Financial Crimes Enforcement Network; Proposed Amendment to the Bank Secrecy Act RegulationsDefinition and Registration of Money Services Businesses

Federal RegisterMay 21, 1997

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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA09

Financial Crimes Enforcement Network; Proposed Amendment to the

Bank Secrecy Act Regulations--Definition and Registration of Money

Services Businesses

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is

proposing to amend the regulations implementing the statute generally

referred to as the Bank Secrecy Act to require certain money services

businesses to register with the Department of the Treasury and to

maintain a current list of their agents for examination, on request, by

any appropriate law enforcement agency. As a corollary to the proposed

registration requirement, FinCEN is also proposing to amend the Bank

Secrecy Act regulations to revise, and group together in a separate

category called ``money services businesses,'' the definitions of

certain non-bank financial institutions. The revised definitions would

also modify the treatment of the United States Postal Service under the

regulations. The proposed rule regarding registration and maintenance

of an agent list reflects changes to the law made by the Money

Laundering Suppression Act of 1994.

DATES: Written comments on all aspects of the proposal are welcome and

must be received on or before August 19, 1997.

ADDRESSES: Written comments should be submitted to: Office of Legal

Counsel, Financial Crimes Enforcement Network, Department of the

Treasury, 2070 Chain Bridge Road, Vienna, VA 22182, Attention: NPRM--

MSB Registration. Comments also may be submitted by electronic mail to

the following Internet address: ``[email protected]'' with

the caption, in the body of the text, ``Attention: NPRM--MSB

Registration.'' For additional instructions on the submission of

comments, see SUPPLEMENTARY INFORMATION under the heading ``Submission

of Comments.''

Inspection of comments: Comments may be inspected at the Department

of the Treasury between 10 a.m. and 4 p.m., in the FinCEN reading room,

on the third floor of the Treasury Annex, 1500 Pennsylvania Avenue,

NW., Washington, DC 20220. Persons wishing to inspect the comments

submitted should request an appointment by telephoning (202) 622-0400.

FOR FURTHER INFORMATION CONTACT: Peter Djinis, Associate Director, and

Charles Klingman, Financial Institutions Policy Specialist, FinCEN, at

(703) 905-3920; Stephen R. Kroll, Legal Counsel, Joseph M. Myers,

Deputy Legal Counsel, Cynthia L. Clark, on detail to the Office of

Legal Counsel, Albert R. Zarate, Attorney-Advisor, and Eileen P. Dolan,

Legal Assistant, Office of Legal Counsel, FinCEN, at (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

This document proposes a rule that would amend 31 CFR part 103 to

require money services businesses to register with the Department of

the Treasury and, as part of the registration requirement, to maintain

a current list of their agents in a central location for examination by

appropriate law enforcement agencies. Money services businesses

generally include businesses that provide check cashing, currency

exchange, or money transmitting services, or that issue or redeem money

orders, traveler's checks, or other similar instruments. The proposed

rule would implement the terms of 31 U.S.C. 5330, which was added to

the Bank Secrecy Act by section 408 of the Money Laundering Suppression

Act of 1994 (the ``Money Laundering Suppression Act''), Title IV of the

Riegle Community Development and Regulatory Improvement Act of 1994,

Public Law 103-325 (September 23, 1994).

In addition, this document proposes to amend 31 CFR part 103 by

revising the definition of financial institution in 31 CFR 103.11. The

revised definition would make changes to the term ``United States

Postal Service'' and would add a new term, ``money services business,''

under which would be grouped the types of businesses required to

definitions of those businesses in 31 CFR 103.11(n)).

Finally, this document proposes to revise the structure of 31 CFR

part 103. Under the new structure, subparts D through F would be

redesignated as subparts E through G, respectively. A new subpart D,

Special Rules for Money Services Businesses, would be added. The

sections in redesignated subparts E through G would also be

redesignated to reflect the addition of new subpart D, and

corresponding changes would be made to the references to such

redesignated sections in other portions of part 103.

II. Background

A. Statutory Provisions

The statute generally referred to as the ``Bank Secrecy Act,''

Titles I and II of Public Law 91-508, as amended, codified at 12 U.S.C.

1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330 authorizes the

Secretary of the Treasury, inter alia, to require financial

institutions to keep records and file reports that are determined to

have a high degree of usefulness in criminal, tax, and regulatory

matters, and to implement counter-money laundering programs and

compliance procedures. Regulations implementing Title II of the Bank

Secrecy Act (codified at 31 U.S.C. 5311-5330), appear at 31 CFR part

103. The authority of the Secretary to administer the Bank Secrecy Act

has been delegated to the Director of FinCEN.

Under 31 U.S.C. 5330, any person who owns or controls a money

services business (which the statute refers to as a ``money

transmitting business'' 1), whether or not the business is

licensed as a money services business in any State, must register the

business with the Secretary of the Treasury. 31 U.S.C. 5330(a). (A

money services business required to be registered under 31 U.S.C. 5330

remains subject to any State law requirements relating to the operation

of the business in the State.) The form and manner of registration must

be prescribed by regulations.

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\1\ The statute uses the term ``money transmitting business''

to name those businesses subject to registration. See 31 U.S.C. 5330

(a)(1) and (d)(1). However, FinCEN believes that the statute's use

of this term to refer to all the types of businesses subject to

registration and its later use of the nearly identical term ``money

transmitting service'' to refer to a particular type of business

subject to registration, compare 31 U.S.C. 5330(d)(1)(A) with 31

U.S.C. 5330(d)(2), may lead to confusion. Therefore, FinCEN has

adopted the term ``money services business'' in place of the term

``money transmitting business'' throughout this document and uses

the same terminology in the other rules it is proposing today.

