[Federal Register Volume 74, Number 90 (Tuesday, May 12, 2009)]
[Proposed Rules]
[Pages 22129-22142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-10864]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA97


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations--Definitions and Other Regulations Relating to 
Money Services Businesses

AGENCY: Financial Crimes Enforcement Network (FinCEN), Department of 
the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN''), a 
bureau of the Department of the Treasury (``Treasury''), is proposing 
to revise the regulations implementing the Bank Secrecy Act (``BSA'') 
regarding money services businesses (``MSBs'') to clarify which 
entities are covered by the definitions. Specifically, we are reviewing 
the MSB regulatory framework with a focus on providing efficient and 
effective regulation for the industry, as well as improving the ability 
of regulators, law enforcement, and FinCEN to safeguard the U.S. 
financial system from the abuses of terrorist financing, money 
laundering, and other financial crime.
    The proposed changes are intended to more clearly delineate the 
scope of entities regulated as MSBs, so that determining which entities 
are obligated to comply will be more straightforward and predictable. 
This rulemaking proposes to amend the current MSB regulations in the 
following ways: By ensuring that certain foreign-located MSBs with a 
U.S. presence are subject to the BSA rules; by updating the MSB 
definitions to reflect past guidance and rulings, current business 
operations, evolving technologies, and merging lines of business; and 
by combining all of stored value into one category, without 
substantively changing the existing definition, so that issuers of 
stored value and sellers or redeemers of stored value are in the same 
category. In addition, this rulemaking solicits comments on stored 
value to assist FinCEN with a future rulemaking proposing a revised 
definition of stored value and revising related regulations.

DATES: Written comments on the notice of proposed rulemaking must be 
submitted on or before September 9, 2009.

ADDRESSES: You may submit comments, identified by RIN 1506-AA97, by any 
of the following methods:
    <bullet> Federal e-rulemaking portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Refer to Docket number 
TREAS-FinCen-2009-0002.
    <bullet> Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include RIN 
1506-AA97 in the body of the text.
    Inspection of comments: Comments may be inspected, between 10 a.m. 
and 4 p.m., in the FinCEN reading room in Vienna, VA. Persons wishing 
to inspect the comments submitted must request an appointment with the 
Disclosure Officer by telephoning (703) 905-5034 (Not a toll free 
call).

FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs 
Division, FinCEN (800) 949-2732 and select option 1.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The term MSB, as currently defined in the BSA regulations, refers 
to each of the following distinct categories of financial service 
providers: (1) Currency dealer or exchanger, (2) check casher, (3) 
issuer of traveler's checks, money orders, or stored value, (4) seller 
or redeemer of traveler's checks, money orders, or stored value, (5) 
money transmitter, and (6) the United States Postal Service.\1\
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    \1\ 31 CFR 103.11(uu)(1)-(6).
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    MSBs play a critical role in providing financial services to, among 
others, a segment of the population that generally does not maintain 
bank accounts. Law enforcement, FinCEN, and other federal regulators 
have repeatedly stressed the need to prevent transactions that 
typically flow through these businesses from going underground, which 
would diminish transparency with respect to these transactions. Because 
MSBs

[[Page 22130]]

provide needed financial services to numerous communities throughout 
the country and often facilitate the transmission of money to those in 
foreign countries, they are vital to both domestic and foreign 
economies.
    In drafting this rulemaking, FinCEN reviewed past industry survey 
studies that were conducted to gain perspective on the size, revenue, 
geographic distribution, and other characteristics of the various 
service sectors of MSBs. The industry has grown in size and operational 
complexity since FinCEN first proposed MSB regulations in 1997.
    A 1997 study estimated that the MSB industry population (both 
principals and agents) was around 158,000, and provided approximately 
$200 billion annually in financial services.\2\ The study estimated 
that fewer than ten large businesses accounted for the bulk of MSB 
activity (involving money transmissions, money orders, traveler's 
checks, and check cashing and currency exchange) conducted within the 
United States. The financial services were provided primarily through 
systems of agents.
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    \2\ Coopers and Lybrand LLP, ``Non-Bank Financial Institutions: 
A Study of Five Sectors'' (Feb. 28, 1997).
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    In 2005, FinCEN again studied the MSB population and services 
provided and determined that the industry had grown to approximately 
$284 to $305 billion annually in financial services.\3\ The increase 
reflected a growth rate for the MSB industry of about 50% over the 
previous decade. The study found that approximately 50% of all MSBs 
offered both check cashing and money order services.
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    \3\ KPMG 2005 Money Services Business Industry Survey Study 
(Sept. 26, 2005), available on FinCEN's Web site, http://www.fincen.gov.
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    This rulemaking proposes to amend 31 CFR 103.11(uu) by revising the 
MSB definitions. In addition to discussing our rationale for such 
revisions, we have asked questions of the general public to assist us 
with understanding the impact that the proposed changes may have on the 
affected businesses, as well as on law enforcement and regulatory 
efforts. These questions are asked both throughout the document and 
again in section IV with additional specific requests for comments.
    In drafting this rulemaking, we have proposed folding all of stored 
value into one category so that issuers of stored value and sellers or 
redeemers of stored value are in the same category, without making any 
substantive changes to the definition of this category. We have 
determined that a separate, comprehensive proposal is warranted for 
stored value and will make such a proposal at a later date. To 
facilitate this process, we urge interested parties to respond to the 
requests for comments about stored value that we have included within 
this rulemaking.\4\
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    \4\ See Section IV, below.
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II. Background

