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Federal Registration of Money Transmitters
In the United States, money transmission is heavily regulated at the federal level because of the risk of fraud and other criminal activity. The federal regulations governing money transmission apply to all money transmitters, whether actual or virtual funds being exchanged.
All money transmitters must register with the U.S. Department of Treasury using the BSA E-Filing System. Specifically, they must file an electronic Registration of Money Service Business (RMSB) using FinCEN Form 107. A copy of the filed registration form must be retained in a U.S. location for five years, with annual updates to the estimate of business volume, ownership information, and a list of the business’s agents.
Federal law also requires that money transmitters obtain any necessary state licenses.
State Licensing of Money Transmitters
Under federal law, money transmitters must be licensed in every state where they operate. Only one state, Montana, does not license money transmitters at all. However, some states with money transmitter licensing requirements do not specifically include cryptocurrency transmitters. Consequently, it’s important for new cryptocurrency transmitters to determine what the exact licensing requirements are in their home state and in every state where they do business.
Federal Laws Governing Money Transmitter Operations
From a federal regulatory standpoint, money and cryptocurrency transmissions are treated the same. However, there is a heightened risk awareness because of the higher criminal activity associated with cryptocurrency.
Federal laws that apply to all money transmitters, including cryptocurrency transmitters, require establishing and maintaining an anti-money laundering program, reporting transactions, and reporting suspicious activity.
Establishing an Anti-Money Laundering Program
Every registered money transmitter must have a formal, written anti-money laundering (AML) program that meets the standards required by FinCEN. (FinCEN stands for the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. FinCEN is responsible for collecting and analyzing financial transaction information to fight money laundering, terrorist financing, and other financial crimes.)
According to FinCEN, money laundering involves “disguising financial assets so they can be used without detection of the illegal activity that produced them.” It “transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.” Cryptocurrency often is used in money laundering because of the anonymity it provides. Although transactions are a matter of public record, the identities of the parties to a transaction are unknown.
Essential elements of a FinCEN-compliant AML program include: written AML policies and procedures, an AML compliance officer, AML supervisory control, frequent independent AML program review, and ongoing AML staff training.
FinCEN requires money transmitters to file a Currency Transaction Report (CTR) using FinCEN Form 104 within 15 days of a currency (real or virtual) transaction or series of transactions that:
- involves more than $10,000, and
- is conducted by or on behalf of the same person, and
- is conducted on the same business day.
Reporting Suspicious Activity
FinCEN also requires money transmitters to file a Suspicious Activity Report (SAR) using FinCEN Form 109 within 30 days of identifying a suspicious transaction. A suspicious transaction is one that involves assets of $2,000 or more and that the money transmitter has reason to suspect or believe:
- Involves funds derived from illegal activity or is intended to conceal that the funds were derived from illegal activity to evade federal law or federal transaction reporting, and
- Is designed to evade any requirement of the Bank Secrecy Act of 1970 (also known as the Anti-Money Laundering law), and
- Serves no lawful purpose that is apparent to the money transmitter after examining available facts, and
- Involves the use of the money transmitter to facilitate criminal activity.
Once filed with FinCEN, SARs must be retained by the money transmitter for a period of five years.
State Laws Governing Money Transmitters
Be aware that, in addition to complying with federal laws, money transmitters are also subject to any state laws governing money transmission in the states in which they operate. In many cases, this will include purchasing a money transmitter surety bond as part of the licensing process.
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