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The purpose of the registration requirement is to assist

supervisory and law enforcement agencies in the enforcement of

criminal, tax, and regulatory laws and to prevent money services

businesses from engaging in illegal activities. See, section 408(a),

Public Law 103-325. In requiring the registration of money services

businesses, Congress recognized that such businesses are largely

unregulated and are frequently used in sophisticated schemes to

transfer large amounts of money that are the proceeds of unlawful

enterprises and to evade the requirements of Title II of the Bank

Secrecy Act, the Internal Revenue Code of 1986, and other laws of the

United

[[Page 27891]]

States. Congress also found that information on the identity of money

services businesses and the names of the persons who own or control, or

are officers or employees of, a money services business would have a

high degree of usefulness in criminal, tax, or regulatory

investigations and proceedings. Id.

The statute defines a money services business 2 as any

business, other than the United States Postal Service, that is required

to file reports under 31 U.S.C. 5313 and that provides check cashing,

currency exchange, or money transmitting or remittance

services,3 or issues or redeems money orders, traveler's

checks or other similar instruments. 31 U.S.C. 5330(d)(1). Depository

institutions (as defined in 31 U.S.C. 5313(g)), however, are not money

services businesses for purposes of the registration requirement. 31

U.S.C. 5330(d)(1)(C).

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\2\ Again, the statutory term is ``money transmitting

business,'' for which the term ``money services business'' is being

substituted by FinCEN. See footnote 1, supra.

\3\ Section 5330(d)(2) provides that the term ``money

transmitting service'' includes accepting currency or funds

denominated in the currency of any country and transmitting the

currency or funds, or the value of the currency or funds, by any

means through a financial agency or institution, a Federal Reserve

Bank or other facility of the Board of Governors of the Federal

Reserve System, or an electronic funds transfer network.

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Section 5330 requires the Secretary of the Treasury to issue

regulations treating certain agents of a money services business as

money services businesses for purposes of section 5330. 31 U.S.C.

5330(c)(2). Those regulations must establish a threshold, based on

criteria the Secretary determines to be appropriate, for treating an

agent as a registrable money services business.

Under section 5330, a money services business must be registered

not later than the end of the 180-day period beginning on the later of

the date of enactment of the Money Laundering Suppression Act of 1994

(September 23, 1994), and the date on which the business is

established. 31 U.S.C. 5330(a). On May 18, 1995, FinCEN issued a notice

explaining that regulations prescribing the form and manner of

registration would not require initial registration of money services

businesses before the 90th day following the effective date of the

implementing regulations. FinCEN Notice 95-1. The notice further

explained that no penalty or other compliance sanction would be imposed

under the provisions of the Bank Secrecy Act on account of the failure

of any money services business to register before the last date for

initial registration specified by regulation.

Section 5330 specifies the information that must be included as

part of the registration. 31 U.S.C. 5330(b). The required information

is--

(1) The name and location of the business;

(2) The name and address of each person who owns or controls the

business, is a director or officer of the business, or otherwise

participates in the conduct of the affairs of the business;

(3) The name and address of any depository institution at which the

business maintains a transaction account (as defined in section

19(b)(1)(C) of the Federal Reserve Act);

(4) An estimate of the volume of business in the coming year, which

shall be reported annually to the Secretary; and

(5) Such other information as the Secretary of the Treasury may

require.

Under section 5330, a money services business must maintain a list

containing the names and addresses of its agents and such other

information about the agents as the Secretary may require. 31 U.S.C.

5330(c). Section 5330 requires a money services business to make the

list available on request to any appropriate law enforcement agency.

Section 5330 prescribes a civil penalty for any person who fails to

comply with any requirement of 31 U.S.C. 5330 or the regulations

thereunder. The penalty is $5,000 for each violation; each day a

violation of 31 U.S.C. 5330 or the regulations thereunder continues

constitutes a separate violation. 31 U.S.C. 5330(e).

A failure to comply with 31 U.S.C. 5330 or the regulations under

section 5330 may also result in a criminal penalty under 18 U.S.C.

1960. See the discussion of proposed 31 CFR 103.41(e), below.

B. Money Services Businesses--General

This is the first of a set of three notices of proposed rulemaking

being published in this separate part of the Federal Register that deal

with the application of the Bank Secrecy Act to money services

businesses. In proposing these rules, FinCEN and the Department of the

Treasury are not only following the mandate of Congress in the Money

Laundering Suppression Act and the Annunzio-Wylie Anti-Money Laundering

Act, Title XV of the Housing and Community Development Act of 1992,

Public Law 102-550, but are more generally responding to the need to

update and more carefully tailor the application of the Bank Secrecy

Act to a major, if little understood, part of the financial sector in

the United States.4

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\4\ The Congress has long-recognized the need generally to

address problems of abuse by money launderers of ``non-bank''

financial institutions. See, e.g., Permanent Subcommittee on

Investigations, Senate Comm. on Governmental Affairs, Current Trends

in Money Laundering, S. Rep. No. 123, 102d Cong., 2d Sess. (1992).

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``Money services business'' is a newly-coined term that refers to

five distinctive types of financial services providers: currency

dealers or exchangers; check cashers; issuers of traveler's checks,

money orders, or stored value; sellers or redeemers of traveler's

checks, money orders, or stored value; and money transmitters. (The

five types of financial services are complementary and are often

provided together at a common location.) These businesses are quite

numerous; based on a study performed for FinCEN by Coopers & Lybrand,

L.L.P., they comprise approximately 158,000 5 outlets or

selling locations, and provide financial services involving

approximately $200 billion annually. To a significant extent, the

customer base for such businesses lies in that part of the population

that does not use, either in whole or in part, traditional financial

institutions, primarily banks.

