cryptocurrency, bitcoin, ethereum, crypto
What Is A Money Transmitter?
Generally, a money transmitter is an entity that provides money transfer or payment services. Common examples include PayPal, Western Union and Barclays.
Federal Money Transmitter Laws
The Bank Secrecy Act and its related regulations impose anti-money laundering (“AML”) regulations on money service businesses (“MSBs”), which include money transmitters. If FinCEN determines an entity is a money transmitter, the consequences are that you must:
On March 18, 2013, FinCEN published guidance that it would not distinguish between fiat currency and digital currencies for money transmission law purposes. On January 30, 2014, FinCEN published additional guidance.
Generally, whether a person or entity handling crypto counts as a money transmitter depends what the cryptocurrency is used for, and for whose benefit. It does not depend on how it is obtained or how it labels itself.
Further, FinCEN distinguishes between “exchanges”, “administrators”, and “users”:
Based on FinCEN’s releases, activities must involve either “acceptance” or “transmission” of crypto to trigger the regulations:
State Money Transmitter Laws
Under state laws, a money transmitter must apply for a license. At the federal level, if you meet the above requirements, you can register with FinCEN. That is to say, FinCEN doesn’t exercise discretion over whether you get a license. But at the state level, even if you meet all of a state’s requirements, the state has discretion to deny your license. In other words, state money transmitter licenses are more difficult to obtain and less guaranteed.
State licenses typically have higher standards, like requiring audited financials, personal financial records of key personnel of the transmitter, background checks, fingerprinting, and bond posting requirements.
Importantly, state money transmission laws can apply to businesses that have no physical presence in the state if that business solicits or services any state citizens.
Many states have issued guidance. The below is a general summary as of August 2018. Please note that each state’s laws may have unique definitions of crypto or other nuances, and thus should be analyzed individually.
Reginald Young is a licensed attorney and practices in San Francisco, California, where he works with private investment funds and startups in the crypto industry. You can connect with him here.