A. Statutory and Regulatory Background

    The BSA, Titles I and II of Public Law 91-508, as amended, codified 
at 12 U.S.C. 1829b, 18 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and 
5316-5332, authorizes the Secretary of the Treasury (the ``Secretary'') 
to issue regulations requiring financial institutions to keep records 
and file reports that the Secretary determines ``have a high degree of 
usefulness in criminal, tax, or regulatory investigations or 
proceedings, or in the conduct of intelligence or counterintelligence 
matters, including analysis, to protect against international 
terrorism.'' \5\ The Secretary's authority to administer the BSA and 
its implementing regulations has been delegated to the Director of 
FinCEN.\6\ FinCEN has interpreted the BSA through implementing 
regulations (``BSA regulations'' or ``BSA rules'') that appear at 31 
CFR Part 103.
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    \5\ 31 U.S.C. 5311.
    \6\ See Treasury Order 180-01 (Sept. 26, 2002).
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    The BSA defines the term ``financial institution'' to include, in 
part: A currency exchange; an issuer, redeemer, or casher of travelers' 
checks, checks, money orders, or similar instruments; the United States 
Postal Service; a person involved in the transmission of funds; and any 
business or agency which engages in any activity which is determined by 
regulation to be an activity which is similar to, related to, or a 
substitute for these activities.\7\
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    \7\ 31 U.S.C. 5312(a)(2)(J), (K), (R), (V), and (Y).
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    The Director of FinCEN, through delegated authority, has 
implemented regulations under the BSA interpreting the recordkeeping, 
reporting, and other requirements of the BSA. Like other financial 
institutions under the BSA, MSBs must implement anti-money laundering 
(AML) programs, make certain reports to FinCEN, and maintain certain 
records to facilitate financial transparency. MSBs are required to: (1) 
Establish written AML programs that are reasonably designed to prevent 
the MSB from being used to facilitate money laundering and the 
financing of terrorist activities; \8\ (2) file Currency Transaction 
Reports (CTRs) \9\ and Suspicious Activity Reports (SARs) \10\ and (3) 
maintain certain records, including those relating to the purchase of 
certain monetary instruments with currency; \11\ relating to 
transactions by currency dealers or exchangers; \12\ and relating to 
certain transmittals of funds.\13\ Most types of MSBs are required to 
register with FinCEN \14\ and all are subject to examination for BSA 
compliance by the Internal Revenue Service (IRS).\15\
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    \8\ See 31 CFR 103.125.
    \9\ See 31 CFR 103.22.
    \10\ See 31 CFR 103.20. Check cashers and transactions solely 
involving the issuance, sale or redemption of stored value are not 
covered by the SAR requirement. See 31 CFR Sec.  103.20(a)(1), (5).
    \11\ See 31 CFR 103.29.
    \12\ See 31 CFR 103.37.
    \13\ See 31 CFR 103.33(f)-(g).
    \14\ See 31 CFR 103.41.
    \15\ 31 CFR 103.56(b)(8).
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B. Past Public MSB Meetings

    In 1997, FinCEN held public meetings to give members of the 
financial services industry an opportunity to discuss the proposed MSB 
regulations and any impact they might have on operations.\16\ In 
drafting the final rules defining the MSB categories,\17\ FinCEN relied 
on the contributions from these public forums.
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    \16\ These public meetings were held in Vienna, Virginia, on 
July 22, 1997; New York, New York, on July 28, 1997; San Jose, 
California, on August 1, 1997; Chicago, Illinois, on August 15, 
1997; and Vienna, Virginia, on September 3, 1997. The discussions 
focused on how businesses operate and how best to regulate them. 
Discussion regarding whether a definitional threshold was warranted 
and if so, how to arrive at one, provided invaluable information to 
FinCEN.
    \17\ Definitions Relating to, and Registration of, Money 
Services Businesses, 64 FR 45438 (Aug. 20, 1999) (``1999 
Rulemaking'').
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    On March 8, 2005, FinCEN held a fact-finding meeting in Washington, 
DC on the provision of banking services to MSBs.\18\ MSBs recounted 
their challenges in obtaining and maintaining banking services due to 
the perception that their businesses posed a high risk of money 
laundering and terrorist financing. In 2006, FinCEN issued an advance 
notice of proposed rulemaking seeking input on how to address these 
challenges,\19\ and received 142 comments in response, which have 
informed this rulemaking.\20\
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    \18\ FinCEN conducted the meeting through the Non-bank Financial 
Institutions and the Examination Subcommittees of the Bank Secrecy 
Act Advisory Group (``BSAAG''). BSAAG is an advisory group created 
by Congress consisting of industry, regulatory, and law enforcement 
participants for the purpose of engaging in open dialogue related to 
the protection of the U.S. financial system from money laundering, 
terrorist financing, and other abuses. BSAAG uses a variety of 
permanent and ad hoc subcommittees to identify and analyze relevant 
issues.
    \19\ Provision of Banking Services to Money Services Businesses, 
71 FR 12308 (March 10, 2006).
    \20\ These comments are available in files dated March 10 and 
May 15, 2006 at http://www.fincen.gov/statutes_regs/frn/reg_proposal_comments.html.