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\5\ The number does not include Post Offices (which sell money

orders), participants in stored value product trials, or sellers of

various stored value or smart cards in use in, e.g., public

transportation systems.

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Money services businesses, like banks, can be large or small. It is

estimated that approximately eight business enterprises account for the

bulk of money service business financial products (that is, money

transmissions, money orders, traveler's checks, and check cashing and

currency exchange availability) sold within the United States, and also

account, through systems of agents, for the bulk of locations at which

these financial products are sold. Members of this first group include

large firms, with significant capitalization, that are publicly traded

on major securities exchanges.

A far larger group of (on average) far smaller enterprises compete

with the eight largest firms in a highly bifurcated market for money

services. In some cases, these small enterprises are based in one

location with two to four employees. Moreover, the members of this

second group may provide both financial services and unrelated products

or services 6 to the same sets of customers. Far less is

known about this

[[Page 27892]]

second tier of firms than about the major providers of money service

products.7

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\6\ E.g., as a travel agency, courier service, convenience

store, grocery or liquor store.

\7\ For example, according to the Coopers & Lybrand study, two

money transmitters and two traveler's check issuers make up

approximately 97 percent of their respective known markets for non-

bank money services. Three enterprises make up approximately 88

percent of the $100 billion in money orders sold annually (through

approximately 146,000 locations). The retail foreign currency

exchange sector is somewhat less concentrated, with the top two non-

bank market participants accounting for 40 percent of a known market

that accounts for $10 billion. Check cashing is the least

concentrated of the business sectors; the two largest non-bank check

cashing businesses make up approximately 20 percent of the market,

with a large number of competitors.

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Because money services businesses primarily serve individuals, they

have grown to provide a set of financial products, albeit in large part

for non-depository customers, that others look to banks to provide. For

example, a money services business customer who receives a paycheck can

take his check to a check casher to have it converted to cash. He can

then purchase money orders to pay his bills. Finally, he may choose to

send funds to relatives abroad, using the services of a money

transmitter.

III. Section-by-Section Analysis

A. Definitions.

1. 31 CFR 103.11(n)(3)--Definition of financial institution to

include ``money services business''. This proposed section adds a new

category called ``money services business'' to the definition of

financial institution. This new category collects, with revisions

discussed below, the financial institutions now defined at 31 CFR

103.11(n) (3), (4), (5), and (9). The change will permit these

institutions to be referred to, when necessary, by one convenient term.

FinCEN believes this restructuring of the definition of financial

institution will clarify, and facilitate flexibility in the

administration of, the Bank Secrecy Act regulations. (As a result of

this restructuring, current 31 CFR 103.11(n) (3), (4), (5), and (9)

will be deleted, and current 31 CFR 103.11(n) (6), (7), and (8) will be

redesignated as 31 CFR 103.11(n) (4), (5), and (6)).

2. 31 CFR 103.11(uu)--Definition of money services business. This

proposed section defines money services business. The term includes

each agent, agency, branch, or office within the United States of any

person doing business, whether or not on a regular basis or as an

organized business concern, in one or more of the capacities listed in

(1)-(6) below. (It should be noted that only one registration form per

money services business is required.)

(1) Currency dealer or exchanger. A currency dealer or exchanger

(other than a person who does not exchange currency in an amount

greater than $500 in currency or monetary or other negotiable

instruments for any person any day).

(2) Check casher. A person engaged in the business of cashing

checks (other than a person who does not cash checks in an amount

greater than $500 in currency or monetary or other negotiable

instruments for any person any day).

Proposed 31 CFR 103.11 (uu)(1) and (uu)(2) would replace the

definition of financial institution in existing 31 CFR 103.11(n)(3);

that section is proposed to be broken into two sections, one dealing

with currency dealers or exchangers 8 and one dealing with

check cashers, for ease of reference. In addition, unlike existing 31

CFR 103.11(n)(3), which contains no dollar floor, proposed 31 CFR

103.11 (uu)(1) and (uu)(2) generally treat currency dealers or

exchangers and check cashers as financial institutions only if they

engage in transactions involving more than $500 for any person any day.

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\8\ This document would retain the definition of currency dealer

or exchanger at 31 CFR 103.11(i). FinCEN specifically invites

comments on whether the definition at 31 CFR 103.11(i) is still

necessary for its carve out of banks from the recordkeeping

requirements of 31 CFR 103.37.

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The addition of explicit floors in the definitions relating to

currency exchange and check cashing businesses is proposed in an

attempt to eliminate from Bank Secrecy Act treatment those businesses,

such as grocery stores and hotels, that cash checks or exchange

currency as an accommodation to customers who are otherwise purchasing

goods, services, or lodging from the businesses involved. (Of course,

exceeding the threshold has other, more immediate consequences if the

amounts involved are sufficiently high to implicate particular Bank

Secrecy Act reporting or recordkeeping thresholds.) Treasury invites

comments on the appropriateness of the proposed $500 floor.

In determining whether the $500 floor is met in the case of a

particular definition, different money services provided by the same

business are not aggregated. Thus, for example, a hotel that limits its

check cashing services to $250 for a customer on any day and limits its

currency exchange services to $300 for a customer on any day does not

meet the $500 floor for check cashers or for currency exchangers.

(3) Issuer of traveler's checks, money orders, or stored value. An

issuer of traveler's checks or money orders or stored value or similar

instruments (other than a person who does not issue such checks or

money orders or stored value or similar instruments in an amount

greater than $500 in currency or monetary or other negotiable

instruments to any person any day).

