Page 53 - gs140502
P. 53
Education
Legal ease I'm an ISO, not an international money transmitter
The international money transmitter model is the easiest
Becoming a money example of money transmission. There are, however,
a number other businesses that may or may not be
categorized as money transmitters, depending on how
transmitter they work. These can include providers of bill payments,
rent payments, mortgage payment management, loan
By Adam Atlas payment processing, debt consolidation, peer-to-peer
payments or credits, crowd-funding, e-wallets, mobile
Attorney at Law wallets, mobile prepaid services, and online credit.
ith every bit of innovation in payments, the New businesses like these are popping up every day, and
line between regulated entities, like money some of them intersect with ISOs. ISOs should therefore
transmitters, currency exchanges and check be very sensitive to new business models that involve, for
W cashers, and less regulated entities, like example, any of the following, as they might constitute
sales offices and marketing companies, blurs ever more. money transmission, depending on how they work:
To their credit, ISOs are getting more creative in compet- • Holding payment funds for a merchant's customer
ing for merchant business.
• Exchanging virtual currency, like bitcoin, for real
Some of that creativity goes into added products and currency
services. ISOs should be aware that some activities require • Using a trust account to accumulate merchant
federal registration and state licensing. If you operate as a payments
money transmitter without the required state licenses and • Automated clearing house payment processing
federal registration, for example, you could find yourself by ISOs
in jail.
• Assuming control over merchant or customer
MSB Law 101 funds
The money services business (MSB) is the broadest • Using models that expose consumers to risk of
category of nonbank regulated payment businesses. MSBs loss of funds
include money transmitters, like Western Union affiliates, • Exploiting dubious business opportunities related
currency exchange services, check cashers and a handful to virtual currency
of other nonbank financial service providers.
When done properly and with clearance from federal and
While the Federal Bank Secrecy Act and the banking state regulators, many innovative models can operate
laws of each state have their own autonomous definition without licensing or registration. The point here is to
of money transmission, the term usually means taking know what you don't know. Specifically, you want to
value from one person and promising to deliver that know if the model you are operating or being asked to sell
value to another person or another place. Classic money is, in fact, legal.
transmission involves an international remittance
provider who specializes in sending money to a customer's As we all know, technology and innovation far outpace
family overseas. the law. So an ISO could be offered an amazing product at
a tradeshow to include in its offerings to merchants. The
In this example, a U.S. resident gives $1,000 to a money product could be, for example, a prepaid mobile wallet
transmitter to be sent to a family member in a foreign that consumers can use to spend funds at a variety of
country. The money transmitter then gives the sender retailers.
a receipt and the sender hopes the money will go to its
intended recipient. Naturally, the ISO is not expected to be able to divine the
legal status of the new model right there on the tradeshow
Senders thus take the risk that dishonest money floor. Instead, the ISO should know to ask whether the new
transmitters will not actually send the money to the model has been vetted by legal experts. There is no point
recipient. As a result of this risk, and others like it, and in an ISO selling a product that will, at some point down
also to prevent criminals from abusing MSBs for criminal the road, be closed down for lack of MSB compliance.
purposes, MSBs are required to obtain state licenses and
also register with the U.S. Department of the Treasury Where do ISOs add value to new business models?
Financial Crimes Enforcement Network (FinCEN).
If ISOs need to avoid business models that have compliance
FinCEN collects information on MSBs and on the issues, and they aren't especially adept at knowing what
transactions they find to be suspicious. FinCEN is then is legal and what is not, where can they add value to a new
able to assist law enforcement in solving crimes by way of MSB model? Sales, of course.
clues in financial transactions.
53
53
Legal ease I'm an ISO, not an international money transmitter
The international money transmitter model is the easiest
Becoming a money example of money transmission. There are, however,
a number other businesses that may or may not be
categorized as money transmitters, depending on how
transmitter they work. These can include providers of bill payments,
rent payments, mortgage payment management, loan
By Adam Atlas payment processing, debt consolidation, peer-to-peer
payments or credits, crowd-funding, e-wallets, mobile
Attorney at Law wallets, mobile prepaid services, and online credit.
ith every bit of innovation in payments, the New businesses like these are popping up every day, and
line between regulated entities, like money some of them intersect with ISOs. ISOs should therefore
transmitters, currency exchanges and check be very sensitive to new business models that involve, for
W cashers, and less regulated entities, like example, any of the following, as they might constitute
sales offices and marketing companies, blurs ever more. money transmission, depending on how they work:
To their credit, ISOs are getting more creative in compet- • Holding payment funds for a merchant's customer
ing for merchant business.
• Exchanging virtual currency, like bitcoin, for real
Some of that creativity goes into added products and currency
services. ISOs should be aware that some activities require • Using a trust account to accumulate merchant
federal registration and state licensing. If you operate as a payments
money transmitter without the required state licenses and • Automated clearing house payment processing
federal registration, for example, you could find yourself by ISOs
in jail.
• Assuming control over merchant or customer
MSB Law 101 funds
The money services business (MSB) is the broadest • Using models that expose consumers to risk of
category of nonbank regulated payment businesses. MSBs loss of funds
include money transmitters, like Western Union affiliates, • Exploiting dubious business opportunities related
currency exchange services, check cashers and a handful to virtual currency
of other nonbank financial service providers.
When done properly and with clearance from federal and
While the Federal Bank Secrecy Act and the banking state regulators, many innovative models can operate
laws of each state have their own autonomous definition without licensing or registration. The point here is to
of money transmission, the term usually means taking know what you don't know. Specifically, you want to
value from one person and promising to deliver that know if the model you are operating or being asked to sell
value to another person or another place. Classic money is, in fact, legal.
transmission involves an international remittance
provider who specializes in sending money to a customer's As we all know, technology and innovation far outpace
family overseas. the law. So an ISO could be offered an amazing product at
a tradeshow to include in its offerings to merchants. The
In this example, a U.S. resident gives $1,000 to a money product could be, for example, a prepaid mobile wallet
transmitter to be sent to a family member in a foreign that consumers can use to spend funds at a variety of
country. The money transmitter then gives the sender retailers.
a receipt and the sender hopes the money will go to its
intended recipient. Naturally, the ISO is not expected to be able to divine the
legal status of the new model right there on the tradeshow
Senders thus take the risk that dishonest money floor. Instead, the ISO should know to ask whether the new
transmitters will not actually send the money to the model has been vetted by legal experts. There is no point
recipient. As a result of this risk, and others like it, and in an ISO selling a product that will, at some point down
also to prevent criminals from abusing MSBs for criminal the road, be closed down for lack of MSB compliance.
purposes, MSBs are required to obtain state licenses and
also register with the U.S. Department of the Treasury Where do ISOs add value to new business models?
Financial Crimes Enforcement Network (FinCEN).
If ISOs need to avoid business models that have compliance
FinCEN collects information on MSBs and on the issues, and they aren't especially adept at knowing what
transactions they find to be suspicious. FinCEN is then is legal and what is not, where can they add value to a new
able to assist law enforcement in solving crimes by way of MSB model? Sales, of course.
clues in financial transactions.
53
53