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[[Page 22131]]

C. The Term ``Money Services Businesses''

    In 1999, FinCEN added ``money services business'' to the definition 
of ``financial institution'' in the BSA regulation.\21\ The term MSB 
was created to: (1) clarify statutory language in a way that 
effectively captured industry operations and (2) refine a subset of 
non-bank financial institutions that are not subject to federal 
functional regulation at the federal level. We substituted the term 
``money services business'' for the statutory term ``money transmitting 
business'' to avoid using a general term that could too easily be 
confused with ``money transmitter,'' which was being proposed as a 
specific category of MSB.\22\
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    \21\ 1999 Rulemaking, supra note 17, at 45438.
    \22\ See Definition and Registration of Money Services 
Businesses, 62 FR 27890, 27890 (May 21, 1997) (``1997 Proposal'').
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    Over the years, MSBs have asserted that using a single term to 
identify actors engaging in particular diverse activities is inadequate 
for assessing money laundering and terrorist financing risks. 
Furthermore, industry has argued that the use of the term MSB has 
adversely affected their access to banking services. For these reasons, 
industry has asked us to eliminate the term ``money services business'' 
to describe this particular group of non-bank financial institutions 
and describe the businesses as ``non-bank financial institutions.''
    It would be ineffective and confusing to use the broader term 
``non-bank financial institution'' to describe the subset of ``MSBs.'' 
Even in the late 1990s, the term ``non-bank financial institutions'' 
encompassed broker-dealers in securities and casinos, as well as those 
businesses currently incorporated within the term MSB. The term is even 
less helpful now, as there are more types of non-bank financial 
institutions subject to BSA regulations, such as mutual funds, 
insurance companies, credit card system operators, dealers in precious 
metals, stones, and jewels, and futures commission merchants.
    Despite the diverse risks posed across and even within MSB 
industries,\23\ MSBs share certain qualities. In particular, these 
businesses offer financial services that Congress grouped together in 
the BSA.\24\ MSBs provide a range of financial services to many people 
without bank accounts similar to those services offered by banks to 
their customers. FinCEN therefore sees the continuing utility in the 
general term ``MSB'' as a concise way to refer to certain non-bank 
financial institutions that are without a federal functional regulator; 
\25\ that offer specific services (often in combination), and that have 
similar BSA requirements.
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    \23\ FinCEN has expressed its view that not all MSBs pose the 
same level of risk and will not require the same level of due 
diligence. See, e.g., FFIEC Manual (2007) at 277 (Non-bank Financial 
Institutions--Overview--Providing Banking Services to Money Services 
Businesses) and ``Interagency Interpretive Guidance on Providing 
Banking Services to Money Services Businesses Operating in the 
United States'' (April 26, 2005) (``[t]he range of products and 
services offered, and the customer bases served by money services 
businesses, are equally diverse * * * while they all fall under the 
definition of a money services business, the types of businesses are 
quite distinct''). We also have communicated this message at 
compliance schools for banking examiners, on public panels, and at 
other speaking engagements.
    \24\ See 31 U.S.C. 5330(d)(1).
    \25\ The Internal Revenue Service examines these businesses only 
for compliance with the BSA. It is not a ``functional'' regulator of 
MSBs.
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D. Genesis of the Proposed Revisions

    In June 2007, FinCEN adopted its BSA efficiency and effectiveness 
initiative, which includes as one of its initial provisions, clarifying 
the scope of the MSB definitions. The initiative makes it a priority 
for FinCEN to review, and revise if appropriate, the MSB definitions in 
light of the money laundering risks posed.
    We believe the current MSB regulatory definitions should be revised 
to describe with greater particularity the types of activity that would 
subject a business to the BSA rules.\26\ For example, under the current 
regulations, to be deemed a check casher, a business only has to cash 
checks in amounts greater than the definitional threshold. The 
regulatory language does not provide insight, for instance, into the 
types of instruments a check casher may accept and does not detail what 
may be redeemed and whether it could be a combination of items (e.g., 
currency, another instrument, or a combination of instruments). The 
intent in clarifying the definitions is to resolve such ambiguities in 
the regulations so that the rules can be applied with more certainty by 
potential MSBs, the banks who maintain accounts for them, law 
enforcement, and regulators. The rationale for our proposed changes is 
provided in the section-by-section analysis below.
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    \26\ The 1997 open forums on MSBs included discussions on 
whether to create definitions based on the type of institution 
involved or instead based on the activity or function performed by 
an entity regardless of the type of institution. Ultimately, FinCEN 
determined that changes in the industry over time may make relying 
on the type of institution problematic while creating definitions 
based on the underlying activity would enable the regulations to 
account for new technologies, services, and products.
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E. Need for Review and Updates

    Nearly ten years have passed since FinCEN issued the BSA 
regulations defining the categories of MSBs.\27\ Since that time, 
FinCEN has received numerous requests to clarify the application of the 
MSB regulations to particular businesses. Over one-third of these 
requests came from persons inquiring whether or not they were an 
MSB.\28\ Some of these requests for guidance reflect significant 
technological advances such as the online provision of financial 
services, as well as new financial products developed after the 
publication of our current rules such as stored value products and 
electronic currency. All of these developments have changed the nature 
of the MSB industry. Where possible, we have provided guidance to the 
industry on how to interpret and apply the regulations.
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    \27\ 1999 Rulemaking, 64 FR 45438 (Aug. 20, 1999).
    \28\ This statistic comes from a review of requests for guidance 
from our Regulatory Helpline.
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    With respect to check cashers and money transmitters in particular, 
we have developed a large body of guidance in the years since the 
issuance of the final MSB regulations. For check cashers, FinCEN's 
guidance and rulings provide several examples of activities that do not 
meet the regulatory definition of a check casher, though they may 
involve check activity in amounts exceeding the regulatory threshold. 
Examples of businesses that are not check cashers include: (1) A payday 
lender that holds checks as collateral for repayment of the loan by the 
customer and does not deposit or negotiate the checks; \29\ (2) a 
business cashing its employees' payroll checks; \30\ (3) a business 
cashing its own checks issued as payment for goods or services provided 
by non-employees; \31\ (4) a tax preparer cashing its own refund 
anticipation loan checks for taxpayers for whom it has prepared tax 
returns; \32\ and (5) a consumer finance company cashing its own loan 
checks to borrowers.\33\
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    \29\ FinCEN Ruling 2002-2 (Definition of Check Casher (Payday 
Lenders)), (Feb. 5, 2002).
    \30\ FinCEN Guidance 2006-G005 (Frequently Asked Questions--
Businesses Cashing Their Own Checks) (March 31, 2006).
    \31\ Id.
    \32\ Id.
    \33\ FinCEN Ruling 2007-R001 (Whether a Publicly Traded Company 
that Cashes its own Checks Issued to Loan Customers is a Money 
Services Business) (Jan. 8, 2008).
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    Similarly, over the years, FinCEN has issued guidance and 
administrative rulings that provide examples of