Proposed 31 CFR 103.11(uu)(3) would replace the treatment of money

order and traveler's check businesses in existing 31 CFR 103.11(n)(4).

The definition of issuer of traveler's checks or money orders has been

separated from the definition of seller or redeemer of traveler's

checks or money orders in the proposed regulations, for ease of

reference. In addition, unlike existing 31 CFR 103.11(n)(4), which

contains no dollar floor for an issuer, the proposed definition

generally treats an issuer of traveler's checks or money orders as a

financial institution only if it engages in transactions involving more

than $500 for any person any day.

(4) Seller or redeemer of traveler's checks, money orders, or

stored value. A seller or redeemer of traveler's checks or money orders

or stored value or similar instruments (other than a person who does

not sell or redeem such checks or money orders or stored value or

similar instruments in an amount greater than $500 in currency or

monetary or other negotiable instruments to (or in the case of

redemption, for) any person any day).

The $500 floor in proposed 31 CFR 103.11(uu)(4) is designed to

replace the definitional floor (of $150,000 sold in instruments per 30-

day period) for selling agents in present 31 CFR 103.11(n)(4). The

$150,000 limitation produces a great deal of unnecessary complexity

(dealing with the movement of particular businesses into or out of the

scope of the Bank Secrecy Act) and does not, in FinCEN's view, any

longer provide a meaningful threshold for distinguishing between

businesses that ought to, and that need not, incorporate appropriate

Bank Secrecy Act rules into their operations (or the operations they

undertake on behalf of their principals). The definition in proposed 31

CFR 103.11(uu)(4) extends to ``redeemers'' of money orders and

traveler's checks only insofar as the instruments involved are redeemed

for monetary value--that is, for currency or monetary or other

negotiable instruments. The taking of the instruments in exchange for

goods or services is not a redemption for purposes of these rules.

(See, however, 26 CFR 1.6050I-1(c)(1)(ii)(B) for situations in which

certain traveler's checks or money orders (among other instruments) may

be treated as currency, if taken in exchange for certain goods or

services, for purposes of the requirement that non-financial

[[Page 27893]]

businesses report transactions in currency in excess of $10,000.)

(5) Money transmitter. (i) Any person, whether or not licensed or

required to be licensed, who accepts currency, or funds denominated in

currency, and transmits the currency or funds, or the value of the

currency or funds, by any means through a financial agency or

institution, a Federal Reserve Bank or other facility of the Board of

Governors of the Federal Reserve System, or an electronic funds

transfer network, or

(ii) Any other person engaged as a business in the transfer of

funds.

Proposed 31 CFR 103.11(uu)(5) revises the definition in existing 31

CFR 103.11(n)(5), which simply treats as a financial institution ``a

licensed transmitter of funds, or other person engaged in the business

of transmitting funds.'' The substitute definition proposed is that of

the registration statute for a ``money transmitting service,'' expanded

to include ``any other person engaged as a business in the transfer of

funds.'' See 31 U.S.C. 5330(d)(2).9 Particular classes or

subclasses of money transmitters can be excluded from the operation of

the definition for particular substantive rules (as for example the

rule proposed today relating to the reporting of suspicious activities

by money transmitters excludes from its coverage sellers or

transmitters of stored value or other advanced electronic payment

system products).

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\9\ The term ``money transmitter'' in proposed 31 CFR

103.11(uu)(5) is not necessarily synonymous with the term

``transmittor's financial institution'' in existing 31 CFR

103.11(mm). As explained above, the term money transmitter follows

the statutory definition of money transmitter in 31 U.S.C.

5330(d)(2), with one change, designed to flesh out the statutory

phrase ``money transmitting or remittance services.'' The term

``transmittor's financial institution'' in existing 31 CFR

103.11(mm) was designed with a narrower purpose in mind--``to

preserve as much uniformity as possible'' between the special rules

for recordkeeping for wire transfers and the language of Article 4A

of the Uniform Commercial Code. See 60 FR 220 (January 3, 1995).

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FinCEN recognizes that the statutory definition is very broad and

can encompass activities far beyond the traditional enterprises thought

of popularly as money transmitters. For example, financial and other

professionals that control the management of funds for their principals

may in certain cases be money transmitters under the definition. Thus,

Treasury specifically invites comments about whether it is necessary or

appropriate specifically to exclude certain activities from the scope

of registration of money services businesses (and perhaps as well from

the definition of money transmitter for purposes of the Bank Secrecy

Act regulations generally).

(6) United States Postal Service. The United States Postal Service,

except with respect to the sale of postage or philatelic products.

This proposed parargraph revises the part of the definition of

financial institution concerning the United States Postal Service,

currently at 31 CFR 103.11(n)(9). Unlike the current regulation, which

treats the United States Postal Service as a financial institution only

with respect to the sale of money orders, the proposed rule would treat

the Postal Service as a financial institution with respect to its

provision of any money services products.

3. 31 CFR 103.11(vv)--Definition of stored value. This proposed

section defines stored value as funds or monetary value represented in

digital electronics format (whether or not specially encrypted) and

stored or capable of storage on electronic media in such a way as to be

retrievable and transferable electronically.

