FinCEN’s regulations for closed loop prepaid access products; (ii) conditions under which the use of quick response codes and other technology would fall within the definition of closed loop prepaid access; (iii) whether the term “defined merchant” in the context of closed loop prepaid access is limited to a single merchant; (iv) policies and procedures reasonably adapted to avoid the threshold for being designated as a “seller” of prepaid access; and (v) listing sellers of prepaid access on the provider’s money services business (MSB) agent list.
Washington Department of Financial Institutions Denies ETA's Petition for Declaratory Order on Technical Grounds
On March 15, the Washington Department of Financial Institutions responded to the Electronic Transactions Association’s (ETA) December 2015 Petition for Declaratory Order, which sought clarification on the statutory definition of “money transmitter” under the Washington Uniform Money Services Act (WUMSA), RCW 19.230.020(9). Specifically, the ETA requested clarification that “money transmitter” excludes payment processors that do not have consumer-facing relationships or receive consumer payments for transmission to a third-party payee or other transferee. The ETA’s petition further requested that the Department issue a declaratory order that the payment processor exclusion in WUMSA “applies to payment processors that act on behalf of merchants, rather than consumers, to facilitate the merchant’s acceptance of credit and debit cards and that such payment processors are not subject to the Act.” The Department declined to issue such an order because the ETA’s petition failed to specifically identify any of its purported 500+ members “by name or as doing business in or having sufficient minimum contacts with Washington State to a degree that would presumptively make them subject to the Division’s authority under WUMSA.” The Department allowed that ETA could resubmit the petition, but also encouraged it to contact the Department’s staff and “have discussions about how best to resolve the alleged ‘uncertainty’ you have addressed.”
Recently, the New Mexico Senate Chamber unanimously passed House Bill 250. The legislation creates a licensing framework for persons or businesses engaging in money transmissions, check cashing, and currency exchange, and delegates certain powers and duties to the Director of the Financial Institution’s Division of the Regulation and Licensing Department. The legislation is currently awaiting Governor Susana Martinez’s signature.
Texas Department of Banking Issues Supervisory Memorandum to Money Services Business License Holders
On October 29, the Texas Department of Banking (the Department) issued a supervisory memorandum to Money Services Business (MSB) license holders. The purpose of the memorandum “is to provide license holders with industry best practices regarding the documentation of [authorized delegate] and agent compliance monitoring efforts.” According to the Department, agents and Authorized Delegates (AD) pose substantial compliance risks to MSBs, with agent and AD file review comprising “a significant component of the examination process for assessing compliance with AML Program requirements and Texas law.” The memorandum provides MSBs with industry guidance on how to meet regulators’ expectations for maintaining documentation in compliance with agent and AD oversight. The Department identifies various documents that support effective agent and AD on-boarding due diligence, including: (i) agent and AD BSA policies and procedures; (ii) approval by foreign regulators to conduct money transmission; (iii) evidence of initial AML/BSA training; and (iv) credit review and approval documents, such as financials and credit reports. Moreover, the memorandum indicates that on-going due diligence requires MSBs to maintain, among other things, evidence to support (i) periodic BSA training; (ii) agent compliance with independent AML review requirements; and (iii) the license holder’s review of updated BSA/AML Program policies and procedures.
On October 13, the DOJ announced that a Columbus, Georgia resident pleaded guilty to one count of operating an unlicensed money transmitting business. According to the DOJ, between February 2013 and March 2014, the individual unlawfully owned, operated, and managed multiple money transmitting companies throughout the Columbus area, offering check-cashing services. The individual allegedly knew that he was required to register his company with FinCEN and with the state of Georgia, but failed to do so. Scheduled to face sentencing in January 2016, the individual faces a statutory maximum sentencing of five years and has agreed to a forfeiture order of more than $1,300,000.
California Department of Business Oversight Issues Opinion Letter Declaring Foreign Check Clearing Services Not Subject to State's Money Transmission Act
On August 24, the California Department of Business Oversight issued a redacted opinion letter clarifying that foreign check clearing services are not considered money transmission subject to the Money Transmission Act. In order to fall under the state’s Financial Code’s definition of money transmission, a financial institution must receive money or monetary value for transmission within the United States. Emphasizing the domestic prerequisite outlined in the code, the DBO’s opinion indicates that if a bank establishes an exchange rate for an American financial institution that has received a check for deposit written against a foreign bank, the exchange rate service provided by the bank is considered a foreign check clearing service and not “receiving money or monetary value in the United States.” Accordingly, such check clearing activity does not fall under the California Financial Code’s definition of money transmission.