[[Page 22132]]

activities that do not meet the regulatory definition of a money 
transmitter, even though entities engaged in such activities may be 
involved in accepting and transmitting funds, such as: (1) Payment 
processing businesses that only provide merchants with a portal to 
financial institutions with access to the ACH system for the receipt of 
payments for goods and services already provided;\34\ (2) debt 
management companies, with respect to their submission of payments to 
creditors on behalf of debtors in conjunction with a debt management 
plan;\35\ (3) merchants and ATMs associated with a network of banks 
that accept and transmit funds that will become stored value used 
through the network, but that do so only as a conduit between 
individual banks and their customers;\36\ and (4) businesses that only 
accept payments on behalf of the utilities with which they have 
contracted, and that decline to accept and transmit funds for any other 
purpose.\37\
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    \34\ FinCEN Ruling 2003-8 (Definition of Money Transmitter 
(Merchant Payment Processor)) (Nov. 19, 2003).
    \35\ FinCEN Ruling 2004-4 (Definition of Money Services 
Businesses (Debt Management Company)) (Nov. 24, 2004).
    \36\ FinCEN Ruling 2008-R005 (Whether Certain Reloadable Card 
Operations are Money Services Businesses) (March 10, 2008) 
(Merchants and ATMs associated with a network of banks were not 
deemed money transmitters).
    \37\ FinCEN Ruling 2008-R006 (Whether an Authorized Agent for 
the Receipt of Utility Payments is a Money Transmitter) (May 21, 
2008).
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    Given the nature and scope of these important interpretative 
rulings, we think it is appropriate to update, streamline, and clarify 
the MSB regulations by incorporating these interpretations into the 
proposed regulatory revisions and extending them where appropriate. The 
proposed regulations also reflect proposed policy changes, on which we 
also seek comment.

III. Section-by-Section Analysis

    Pursuant to FinCEN's authority to interpret the provisions of 31 
U.S.C. 5312, this document proposes to amend 31 CFR Part 103, primarily 
by revising the definitions of ``money services business.'' These 
proposed changes would affect multiple categories of MSBs by: (1) 
Removing the ``doing business'' language in the definition of MSB 
merely for purposes of removing unclear language without broadening the 
application of the regulation beyond its present scope and (2) revising 
the general language to ensure that activity within the United States 
that does not involve the physical presence in the United States of an 
MSB's agent, agency, branch or office is directly regulated. The 
proposed changes are more fully discussed below.

A. Meaning of the Term ``Money Services Business''

    In issuing the current MSB regulations in 1999, FinCEN was 
responding to a growing need to apply effective BSA regulation to a 
relatively little known or little understood part of the financial 
sector in the United States.\38\ FinCEN's regulations established broad 
definitions for each enumerated MSB activity. This had the effect of 
capturing national and multinational MSB operations as well as the 
small enterprises that competed with them. It also captured businesses 
that exclusively provided MSB services as well as businesses that 
provided both financial services and unrelated products or 
services.\39\
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    \38\ See 1999 Rulemaking, 64 FR 45439.
    \39\ Id.
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    Since the issuance of these regulations, FinCEN has continued to 
seek input on defining the categories of MSBs appropriately and 
establishing appropriate dollar thresholds for activity with the goal 
of covering those businesses that are significantly engaged in 
providing products and services that are legitimate subjects of 
regulatory interest. FinCEN is now in a position to tailor the 1999 
definition in a number of ways.
Doing Business
    The current regulatory definition of MSB includes ``[e]ach 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 paragraphs (uu)(1) 
through (uu)(6) of this section.'' \40\ Banks and persons registered 
with, and regulated or examined by, the Securities and Exchange 
Commission or the Commodity Futures Trading Commission have been 
excluded from the MSB definitions.\41\
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    \40\ 31 CFR 103.11(uu) (emphasis added).
    \41\ Id.
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    Whether a person is doing business as an MSB depends on all of the 
facts and circumstances. We use the term ``doing business'' to mean the 
activity in which the person is engaged, rather than any status that 
the entity has either taken on itself or been assigned, such as a 
business licensed by a state. In this proposed rulemaking, FinCEN 
continues to regulate an MSB by its activity and the context in which 
the activity occurs and not simply its status. Whether a person is a 
business in any formal sense should not be determinative of whether it 
is subject to the MSB definitions, absent statutory requirements to the 
contrary.
    To avoid confusion that might result from the focus on the status 
of an entity and not its activity and the context in which the activity 
occurs, we have revised the language in the MSB definition in section 
103.11(uu) by deleting the ``doing business'' language and replacing it 
with ``engaged in activities * * *'' ``Doing business'' had caused 
uncertainty which we expect will be alleviated with this change. By 
removing the phrase ``doing business,'' however, we do not intend to 
broaden the application of the regulation beyond its present scope. To 
the extent that a person engages in one or more of the enumerated 
activities listed in the definition, it is an MSB; to the extent that a 
person does not engage in such activities, it is not.
Dollar Threshold
    The regulation currently includes an activity threshold of $1,000 
for any person in any one day. This threshold applies to all MSB 
categories, except money transmitters which do not have any activity 
threshold, and was established to exclude certain activities under that 
dollar amount from the BSA requirements.\42\
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    \42\ See 1999 Rulemaking, 64 FR at 45446 (the threshold attempts 
to eliminate treating certain businesses as MSBs, like grocery 
stores and hotels, which cash checks and exchange currency as an 
accommodation to customers otherwise buying goods and services).
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    The issue of a dollar threshold was discussed at FinCEN's publicly-
held meetings in 1997 with the industry to vet issues arising from the 
originally proposed rules. During the meetings, various methods of 
arriving at a dollar threshold were discussed. Certain members of the 
industry proposed a threshold based on total gross fee income. FinCEN 
did not favor that approach because it allowed for potential 
manipulation on the part of a business seeking to avoid the 
registration requirement by not collecting a fee and obtaining payment 
for the service in some other way. Some participants also recommended 
tying the threshold to an economic indicator, like the minimum for 
social security payments or the federal minimum wage, which was 
ultimately rejected. In the final rule, FinCEN doubled the originally 
proposed threshold of $500 in part based on input received from the 
industry.\43\
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    \43\ The final rule also indicated that many MSB transactions 
regularly occur in amounts greater than the originally proposed 
definitional threshold of $500. See 1999 Rulemaking, 64 FR at 45446.