The inclusion in the rule of a specific definition of ``stored

value'' and the cross-references to the stored value definition in the

language of the definition of ``money services business'' is the first

step in the characterization of stored value and other advanced

electronic payment system products for purposes of the Bank Secrecy

Act. The Department of the Treasury believes that stored value products

are generally comprehended within the statutory reference to other

instruments ``similar'' to money orders and traveler's checks and that

businesses that operate systems that permit the transmission of stored

value or other electronic representations of funds are comprehended

within the statutory definition of money transmitting services, see 31

U.S.C. 5330(d)(2), which is carried over into the regulatory definition

of money transmitter in proposed 31 CFR 103.11(uu)(5).10

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\10\ It should be clearly understood that the treatment of

stored value and similar products as instruments ``similar'' to

money orders and traveler's checks for purposes of the operation of

31 U.S.C. 5330 is solely a matter of federal law and cannot be taken

as the expression of any view by the Department of the Treasury on

the issue whether particular money services businesses are (or,

indeed, should be) within the scope of state laws requiring the

registration of money transmitters, check cashers, currency exchange

businesses, or issuers, sellers, or redeemers of money orders or

traveler's checks.

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Thus, under the proposed rule, most offerors of stored value

products and operators of other advanced electronic payment systems

would be treated as ``money services businesses'' for purposes of the

Bank Secrecy Act. To fail to deal in any manner with stored value

products and other such systems, in the context of a rule designed to

implement 31 U.S.C. 5330, would belie the importance of such systems,

would run contrary to the Congressional intent that the statutory term

``money transmitter'' be construed broadly, and would adopt yesterday's

concepts to tomorrow's issues.

The other proposed rules being published today dealing with money

services businesses do not affect advanced electronic payment systems.

The proposed suspicious activity reporting rules for money transmitters

and issuers, sellers, and redeemers of money orders and traveler's

checks specifically exclude stored value and similar products from the

scope of the reporting obligation at present; the difference in

treatment reflects the fact that the treatment of stored value and

similar systems in the money services business registration rule is

intended to constitute for the most part the beginning of the policy

cycle for determining the most effective way to deal with advanced

electronic payment systems under the Bank Secrecy Act.

Of course, the definitions in proposed 31 CFR 103.11(uu) apply for

all purposes under the Bank Secrecy Act, and thus the proposed language

would eliminate any lingering doubt that offerors and operators of

advanced electronic payments systems are subject to the Bank Secrecy

Act. That treatment could cause such persons to become subject to

existing Bank Secrecy Act requirements if, for example, they engaged in

transactions in currency in excess of $10,000, or initiated funds

transmittals of at least $3,000.

The Department of the Treasury naturally recognizes that as

mechanisms for the issuance or transmission of stored value or other

electronic representations of funds develop, the appropriateness of any

particular characterization for Bank Secrecy Act purposes may change.

It also recognizes that the characteristics of advanced electronic

payment systems may present special issues that need to be considered

as specific Bank Secrecy Act recordkeeping and reporting requirements

for such systems are formulated. Comments are specifically invited on:

1. The manner in which the rules of the Bank Secrecy Act should be

applied to advanced electronic payment systems;

2. The potential impact of Bank Secrecy Act compliance on the

design and operation of such systems

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(including, if possible, estimates of costs); and

3. Whether products such as telephone cards (``closed system''

products), or products that are limited to facilitating very small

transactions (so-called ``micro'' transactions) should be treated

differently than other stored value products for purposes of the

registration requirements of the proposed rule.11

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\11\ Stored value systems may be loosely characterized as

``closed'' or ``open'' systems. In a purely closed system, the

stored value card is accepted only by a single merchant or entity

and operates as prepayment for specific goods and services, such as

public transportation or telephone calls. In contrast, an open

system permits stored value cards (issued by one or more issuers of

such cards) to be accepted by multiple merchants, or other

consumers, and operates as a general payment and value transfer

system. Certain arrangements--for example a university or stadium

card system that permits payments to multiple merchants within a set

geographic area--may contain aspects of both ``closed'' and ``open''

systems.

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B. Registration of Money Services Businesses

1. 31 CFR 103.41(a)(1)--Registration requirement; In general.

Proposed paragraph (a)(1) contains the requirement that a money

services business (whether or not licensed as a money services business

by any State) must register with the Department of the Treasury and, as

part of that registration, must maintain a list of its agents.

Proposed paragraph (a)(1) excludes from the registration and list

requirement the following persons: the United States Postal Service; a

depository institution (as defined in 31 U.S.C. 5313(g)); the United

States, any State or political subdivision of a State; or a broker or

dealer in securities or commodities (to the extent of such activities)

registered with, and regulated or examined by, the Securities and

Exchange Commission (SEC) or the Commodity Futures Trading Commission

(CFTC). Thus, for example, even though the United States Postal Service

is a money services business as defined in 31 CFR 103.11(uu), it is not

required to register as a money services business. Similarly, banks,

and brokers registered with the SEC under the Securities and Exchange

Act of 1934, are not required to register as such. However, if a bank

has a non-bank subsidiary or affiliate (e.g., a brother-sister

subsidiary owned by the bank's holding company) that itself engages in

a money services business (or a broker-dealer has a non-broker-dealer

affiliate that engages in a money services business), the affiliate

must register even though the bank (or broker-dealer) is not required

to register. FinCEN specifically invites comments on whether there are

other persons who should be excluded from the registration

requirements.

The information required to be included on the registration form

for a money services business and the agent list maintained by the

business may include privileged and confidential trade secrets,

commercial, and financial information. Congress has affirmed that

confidential proprietary or trade secret information provided by

registrants may be disclosed only subject to applicable law. H. R.

Conf. Rep. No. 652, 103d Cong., 2d Sess. 192-93 (1994). At the same

time, however, Congress recognized that some of the registration data

will have legitimate uses outside of law enforcement. Thus, Congress

has indicated that it intends that such latter information will be made

available to the public in a manner that balances the need to protect

confidential business information and the need of the public to have

access to information about businesses on which it relies. Id. at 193.

FinCEN specifically invites comments on how to make such information

available to the public in as much detail as possible without revealing

confidential business information.

