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Education

from the transactions performed by the authorized
delegate on its behalf rather than from fees paid by the
authorized delegate.
Such arrangements are also subject to close scrutiny
by regulators in other states to ensure that they do
not constitute a rent-a-license relationship. This is
particularly true where the authorized delegate is
offering a product or service that the MT license holder
does not already provide, or where the license holder
contracts to offer an entirely new service through the
authorized delegate.

Federally chartered banks are generally exempt from
money transmitter licensing requirements and may
designate agents to provide money transmitter services
on their behalf. Thus, another potential avenue is
partnering with a nationally chartered bank as the
bank's agent to obtain an FBO (for the benefit of) account
relationship, where all funds are held at the bank for the
benefit of the agent's customers.

In addition, the company can reengineer its business
model to avoid transmission. This solution is usually
the cheapest, but most companies are loath to change
core activities that add value to their business to
accommodate the concerns of the government.
Nevertheless, all of these options should be considered,
hopefully, prior to receiving attention from a state
regulator.

What if I've already received that letter?
If you have already received a letter from the state
regarding this topic, you should engage the regulators.
It is possible your company has not engaged in activities
that violate the state's statutes. You may be able to
explain mitigating factors, such as legitimate confusion,
and that the company has stopped any offending
activities. You may be in a position to explain how the
company has brought itself into compliance by using
one of the work-arounds identified herein. You should
also engage an attorney to assist you with this effort. It
will demonstrate you are serious about complying with
the state's MT statutory framework.

Becoming an authorized delegate or partnering with a
federally chartered financial institution both require a
company to find an MT or a bank that will be willing
to work with the company. This is not an easy task, and
likely, the MT or bank partner will require that it be
well remunerated for its efforts and the risk it takes.

The information contained in this article is for educational purposes
only. Please consult an attorney before relying upon it for your spe-
cific legal needs. Theodore F. Monroe is an Attorney whose practice
focuses on the electronic payment and direct marketing industries.
For more information about this article or any other matter, email
him at monroe@tfmlaw.com or call him at 213-233-2273.

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