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    Although FinCEN does not propose amending the current threshold in 
this rulemaking, we are considering the need for a separate rulemaking 
to make possible adjustments to the threshold. A lower threshold may 
increase the amount of information available to law enforcement by 
expanding the scope of entities subject to BSA requirements, but would 
also add additional entities that conduct incidental and low-value MSB 
activities in which the benefits of regulation many not outweigh the 
costs. Moreover, the effect on the clients whom these MSBs serve would 
need to be carefully studied. Conversely, a higher threshold may remove 
from the scope of the BSA entities that conduct incidental and low-
value MSB activities in which the benefits of regulation many not 
outweigh the costs.
Questions for Comment
    <bullet> We seek information on the average daily transaction 
amount for the different MSB services offered: check cashing; money 
orders; money transmission; foreign exchange; stored value; and 
traveler's checks.
    <bullet> We specifically seek comment from law enforcement on how 
adjusting the threshold higher or lower would impact their 
investigations and prosecutions.
    <bullet> We specifically seek comment from community groups on how 
adjusting the threshold higher or lower would impact the clients who 
utilize MSB firms.
Foreign-Located MSBs
    The BSA authorizes us to define a domestic financial institution 
without reference to its physical presence in the United States. 31 
U.S.C. 5312(b)(1) states that the term ``domestic financial 
institution'' applies to an action in the United States, not to the 
physical location of the financial agency or institution taking the 
action. Thus, it is within FinCEN's authority to write regulations 
establishing that a foreign-located business that meets the definition 
of a ``financial institution'' and is conducting business in the United 
States in such a capacity is a ``domestic financial institution.''
    We propose to use this authority to amend the regulatory language 
implementing 31 U.S.C. 5312(a)(2)(J), (K), and (R)--the provisions on 
which our regulatory definition of MSBs is based--to ensure that 
certain foreign-located entities engaging in MSB activities in the 
United States are subject to the requirements of the BSA. We propose to 
do this by revising our MSB definition to state that an entity is 
defined as an MSB by the activity it conducts within the United States, 
and not exclusively by the physical presence of one or more of the 
entity's agents, agencies, branches or offices within the United 
States. Accordingly, we propose the following text: ``The term ``money 
services business'' shall include a person wherever located engaged in 
the activities that take place wholly or in substantial part within the 
United States, in one or more of the capacities listed in paragraphs 
(uu)(1) through (uu)(6) of this section, whether or not on a regular 
basis or as an organized business concern. This includes but is not 
limited to maintenance of any agent, agency, branch, or office within 
the United States.''
    Technological advances make it increasingly possible for MSBs to 
offer financial services through mechanisms other than ``brick and 
mortar'' locations. Foreign entities can and do offer services in the 
U.S. through other instrumentalities, such as the Internet or a U.S.-
based bank account. Under this rulemaking, we seek to ensure that a 
foreign-located entity engaging in activities in the United States in 
one of the capacities listed in 31 CFR 103.11(uu)(1)-(5) is regulated 
as an MSB. We intend to include an entity that has a presence in the 
U.S. by means of the internet or similar mechanism, or by means of an 
account with a U.S. financial institution and who, for instance, is 
transmitting money through the account with U.S. customers or 
recipients. Establishing the degree to which the activities of a 
foreign-located MSB occurs within the United States depends on all the 
facts and circumstances and whether U.S. customers or recipients are 
involved in the activities.\44\ If a foreign-located business is an MSB 
according to our regulations, then it will have the same reporting and 
recordkeeping and other requirements as an MSB with a physical presence 
in the United States, with respect to its U.S. activities.\45\
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    \44\ See FinCEN Ruling 2004-1 (March 29, 2004). Guidance 
(Definition of Money Services Business) (Foreign-Located Currency 
Exchanger With U.S. Bank Account) (A foreign-located currency 
exchanger whose only presence in the U.S. was a bank account was not 
deemed an MSB when the currency exchange transactions occurred 
solely in a foreign country for foreign-located customers and the 
use of the U.S. bank account was limited to issuing and clearing 
dollar-denominated monetary instruments.)
    \45\ See Section II.A of this rulemaking above for MSB 
compliance obligations.
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    FinCEN seeks to ensure that our AML regulations apply equally to 
all persons engaging in activities in the United States as MSBs. The 
U.S. system is not fully protected when some MSB transactions are 
covered and others are not. We are concerned that mechanisms such as 
the Internet increasingly can be used to conduct business within the 
United States from a foreign jurisdiction. Use of such mechanisms may 
avoid both our regulations and the regulations of the foreign 
jurisdiction. This undermines the legitimate interest of the United 
States in protecting its own financial system from abuse.
    Effectively regulating the use of the U.S. financial system by all 
actors, both domestic and foreign, is consistent with the efforts to 
establish an international community designed to help countries and 
other jurisdictions work in concert to protect the inextricably 
intertwined global financial system. These efforts in turn help support 
the efforts of individual countries to prevent their financial systems 
from being used as conduits for financial crimes.
    We seek comment on the effectiveness of the proposed text changes 
regarding the application of the MSB definition to certain foreign-
located MSBs. In addition, we request input on the effectiveness of 
examining and enforcing such entities' compliance with BSA 
requirements, such as the requirement that a foreign-located MSB 
maintain registration records in the United States that are readily 
available at the request of FinCEN or any appropriate law enforcement 
agency.\46\ Moreover, we seek comment on the implications of requiring 
a foreign-located MSB to file SARs with respect to transactions taking 
place within the United States and the ability to enforce the 
confidentiality and safe harbor provisions of the SAR,\47\ or to 
enforce the issuance of a civil money penalty \48\ on such an MSB.\49\ 
We seek comment