2. 31 CFR 103.41(a)(2)--Agents treated as registrable money

services businesses. Proposed paragraph (a)(2) sets forth the threshold

(registration threshold) an agent must meet before it is itself treated

as a money services business that must independently register with the

Department of the Treasury and maintain a list of its own agents. The

registration threshold focuses on both the extent and the dollar amount

of the agent's money services business activities. An agent meets the

registration threshold if the agent satisfies any of the following four

paragraphs--

(i) The agent's primary business is a business described in 31 CFR

103.11(uu), and the agent's money services gross transaction amount is

more than $50,000 for any month;

(ii) The agent engages in more than one of the businesses described

in 31 CFR 103.11(uu) as an agent for one money services business, and

the agent's money services gross transaction amount is more than

$50,000 for any month;

(iii) The agent is an agent for more than one money services

business, and the agent's money services gross transaction amount is

more than $50,000 for any month; or

(iv) The agent has subagents, and the agent's money services gross

transaction amount is more than $50,000 for any month.

The money services gross transaction amount is the agent's combined

gross amount (excluding fees and commissions) received from

transactions in all its businesses described in 31 CFR 103.11(uu).

Thus, for example, if an agent sells a $600 money order, charging an

$18 fee and receiving a $6 commission on the sale, the agent's gross

transaction amount is $600. An agent is not required to compute a gross

transaction amount for any month beginning before the effective date of

the final regulations to which this notice of proposed rulemaking

relates are published in the Federal Register.

FinCEN realizes that the registration threshold, as proposed, may

require registration by certain agents, for example, grocery or retail

food stores, that have a high volume of transactions, none of which

individually exceeds the $500 floor in 31 CFR 103.11 (uu)(1)-(uu)(4)

that would cause the agent to be a money services business in its own

right under 31 CFR 103.11 (uu)(1)-(uu)(4). FinCEN specifically invites

comments on whether the registration threshold should include a floor

for individual transactions by these agents like the floor in 31 CFR

103.11 (uu)(1)-(uu)(4).

3. 31 CFR 103.41(b)(1)--Registration procedures in general.

Proposed paragraph (b)(1) provides that a money services business must

be registered by filing such form as FinCEN may specify with the

Detroit Computing Center of the Internal Revenue Service. The

information required by 31 U.S.C. 5330(b) and any other information

required by the form must be reported in the manner required by the

form.

A branch office or location or an agent of a money services

business is not required to file a registration form for the business,

except for agents treated as a money services business because they

meet the registration threshold. A money services business must,

however, report information about its branch locations or offices as

provided by the instructions to the registration form.

A money services business must retain a copy of any registration

form it files (and any registration number that the Detroit Computing

Center may assign to the business) at a central location in the United

States reported on the form and for the 5-year period specified in

Sec. 103.38(d).

4. 31 CFR 103.41(b)(2)--Registration period. Proposed paragraph

(b)(2) provides that after an initial registration period of two

calendar years (initial registration period), the registration must be

renewed every two years (renewal period). The initial registration

[[Page 27895]]

period is the two-calendar-year period beginning with the calendar year

in which the money services business is first required to be

registered. Each two-calendar-year period following the initial

registration period is a renewal period.

5. 31 CFR 103.41(b)(3)--Due date. Proposed paragraph (b)(3) sets

forth the due date for filing the registration form for the initial

registration period and each renewal period. For the initial

registration period, the registration form must be filed by the end of

the 180-day period beginning on the later of (i) the date on which the

final regulations to which this notice of proposed rulemaking relates

are published in the Federal Register, and (ii) the date the business

is established. In the case of an agent required to be registered under

this section, the registration form for the initial registration period

must be filed not later than the end of the 180-day period beginning on

the date the agent meets the registration threshold. The registration

form for a renewal period must be filed on or before the last day of

the calendar year preceding the renewal period.

6. 31 CFR 103.41(b)(4)--Special rule for agents treated as money

services businesses. Proposed paragraph (b)(4) clarifies that once an

agent meets the registration threshold, it must be registered for the

initial registration period and each renewal period, even if its money

services gross transaction amount later falls below $50,000.

7. 31 CFR 103.41(b)(5)--Events requiring re-registration. Proposed

paragraph (b)(5) requires a money services business to be re-registered

before the end of a registration period upon the occurrence of certain

events. Re-registration is required if the money services business

experiences a change in ownership or control that requires re-

registration under a State law registration program for money services

businesses, more than 10 per cent of its voting power or equity

interests is transferred, or the number of its agents increases by more

than 50 per cent during any registration period. The form for the re-

registration must be filed not later than 180 days after such change in

ownership, transfer of voting power or equity interests, or increase in

agents. The calendar year in which the change, transfer, or increase

occurs is treated as the first year of a new two-year registration

period.

8. 31 CFR 103.41(c)--Persons required to file registration form.

Proposed paragraph (c) provides that, as required by 31 U.S.C. 5330(a),

any person who owns or controls a money services business shares the

responsibility for seeing that the business is registered as required

by this rule. Only one registration form, however, is required to be

filed for each registration period. Proposed paragraph (c) further

provides that if more than one person owns or controls a money services

business, the owning or controlling persons may enter into an agreement

designating one of them to register the business. The failure of the

designated person to register the money services business does not,

however, relieve any of the other persons who own or control the

business of liability for the failure to register the business.

