Blockchain and cryptocurrency technologies offer consumers a lower-cost alternative to institutional banks for moving money instantly across the globe. Money transmitting businesses that provide such services to consumers are required to register with FinCEN “to help mitigate the risks of criminal abuse of MSBs for money laundering and terrorist financing.” FinCEN.gov
Unlike other financial institutions regulated by FinCEN that are subject to ongoing prudential regulation and supervision for safety and soundness purposes - such as banks, securities broker-dealers, and insurance companies - MSBs become subject to FinCEN regulations not because of their license or charter, but rather based on the activities they conduct. While generally understood today, in addition to the fact that MSBs have increasingly become subject to regulation at the State level, when FinCEN first issued its regulations with respect to MSBs, there was a need to identify and educate many of the entities that would be subject to the regulatory requirements. FinCEN.gov
In addition to possible potential civil liability, MSB businesses that fail to register with FinCEN face also risk criminal prosecution under 18 USC 1960. Crypto Criminal Defense Lawyer Blog
Civil and Criminal Penalties for Operating an Unregistered Money Transmitting Business
Any person who fails to comply with any requirement of 31 U.S.C. 5330 or this section [31 CFR 103.41] shall be liable for a civil penalty of $5000 for each violation.BSA registration requirements, in an amount up to $5,000 for each day a registration violation continues.
[31 U.S.C. § 5330(e) and 31 C.F.R. § 103.41(e)]Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.
[18 U.S.C § 1960(a)]A money transmitting business which affects interstate or foreign commerce in any manner or degree and fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.
[18 U.S.C § 1960(b)(1)(B)] FinCEN.gov
Under 18 USC 1960, it is a federal crime to operate an unlicensed money transmitting business (MTB) when certain conditions are met. An MTB is considered unlicensed if it:
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Operates without an appropriate state money transmitting license where such operation is punishable as a misdemeanor or a felony under state law, regardless of whether the defendant knew that the operation was required to be licensed or that the operation was punishable (18 USC § 1960(A)).
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Fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section (18 USC § 1960(B)).
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Involves the transportation or transmission of funds that the defendant knows were derived from a criminal offense or are intended to be used to promote or support unlawful activity (18 USC § 1960(C)).
The rise of cryptocurrencies has led to an increase in MTBs that use these digital currencies to facilitate transactions. Some MTBs may attempt to evade regulations by operating without proper licensing or registration, thereby violating 18 USC 1960. As cryptocurrencies can provide anonymity and are easily transferred across borders, they are increasingly used to facilitate illicit activities, including the operation of unlicensed MTBs to facilitate crimes such as money laundering.
In United States v. Lord, the Fifth Circuit reiterated that MTBs are subject to 18 USC § 1960, which criminalizes the failure to obtain a state license, when required, and to comply with federal registration requirements. The court outlined the three conditions that render an MTB unlicensed, as discussed above (18 USC § 1960(A)-(C)). Furthermore, the court noted that other regulations require MTBs to register with the Financial Crimes Enforcement Network (FinCEN) within 180 days of the date the business is established (31 CFR § 1022.380(b)(3)). United States v. Lord, 915 F.3d 1009, 1013 (5th Cir. 2019).
In order to avoid violating 18 USC 1960, money transmitting businesses (MTBs) must comply with registration requirements outlined in 31 U.S.C. § 5330. By adhering to these requirements, MTBs can ensure they operate within the boundaries of the law and avoid the penalties associated with operating an unlicensed MTB.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.