[[Page 22134]]

from law enforcement on how such changes may impact their work if 
certain foreign businesses were regulated as MSBs. Alternatively, we 
solicit comment on whether we should expand the definition of ``foreign 
financial institution'' \50\ in the foreign correspondent account rule 
to include check cashers and issuers and/or sellers of traveler's 
checks and/or money orders.
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    \46\ See 1999 Rulemaking, 64 FR at 45441 (``A money services 
business is not required to keep records required by section Sec.  
103.41 in a centralized location so long as the records are 
maintained in the United States'').
    \47\ 31 CFR 103.20(d). See also FinCEN Form 107 (Registration of 
Money Services Business) (Jan. 2005), which allows for the 
registration of a foreign located MSB in Part III.
    \48\ 31 CFR 103.56-103.57.
    \49\ The practical issues that may arise in enforcing these 
requirements are distinct from the legal issues as to whether FinCEN 
has the authority to impose these requirements on foreign-located 
MSBs, and whether federal courts have the authority to impose 
sanctions for the failure of a foreign-located MSB to comply with 
these requirements. MSB activity wholly or substantially within the 
United States is an economic activity substantially affecting 
interstate commerce, and it is therefore clearly amenable to federal 
regulation. See United States v. Morrison, 529 U.S. 598, 609-610, 
120 S.Ct. 1740, 1749-1750 (2000). As noted, the BSA authorizes 
FinCEN to regulate action within the United States without reference 
to the actor's physical presence in the United States. See 31 U.S.C. 
Sec.  5312(b)(1). Finally, the nature of MSB activity is such that a 
foreign-located MSB engaging in such activity wholly or 
substantially within the United States is making a conscious 
decision to do so and is aware of where the activity is taking 
place. It should therefore be possible to identify a federal 
judicial district with which the foreign-located MSB has sufficient 
minimum contacts that the maintenance of a suit against the foreign-
located MSB does not offend due process or traditional notions of 
fair play and substantial justice, see International Shoe Co. v. 
Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158 (1945), either 
because the suit arises out of the MSB's specific contacts with the 
district and the MSB has purposefully directed its efforts towards 
residents of the district, see Burger King v. Rudzewicz, 471 U.S. 
462, 476, 105 S.Ct. 2174, 2184 (1985), or because the MSB has 
maintained continuous and systematic general business contacts with 
the district, see Helicopteros Nacionales de Colombia v. Hall, 466 
U.S. 408, 416, 104 S.Ct. 1868, 1873 (1984). It should therefore be 
possible for a federal court to assert personal jurisdiction over 
the MSB on either a general jurisdiction or specific jurisdiction 
theory, notwithstanding the MSB's lack of physical presence in the 
United States. See Gator.com Corp. v. L.L. Bean, Inc., 341 F.3d 
1072, 1079 (9th Cir. 2003) (federal district court has personal 
jurisdiction over defendant lacking physical presence in district 
because defendant's ``highly interactive'' website operates as 
``virtual store'' in district), Gorman v. Ameritrade Holding Corp., 
293 F.3d 506, 512-513 (D.C.Cir. 2002) (federal district court may 
have personal jurisdiction over defendant lacking physical presence 
in district because residents of district ``use its website to 
engage in electronic transactions with the firm''); see also 
Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 
F.3d 1114, 1123-1126 (9th Cir. 2002) (federal district court may 
have personal jurisdiction over defendant notwithstanding 
defendant's lack of physical presence in the United States), United 
States v. Swiss American Bank, Ltd., 274 F.3d 610, 619-625 (1st Cir. 
2001) (same).
    \50\ 31 CFR 103.175(h).
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B. Meaning of the Term ``Dealer in Foreign Exchange''