9. 31 CFR 103.41(d)(1)--List of agents; In general. Proposed

paragraph (d)(1) provides that a money services business must prepare

and maintain a list of its agents. Proposed paragraph (d)(1) then

explains the time and manner of preparing and maintaining the agent

list. The initial list of agents must be prepared by the time the

initial registration form is filed and must be revised each calendar

quarter to contain current information. The list is not filed with the

registration form but is maintained at the location in the United

States reported on the registration form. Upon request, a money

services business must make its list of agents available to FinCEN and

any other appropriate law enforcement agency (including, without

limitation, the examination function of the Internal Revenue Service in

its capacity as delegee of Bank Secrecy Act examination authority). The

original list of agents and any revised list must be retained for five

years, as specified in 31 CFR 103.38(d).

The proposed rule does not contain a specific definition of the

term ``agent'' for purposes of the money services business registration

rules, including the requirement that a list of agents be maintained by

each money services business as part of its registration requirement.

Instead the proposed rule speaks simply of a list of ``agents.''

Treasury understands that the relationships between money services

businesses and their outlets may take many forms, some of which reflect

traditional agency agreements while others are styled by the parties as

creating independent contractor or similar relationships for state law

purposes. Treasury intends that the concept of ``agent'' for the list

requirement should be as broad as the common law of agency would allow,

that is, it would extend to any relationship that would be deemed to

create obligations of principal and agent at common law. Thus, for

example, it is likely that virtually all independent contractor

arrangements for money services business--whatever their

characterization for employment law or income tax purposes--would be

treated as creating principal-agent relationships to define the

parameters of the rights, obligations, and direct and derivative

liabilities of the parties. See Restatement (Second) of Agency,

Sections 2(c) and 14N.

Distribution mechanism involving outlets other than agents. 31

U.S.C. 5330 speaks only of money services businesses and ``agents'' of

those businesses. Congress intended that the registration requirement

of the Money Laundering Suppression Act should be implemented in a

manner that eliminated the need for direct registration of all the

businesses--in many cases small businesses--through which money

services products created and backed by others are offered to the

public.12 Thus, FinCEN specifically invites comments on

whether, and how, the language of the proposed rule could be altered to

treat money services businesses in the distribution chain for financial

services products that are not technically agents within the meaning of

31 U.S.C. 5330 and the proposed regulations in the same manner as

agents for purposes of the registration requirements.

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\12\``The intent of the Conferees is to eliminate the need for

all agents of money transmitting businesses to register with the

Secretary. Such massive registration of thousands of agents would

only create another needless and costly administrative burden.''

H.R. Conf. Rep. No. 652, 103 Cong., 2d Sess. 193 (1994).

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10. 31 CFR 103.41(d)(2)--Information included on the list of

agents. Proposed paragraph (d)(2) sets forth the information with

respect to each agent that must be included on the list (including any

revised list) of agents. This information is--

(i) The name of the agent, including any trade names or doing-

business-as names,

(ii) The address of the agent, including street address, city,

state, and ZIP code,

(iii) The telephone number of the agent,

(iv) The type of service or services (sale or redemption of money

orders, traveler's checks, stored value, check sales, check cashing,

currency exchange, and money transmitting) the agent provides,

(v) The year in which the agent first became an agent of the money

services business,

(vi) The number of branches or subagents the agent has, and

(vii) The name and address of any depository institution at which

the

[[Page 27896]]

agent maintains a transaction account (as defined in 12 U.S.C.

461(b)(1)(C)) for all or part of the funds received in or for its money

services business whether in the agent's or principal's name.

11. 31 CFR 103.41(e)--Consequences of failing to comply with 31

U.S.C. 5330 or the regulations thereunder. Proposed paragraph (e)

explains that it is unlawful to do business without complying with 31

U.S.C. 5330 and the regulations thereunder, and that under 31 U.S.C.

5320, the Secretary of the Treasury may bring a civil action to enjoin

the violation. Proposed paragraph (e) also explains the penalties that

may be imposed for failing to comply with 31 U.S.C. 5330 or the

regulations thereunder. Any person who fails to comply with any

requirement of 31 U.S.C. 5330 or the regulations thereunder is liable

for a civil penalty. Such a failure includes the filing of false or

materially incomplete information in connection with the registration

of a money services business. The penalty is $5,000 for each violation;

each day a violation of 31 U.S.C. 5330 or the regulations thereunder

continues constitutes a separate violation.

A person may also be liable for a criminal penalty under 18 U.S.C.

1960 for operating a money services business without complying with the

registration requirements of 31 U.S.C. 5330 and regulations issued

thereunder. 18 U.S.C. 1960 provides in part that any person who

conducts, controls, manages, supervises, directs, or owns all or part

of a money transmitting business 13 knowing that the

business affects interstate or foreign commerce in any manner or degree

and that the business has failed to comply with the registration

requirements of 31 U.S.C. 5330 or the regulations thereunder is subject

to a fine, imprisonment for not more than five years, or both.

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\13\ As indicated above, this document, and the rules proposed

herein and in the related notices of proposed rulemaking published

today, generally use the phrase ``money services business'' as the

equivalent of the definition of ``money transmitting business,'' in

31 U.S.C. 5330(d)(1)(A), in order to avoid confusion between the

latter phrase and the statutory definition of ``money transmitting

service,'' in 31 U.S.C. 5330(d)(2). In quoting the terms of 18

U.S.C. 1960(b)(1)(B), however, the text naturally uses the statutory

language.

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18 U.S.C. 1960 imposes penalties not only upon operating a money

transmitting business without compliance with the registration

requirements of 31 U.S.C. 5330 (and its implementing regulations), see

18 U.S.C. 1960(b)(1)(B), but also upon the knowing operation of such a

business without an appropriate money transmitting license in any state

in which operation without a license is a crime, see 18 U.S.C.

