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Education

What if a regulator implemented anti-money laundering and know-your-
client compliance programs for your business. Usually,
says you are an MSB? you will need to devote at least one full-time employee to
compliance issues demanded by the regulators.

Moreover, it is a crime to do business as an MT without
having such licenses in place, and state penalties for such
conduct may range from $10,000 to $2 million or more.
Several states impose fines for noncompliance that equal
the amount of gross merchant sales in the state.

Moreover, different states will keep in touch with each
other regarding these issues. Thus, potentially, a letter
from one state can result in a fine from that state and a
referral to another state's regulator that will send a similar
letter that starts the process again.
By Theodore F. Monroe Is there a work around?
Attorney at Law Fortunately, some businesses can develop a work around

frequently get calls from companies saying they to avoid licensure. One potential route is to become an
have received letters from state regulators requesting authorized delegate of a properly licensed MT. In this
information related to whether they have acted as a scenario, the authorized delegate may generally use its own
I money service businesses (MSB) or money transmit- brand and board customers directly. However, the money
ter (MT) with the state's consumers. must flow through the licensed MT's bank account, and the
authorized delegate must clearly apprise customers that its
When a company receives such a letter, it means the state has services are being provided under the MT's license.
reason to believe it is violating the state's law. If a company
receives one, it needs to address the issue with the state and Although these rules vary by state, usually the MT is liable
likely take measures to bring itself into compliance. for the authorized delegate's activities and must perform
transaction reporting, oversight and monitoring functions
What are MSBs and MTs? to comply with regulatory requirements. In return, the
authorized delegate pays the MT in consideration of its
An MSB is the legal term used by financial regulators to regulatory obligations and the associated risk, as well as
describe businesses that transmit or convert money or for all transactions.
provide money transmission services, as well as any other
person engaged in the transfer of funds or other value. Unfortunately, this model does not work in all
circumstances. For example, the Texas Department of
Federal law requires any person that qualifies as an MSB Banking issued a Supervisory Memorandum regarding
to be licensed by the U.S. Department of the Treasury's this issue in October 2014, advising that Texas law prohibits
Financial Crimes and Enforcement Network as an MSB. a licensed MSB from appointing an authorized delegate to
Such businesses are also subject to separate requirements offer its own distinct line of money transmission products
to be licensed as an MT in each state in which they do or services (as opposed to offering the license holder's own
business. product or service).

An MT is a type of MSB that provides money transfer Under this view, the license holder rather than the
services or payment instruments. Examples of MTs include authorized delegate should have a contractual relationship
Plastiq and online wallets such as PayPal. Almost every with the customers, and should derive revenue primarily
state has licensure requirements for MTs.
How do I become an MT
In addition to the application and lawyer
So, what's the big deal? Just get licensed, right? Well, it filing fees, licensing requires showing
is not as easy as it sounds. The licensing process with all proof of a minimum net worth of $500,000
states often takes two or more years to complete at a cost of
$1 million to $2 million. California is notoriously expensive to $1 million, surety bonding, and fully
and time-consuming. implemented anti-money laundering and
know-your-client compliance programs for
In addition to the application and lawyer filing fees,
licensing requires showing proof of a minimum net your business.
worth of $500,000 to $1 million, surety bonding, and fully

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