    Pursuant to FinCEN's authority to interpret the provisions of 31 
U.S.C. 5312, this section proposes to amend 31 CFR Part 103 by amending 
the regulation implementing 31 U.S.C. 5312(a)(2)(J), which defines ``a 
currency exchange'' as a financial institution and 31 U.S.C. 
5312(a)(2)(Y) and (Z), which permit the Secretary to designate as a 
financial institution ``any business * * * which engages in any 
activity * * * which is similar to, related to, or a substitute for any 
activity in which any business [defined to be a financial institution] 
is authorized to engage [or] any other business whose cash transactions 
have a high degree of usefulness in criminal, tax, or regulatory 
matters.''
    Currently, 31 CFR 103.11(uu)(1) defines a ``currency dealer or 
exchanger,'' as ``[a] currency dealer or exchanger (other than a person 
who does not exchange currency in an amount greater than $1,000 in 
currency or monetary or other instruments for any person on any day in 
one or more transactions).'' The proposed changes would revise 31 CFR 
103.11(uu)(1) to state: ``Dealer in Foreign Exchange. A person who 
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.''
    The term ``dealer in foreign exchange'' can be found in the first 
BSA regulations published in 1972.\51\ Although the term later was 
deleted from the regulations, the deletion and subsequent changes were 
not intended to change the meaning of the category.\52\ The use of the 
word ``dealer'' in the proposed definition is intended to include both 
dealers (persons taking one side of a position and seeking to earn a 
spread) and brokers (persons bringing the buyers and sellers together 
for a commission and who, like a dealer, will conduct the transaction 
on its books and through its accounts). ``Dealer'' is intended to 
include all persons who are in the business of engaging in transactions 
involving the current or future acquisition or disposition of funds 
denominated in a particular currency by exchanging them for funds 
denominated in another currency.
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    \51\ See 37 FR 6912 (April 5, 1972) (defining ``financial 
institution'' to include ``a person who engages as a business in 
dealing in or exchanging currency as, for example, a dealer in 
foreign exchange or a person engaged primarily in the cashing of 
checks'').
    \52\ See 51 FR 30233, 30234 (Aug. 25, 1986) (proposing to define 
``financial institution'' to include ``a currency dealer or 
exchanger, including a check casher,'' with no notice that this 
change in language would constitute a change in the scope of the 
definition); 52 FR 11436, 11439-11440 (Apr. 8, 1987) (adopting the 
proposed language changes).
---------------------------------------------------------------------------

    We have removed the word ``currency'' from the name of the category 
to make clear that businesses that meet this definition may be 
exchanging not only currency, but also other monetary instruments, 
funds, or other instruments that are denominated in currency. Although 
the statute uses the language ``currency exchange,'' \53\ we believe 
the language was intended to capture the underlying activity involved 
in foreign exchange services and that our interpretation is consistent 
with the original intent and current industry practices. We seek 
comment on the name change of this category of MSB and whether the 
revision is consistent with current practices.
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    \53\ 31 U.S.C. 5312(a)(2).
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    The insertion of the word ``foreign'' clarifies our consistent 
position that any exchange that occurs in the United States could be 
covered by this definition, even if it does not involve U.S. dollars. 
Therefore, if all other requirements are fulfilled, and a business 
exchanges currency, other monetary instruments, funds or other 
instruments denominated in a currency other than U.S. dollars for 
currency, other monetary instruments, funds or other instruments 
denominated either in dollars or in another non-U.S. currency, we would 
consider the business a dealer in foreign exchange for purposes of our 
rules. Though such a transaction may not involve U.S. dollars, the 
potential use of a dealer in foreign exchange to launder money, finance 
terrorism, or carry out other illicit activity nevertheless would 
impact the U.S. financial system and should be subject to regulation.
    This proposed clarification also reflects the reality of the 
international nature of money laundering and terrorist financing as 
well as the jurisdictional responsibility of the U.S. Government to 
safeguard the financial system against those risks. Although U.S. 
dollars are considered an attractive medium for money laundering and 
terrorist financing because of the worldwide acceptance of the dollar 
as a means of payment, failing to capture exchanges within the United 
States of two foreign (non-U.S. dollar) currencies or of payment 
instruments denominated in two foreign currencies would leave a 
significant class of potentially vulnerable transactions that occur 
within the United States unregulated.
    The proposed definition also clarifies that dealing in foreign 
exchange is not limited to the physical exchange of the currency of one 
country for the currency of another country. The phrase ``currency, or 
other monetary instruments, funds, or other instruments'' clarifies 
which mediums of exchange are included under the current rule's 
phrasing ``currency or monetary or other instruments.'' Our current 
rules and existing body of administrative rulings make clear our 
determination that a person that

[[Page 22135]]