1960(b)(1)(A). References to 18 U.S.C. 1960 in this preamble, and in

proposed 31 CFR 103.41(e), naturally concern exclusively the

relationship of 31 U.S.C. 5330 to 18 U.S.C. 1960. That relationship,

and the meaning of the relevant terms of 31 U.S.C. 5330, of 18 U.S.C.

1960(b)(1)(B), and of the rules proposed by this document, are solely

matters of federal law. As also specifically noted in the discussion

above of stored value products and other advanced electronic payment

systems, the rules proposed by this document should not be taken as the

expression of any view by the Department of the Treasury on the issue

whether particular money services businesses are (or, indeed, should

be) within the scope of state laws requiring the registration of money

transmitters, check cashers, currency exchange businesses, or issuers,

sellers, or redeemers of money orders or traveler's checks.

12. 31 CFR 103.41(f)--Effective date. Proposed paragraph (f) would

make the regulations effective on [the date on which the final

regulations to which this notice of proposed rulemaking relates are

published in the Federal Register]. That publication date would start

the running of the 180-day period for filing the form for the initial

registration of a money services business.

IV. Submission of Comments

An original and four copies of any comment (other than one sent

electronically) must be submitted. All comments will be available for

public inspection and copying, and no material in any such comments,

including the name of any person submitting comments, will be

recognized as confidential. Accordingly, material not intended to be

disclosed to the public should not be submitted.

V. Regulatory Flexibility Act

FinCEN certifies that this proposed regulation will not have a

significant economic impact on a substantial number of small entities.

FinCEN anticipates that the provisions of the proposed rule generally

excluding agents of money services businesses from registration will

limit the impact of the proposed registration rule on small businesses.

Further, most of the recordkeeping and reporting requirements that

would be imposed by this proposed regulation concern information

already found in routine business records. For example, as part of

their business records, money services businesses (to the extent such

businesses are small entities) will generally have information needed

for the required agent list, such as the name and address of their

agents and agent transaction account information, because such

information is necessary to establish and maintain the relationship

between the businesses and their agents. In addition to recordkeeping

and reporting requirements, other requirements of the proposed

regulation may also be satisfied with information that is currently

available. For example, many businesses currently have policies in

place regarding the maximum dollar amount of a money service

transaction they will perform for a customer, such as the maximum check

the business will cash, which may help (assuming the policy is

observed) them determine whether they have exceeded the $500 floor in

several of the definitions in the proposed regulation. Further, agents

will generally have information currently available to help them

determine whether they meet the $50,000 element of the registration

threshold, for example, the monthly statement for the bank account they

maintain pursuant to agreement with the money services business for

which they are an agent.

VI. Paperwork Reduction Act Notices

Registration for Money Services Businesses

In accordance with requirements of the Paperwork Reduction Act of

1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR

1320, the following information concerning the collection of

information on the Registration for Money Services Businesses form is

presented to assist those persons wishing to comment on the information

collection.

FinCEN anticipates that this proposed rule, if enacted as proposed,

would result in a total of 25,000 Registration for Money Services

Businesses forms to be filed annually. This result is an estimate,

based on a projection of the size and volume of the industry.

Title: Registration for Money Services Businesses.

OMB Number: to be determined.

Description of Respondents: Money Services Businesses.

Estimated Number of Respondents: 25,000.

Frequency: Once every two years, or as required to be updated.

Estimate of Burden: Reporting average of 45 minutes per response;

recordkeeping average of 3 hours per response.

Estimate of Total Annual Burden on Respondents: 25,000 responses.

[[Page 27897]]

Reporting burden estimate = 18,750 hours; recordkeeping burden estimate

= 75,000 hours. Estimated combined total of 93,750 hours.

Estimate of Total Annual Cost to Respondents for Hour Burdens:

Based on $20 per hour, the total cost to the public is estimated to be

$1,875,000.

Estimate of Total Other Annual Costs to Respondents: None.

Type of Review: New.

FinCEN specifically invites comments on the following subjects: (a)

Whether the proposed collection of information is necessary for the

proper performance of the mission of FinCEN, including whether the

information shall have practical utility; (b) the accuracy of FinCEN's

estimate of the burden of the proposed collection of information; (c)

ways to enhance the quality, utility, and clarity of the information to

be collected; and (d) ways to minimize the burden of the collection of

information on respondents, including through the use of automated

collection techniques or other forms of information technology.

In addition, the Paperwork Reduction Act of 1995 requires agencies

to estimate the total annual cost burden to respondents or

recordkeepers resulting from the collection of information. Thus,

FinCEN also specifically requests comments to assist with this

estimate. In this connection, FinCEN requests commenters to identify

any additional costs associated with the completion of the form. These

comments on costs should be divided into two parts: (1) Any additional

costs associated with reporting; and (2) any additional costs

associated with recordkeeping.

Recordkeeping Requirements of 31 CFR 103.41

In accordance with requirements of the Paperwork Reduction Act of

1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR

1320, the following information concerning the collection of

information as required by 31 CFR 103.41 is presented to assist those

persons wishing to comment on the information collection.

Title: Registration of Money Services Businesses.

OMB Number: 1506-0006.

Description of Respondents: Money Services Businesses.

Estimated Number of Respondents: 25,000.

Frequency: Once every two years, or as required.

Estimate of Burden: Recordkeeping average of 100 hours per Money

Service Business.

Estimate of Total Annual Burden on Respondents: Recordkeeping

burden estimate = 2,500,000 hours.

Estimate of Total Annual Cost to Respondents for Hour Burdens:

Based on $20 per hour, the total cost to the public is estimated to be

$50,000,000.

Estimate of Total Other Annual Costs to Respondents: None.

Type of Review: Extension.