May 15, 2014 –
FinCEN publishes rulings on the application of the money transmission definitions and exemptions to certain business models

On April 29, 2014, the Financial Crimes Enforcement Network (“FinCEN”) published five administrative rulings providing additional information on how exemptions from money transmitter status may or may not apply to certain business models, under the 2011 modifications to the Bank Secrecy Act’s (“BSA”) definition of a money transmitter.

A brief summary of each of these rulings is provided below.

Additional armored car guidance

FinCEN Ruling 2014-R008 discusses whether a company that provides an armored car coin and currency exchange service is a money transmitter and whether the armored car service exemption would apply to the service (the “Armored Car Ruling”). In this ruling, FinCEN concluded that the activities of the particular company discussed did not constitute money transmission services because each aspect of the company’s transportation services contemplated the transportation of the company’s funds (and not those of its customers), and therefore, did not encompass the acceptance from one person of currency, funds or other value and the transmission of funds, currency or other value to another person or location. Importantly, and with regard to the exemptions from the definition of money transmission, in its analysis, FinCEN noted that it interprets all such exemptions strictly, and that an activity that does not conform fully to the elements of an exempted transaction or that contains additional features not contemplated in the description of the exempted transaction, is not covered by such exemption.

Additional virtual currency guidance

FinCEN Ruling FIN-2014-R007 discusses the application of money service business regulations to the rental of computer systems for mining virtual currency (the “Mining Virtual Currency Ruling”). In this ruling, FinCEN concluded that a company that has developed a computer system that mines crypto currencies and rents such systems to third parties in exchange for a payment based on the rental period is not a money transmitter under the BSA because rental of computer systems to third parties is not an activity covered by FinCEN regulations. In so finding, FinCEN also noted that its regulations specifically exempt from money transmitter status a person that provides only the delivery, communication, or network data access services used by a money transmitter to supply money transmission services. In this case, the company would provide the delivery, communication or network data access services used by money transmitters (specifically, administrators of virtual currency) to supply money transmission services (i.e. issuing virtual currency).

3 rulings on exemption to the definition of money transmission

Under FinCEN regulations, the acceptance and transmission of funds “only integral to the sale of goods or the provision of services, other than money transmission services,” will not cause the person that is accepting and transmitting the funds to be deemed a money transmitter (the “Integral Exemption”). In this regard, three of the five recently released FinCEN administrative rulings provide additional guidance:

1. In FinCEN Ruling FIN-2014-R006, FinCEN determined that the activities of a company providing a payment platform enabling consumers and businesses to send and receive online payments constituted those of a money transmitter, finding that the company did not provide a service independent from money transmitting (such as traditional escrow services) and therefore, did not qualify for the Integral Exemption (the “Payment Platform Ruling”). Importantly, FinCEN also determined that the company was not a provider of prepaid access, because, among other things, the company’s operating model, which functioned to facilitate payment between two unique parties, differed markedly from most transactions involving prepaid access, wherein the prepaid access operates more like a fungible payment instrument in traditional commerce, usable at any number of as-yet-unidentified merchants.
2. In FinCEN Ruling FIN-2014-R005, FinCEN determined that an internet-based company that offered secured transaction services to a buyer and seller in a given sale of goods or services was not a money transmitter by virtue of the Integral Exemption (the “Transaction Management Services Ruling”). In concluding that the Integral Exemption applied to the company’s activities, FinCEN determined that the company’s money transmission services were “only integral to its provision of the transaction management services” it offered, i.e., a platform for the negotiation of a sale, including description of the transaction, terms, freight and insurance specifications, warranties, price, and performance deadlines.
3. In FinCEN Ruling FIN 2014-R004, FinCEN determined that a company providing escrow services to individuals and businesses for sales of goods or services on the internet was not a money transmitter by virtue of the Integral Exemption (the “Escrow Services Ruling”). In so concluding, FinCEN noted that the company’s acceptance and transmission of funds were only necessary and integral to its provision of escrow services and emphasized the company’s active part in arranging, monitoring, verifying or endorsing the transactions that it processed.

Read related:

• Armored Car Ruling
• Mining Virtual Currency Ruling
• Payment Platform Ruling
• Transaction Management Services Ruling
• Escrow Services Ruling

If you have any questions regarding the above, please contact Gregory K. Bader or Stephanie M. Quiñones of Gunster’s banking and financial services law practice.

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