FinCEN Releases Final Rule Clarifying Money Services Businesses Definitions, Includes Foreign-located MSBs Doing Business in U.S.

On July 18, 2011, the Financial Crimes Enforcement Network of the United States Department of the Treasury (“FinCEN”) issued a final rule amending the Bank Secrecy Act (BSA) implementing regulations regarding Money Services Businesses (“MSBs”). The rule clarifies which businesses qualify as MSBs and are thus subject to the anti-money laundering regulations of the BSA. A copy of FinCENs press release can be read here.

Under current BSA regulations, businesses that meet one or more of the definitions of a MSB must comply with applicable BSA requirements. Businesses which qualify as MSBs under BSA regulations include: currency dealers, currency exchangers, check cashers, money transmitters as well as sellers issuers and redeemers of travelers checks, money orders, or stored value.

The rule makes several changes to MSB regulations starting with the definition of an MSB itself. The definition of MSB has been rephrased to state: “[a] person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States” in one or more of the capacities listed above. The new rule clarifies that it is the activities performed by a business within the US which will cause it to be classified as an MSB regardless of that businesses location.

Additionally, the new rule makes foreign-located businesses engaging in MSB activities within the US subject to BSA regulation. As a result, even foreign based MSBs with no physical presence in the US can be classified as an MSB and thus subject to the rigorous requirements of the BSA. However, foreign banks as well as foreign financial agencies that engage in activities that if conducted in the US would require them to be registered with the SEC or CFTC are excluded from the definition of an MSB. As noted in the rule, “To permit foreign-located persons to engage in MSB activities within the United States and not subject such persons to the BSA would be unfair to MSBs physically located in the United States and would also undermine FinCENËœs efforts to protect the U.S. financial system from abuse.”

The rule also replaces the terms “currency dealer or exchanger” with “dealer in foreign exchange” and clarifies what services will qualify for this MSB category. Although the BSA uses the term “currency exchange,” FinCEN has interpreted the Act as intending to cover the underlying activities involved in foreign exchange services, including the exchange of instruments other than currency. As a result, “dealer in foreign exchange” will be defined as: “A person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $ 1,000 for any other person on any day in one or more transactions, whether or not for same-day delivery.” This new term and definition makes clear that exchanges within the US of currency, funds, or monetary instruments wholly between foreign currencies still classify a business as an MSB and subject to BSA regulation.

FinCENs new rule also provides for several changes to the definition of “check casher” in an effort to more accurately describe which activities are covered. First, the rule splits the definition of “check casher” into two paragraphs, the first defining what activity is considered “check cashing” and the second listing exclusions from the definition. Second, FinCEN has now incorporated the redeeming of monetary instruments into its definition of “check cashing.” As a result businesses engaged in redeeming monetary instruments, including money orders and travelers checks, will be considered a check casher if it also redeems checks for currency or a combination of currency and monetary or other instruments. “Check cashing” is now defined as: “A person that accepts checks (as defined in the [UCC]), or monetary instruments in return for currency or a combination of currency and other monetary instruments in an amount greater than $1,000 for any person on any day in one or more transactions.”

The new rule amends existing MSB regulations by separating the provisions concerning stored value from those concerning issuers, sellers, and redeemers of travelers checks and money orders. FinCEN separated out the stored value provisions in anticipation of additional changes to be made regarding stored value in FinCENs Prepaid Access Rulemaking. See our previous report for more information regarding FinCENs Prepaid Access Rulemaking. The rule also combines the previously separate categories of issuer of travelers checks and money orders and seller of travelers checks and money orders into one category.

The rule also provides for several changes to the definition of “money transmitter” and exclusions from its coverage. While substantive, these changes incorporate years of FinCEN issued guidance and administrative rulings regarding examples of activities which would not classify a business as a money transmitter, even though the business engaging in such activities may be involved in accepting and transmitting funds. A complete copy of the new rule can be read here.

If you have questions pertaining to the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fuerstlaw.com.

This entry was posted on Wednesday, July 20th, 2011 at 9:26 am and is filed under AML-BSA.

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