October 13, 2014 –
FinCEN on currency transporters and payment processors

On September 24, the Financial Crimes Enforcement Network (“FinCEN”) issued an administrative ruling to clarify the application of FinCEN regulations to certain persons involved in the transportation of currency (the “CT Ruling”). Importantly, currency transporters who engage in transactions not covered by an exemption from money transmission have the same regulatory obligations as money transmitters (which are money services businesses under FinCEN regulations).

Generally, the combined effect of the applicable exemptions and the exceptive relief granted by the CT Ruling on the obligations of currency transporters under FinCEN regulations as follows:

• Where a Federal Reserve Bank or a certain type of financial institution subject to a Federal functional regulator contracts for and directs the physical transportation of value by the currency transporter, the currency transporter is exempted from money transmitter status under FinCEN’s regulations exclusively with respect to such physical transportation of value.
• Where a currency transporter, without the intervention of any third party such as a subcontractor and/or trans-shipper, picks up value from a person (or from a shipper acting at the direction of that person) and physically delivers the same value to the same person at another location, or to an account of that person at a BSA-regulated financial institution, such activity alone will not result in the currency transporter being a money transmitter under FinCEN’s regulations.
• In all other scenarios (among them, where there exists transshipment – moving the same shipment from one currency transporter to another – or subcontracting; or where the currency transporter delivers value to a person different than the person from whom it picked up the value; or where the currency transporter takes more than a custodial interest in the value transported), the currency transporter will be deemed a money transmitter under FinCEN’s regulations.

FinCEN also recently refined its exemption for payment processors from the definition of money transmitter in its August 27, 2014 administrative ruling (the “Payment Processor Ruling”). FinCEN regulations exempt from the definition of money transmitter any person which “acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller.” Under previous FinCEN rulings interpreting this exemption, a particular business pattern will qualify for the exemption if it meets four conditions:

• the entity providing the service must facilitate the purchase of goods or services, or the payment of bills for goods or services (other than money transmission itself);
• the entity must operate through clearance and settlement systems that admit only Bank Secrecy Act (“BSA”)-regulated financial institutions;
• the entity must provide the service pursuant to a formal agreement; and
• the entity’s agreement must be at a minimum with the seller or creditor that provided the goods or services and receives the funds.

With respect to condition number 2 above, the Payment Processor Ruling clarifies that the entity must not only obtain payment from parties through clearance and settlement systems that admit only BSA-regulated financial institutions, but must also disburse such payments through clearance and settlement systems that admit only BSA-regulated financial institutions. As a result, if the entity disburses payments outside of a clearance and settlement system that admits only BSA-regulated financial institutions (such as, in the form of monetary instruments), then that entity would not be able to claim the payment processor exemption.

As evidenced by these changes, now, more than ever, is the time for financial institutions to review and enhance and their Regulatory Compliance Programs to ensure that they comply with legal requirements as well as meet regulator expectations. If you have any questions regarding the CT Ruling or the Payment Processor Ruling, please contact Greg Bader or Stephanie Quiñones.

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