DOJ Assistant AG Caldwell Delivers Remarks at the ABA's National Institute on Bitcoin and Other Digital Currencies
Today, Assistant Attorney General Leslie Caldwell delivered remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies. Speaking on the DOJ Criminal Division’s approach to the developing landscape of virtual currency, Caldwell acknowledged the legitimate uses of virtual currencies, such as having the ability to lower costs for brick and mortar businesses and its potential to promote a more efficient online marketplace, while also addressing the Department’s concern for the criminal activity surrounding virtual currencies, noting, “virtual currency facilitates a wide range of traditional criminal activities as well as sophisticated cybercrime schemes.” Citing recent actions against various individuals and groups involved in criminal activities that “sought to exploit decentralized systems such as Bitcoin” – specifically, Silk Road and Ross Ulbricht; and Carl Force and Shaun Bridges, both involved in the Baltimore Silk Road Task Force – Caldwell stressed that there are “many exchanges that don’t concern themselves with following the law.” She explained that the primary legal bases for enforcement are money services business, money transmission, and anti-money laundering statutes, as well as state money transmitter licensing laws and, in some states like New York, virtual-currency specific licensing requirements. Caldwell also noted the Department’s partnership with FinCEN, summarizing its involvement in the Ripple Labs resolution to show that “compliance and remediation can lead to a more favorable resolution of criminal investigations.” Further, Caldwell observed that while there is no “one-size-fits-all” compliance program, the adherence to regulations and state licensing laws by those involved in virtual currency businesses will reduce liability and complying with anti-money laundering guidelines will allow “the legitimate use of virtual currency to grow and be responsive to infiltration and abuse by criminal elements.”
Today, FinCEN announced the assessment of a civil money penalty against a Los Angeles-based Money Services Business (MSB) and its owner for alleged violations of the Bank Secrecy Act (BSA). During a 2011 examination of the MSB, FinCEN determined that, from October 1, 2010 through the present, the MSB knowingly violated the BSA by failing to (i) establish and ensure ongoing compliance with an adequate AML program; (ii) provide adequate training; and (iii) conduct independent testing of its compliance program. In addition, the MSB violated the BSA’s reporting requirements by failing to “file required currency transaction reports (“CTRs”) on all of its reportable transactions during the examination scope period,” and continued to file untimely CTRs even after the examination scope period ended on March 31, 2011. Finally, FinCEN expressed concern over the MSB owner’s failure to disclose that the MSB “frequently exchanged check for cash with another MSB, an arrangement known as ‘wholesaling’ or ‘bulk check cashing.’” According to the assessment document, the MSB’s owner, who was also the designated AML compliance officer, participated in the BSA violations by failing to accept his responsibility to “ensure that [an] AML program was in place, was effective, and was followed.” To resolve FinCEN’s allegations, the MSB and its owner admitted to violating the BSA program and its reporting requirements and will pay a civil money penalty of $60,000.
FinCEN Fines Michigan MSB For BSA/AML Violations, Bans Owner From Serving at Any U.S. Financial Institution
On May 29, a Michigan-based money service business (MSB), along with its owner, admitted to repeated violations of the BSA and have agreed to pay FinCEN a civil money penalty in the amount of $12,000. The company violated the BSA in numerous ways, including but not limited to: (i) failing to maintain a sufficient anti-money laundering program; (ii) engaging in high-risk transactions, including wire transfers to Yemen, totaling millions of dollars, without keeping proper records of the transfers or performing due diligence; and (iii) conducting suspicious transactions “with no apparent business or lawful purpose.” According to FinCEN, the MSB failed to monitor the suspicious transactions, had no review process in place, and neglected to file a Suspicious Activity Report or a Currency Transaction Report while operating as a business entity. Furthermore, in addition to the aforementioned MSB, the owner opened an additional MSB in October 2010, containing similar BSA deficiencies. The owner has “agreed to immediately and permanently cease serving as an employee, officer, director, or agent of any financial institution located in the United States or that conducts business within the United States.”