converts funds denominated in the currency of one country to funds 
denominated in the currency of another country is a currency dealer or 
exchanger.\54\ ``Other instruments'' is intended to capture those types 
of payment instruments that do not fall precisely into one of the other 
categories, but nevertheless are readily recognizable as payment 
instruments.
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    \54\ See FinCEN Ruling 2008-R003 (Whether a Person That is 
Engaged in the Business of Foreign Exchange Risk Management is a 
Currency Dealer or Exchanger or Money Transmitter) (May 9, 2008); 
FinCEN Ruling 2008-R002 (Whether a Foreign Exchange Dealer is a 
Currency Dealer or Exchanger or Money Transmitter) (May 9, 2008); 
and 31 CFR 103.37(b)(6).
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    The addition of the phrase ``of one or more other countries'' \55\ 
to the text of the definition signals a proposed policy clarification, 
which we believe better comports with a more common understanding of 
the business of exchanging currency. This phrase indicates that a 
person would no longer be considered a dealer in foreign exchange when 
converting currency, other monetary instruments, funds or other 
instruments denominated in U.S. currency for currency, other monetary 
instruments, funds or other instruments also denominated in U.S. 
currency. Similarly, if a person were to accept currency, other 
monetary instruments, funds or other instruments denominated in a 
particular foreign currency in exchange for currency, other monetary 
instruments, funds or other instruments denominated in that same 
foreign currency, that person would not be considered an MSB. By way of 
example, a person accepting a traveler's check denominated in Mexican 
pesos in exchange for Mexican pesos in currency form would not be 
considered a dealer in foreign exchange.
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    \55\ The addition of ``one or more other countries'' is intended 
to capture the fact that some foreign currencies are used by 
multiple countries. For instance, the Euro is used by the member 
states of the European Union. Accordingly, a dealer in foreign 
exchange may accept funds of one or more other countries in exchange 
for funds of one or more other countries.
---------------------------------------------------------------------------

    The proposed language ``for any other person'' was inserted into 
the definition to explicitly reflect the interpretation that a person 
is not a dealer in foreign exchange ``[t]o the extent that [he is] 
exchanging * * * and transporting [his] own money on behalf of 
[him]self.'' \56\
---------------------------------------------------------------------------

    \56\ See, e.g., FinCEN Ruling 2003-9, (Definition of Money 
Services Business (Money Transmitter/Currency Dealer or Exchanger)) 
(October 20, 2003). See also, FinCEN Ruling 2004-3, (Definition of 
Money Services Business (Money Transmitter/Currency Dealer or 
Exchanger)) (Aug, 17, 2004).
---------------------------------------------------------------------------

    We added the phrase ``whether or not for same-day delivery'' to 
account for the potential time difference between the date on which the 
exchange rate is agreed and the date of the exchange. Common settlement 
terms in foreign exchange markets include: (1) Same-day or cash--where 
the parties both agree to an exchange of currency and conclude the 
exchange on the same working day; (2) spot--where the parties agree to 
an exchange of currency on one date, with the exchange taking place two 
working days thereafter; (3) cash forward--where the parties agree to 
an exchange of currency on one date, with the exchange of currency 
deferred until an agreed-upon date in the future; and (4) future--where 
the parties agree to an exchange of currency on one date, with 
settlement to occur in an agreed upon delivery period in the future 
typically by payment of an amount reflecting the change in the foreign 
currency rate between the time of the agreement and delivery. A 
contract for future delivery of currency may also be settled with the 
delivery of currency, resulting in the exchange of the currencies 
underlying the futures contract.
    The subject definition would apply only to exchanges of currency in 
the over-the-counter markets.\57\ Exchange-traded contracts and the 
persons who intermediate them are regulated by the Commodity Futures 
Trading Commission, and therefore are excluded from the definition of 
dealer in foreign exchange.\58\ However, currency is an ``excluded 
commodity'' under the Commodity Exchange Act,\59\ and foreign exchange 
futures may be traded over-the-counter in limited circumstances, 
Consequently, this discrete category of futures contracts would fall 
within this definition.
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    \57\ The terms of a spot, forward, or futures contract typically 
will permit either delivery of the underlying foreign currency or 
settlement of the contract in the local currency. As the option of 
delivering the foreign currency always exists, these contracts cause 
the contracting parties to fall under the dealer in foreign exchange 
definition.
    \58\ 31 CFR 103.11(uu).
    \59\ 7 U.S.C. 1a(13).
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Requests for Comment
    <bullet> Does limiting this definition to only dealers in foreign 
exchange increase the risk for money laundering? How? We especially 
seek input from law enforcement.
    <bullet> Does the definition appropriately include the mediums of 
exchange that are used to effect these transactions?
    <bullet> Should all categories of MSB be required to maintain and 
retain additional records on customers similar to those of currency 
dealers and exchangers in 31 CFR Sec.  103.37?

C. Meaning of the Term ``Check Casher''

    Currently, under 31 CFR Sec.  103.11(uu)(2), a check casher is 
defined as ``a person engaged in the business of a check casher (other 
than a person who does not cash checks in an amount greater than $1,000 
in currency or monetary or other instruments for any person on any day 
in one or more transactions).'' FinCEN is proposing to amend 31 CFR 
103.11(uu)(2) to clarify the meaning of the term ``check cashing'' by 
splitting the existing regulatory definition into two subsections--one 
defining check cashing activity and one excluding certain activity from 
that definition.
    The proposed revision would change the definition of check cashier 
to state (in part): ``A person who accepts checks (as defined in the 
Uniform Commercial Code [U.C.C. Article 3--Negotiable Instruments Sec.  
3-104]) or monetary instruments (as defined in Sec.  103.11(u)(1)(ii), 
(iii), (iv) and (v)) in return for currency or a combination of 
currency and other monetary instruments or other instruments in an 
amount greater than $1,000.''
    ``In return'' has been added to the definition to more accurately 
describe the activity that occurs when cashing a check or redeeming a 
monetary instrument. The Uniform Commercial Code reference has been 
added in order to provide a clear definition of ``check.'' A reference 
to the definition of ``monetary instruments'' has also been provided. 
``Other instruments'' is intended to capture those types of payment 
instruments that do not fall precisely into one of the other 
categories. The term is meant to capture those instruments that are 
readily recognizable as payment instruments--an instrument such as a 
stored value card that is treated in commerce as a cash equivalent--
without capturing goods or services that may be purchased with a check 
or monetary instrument.
    For the sake of efficiency, this proposed definition would also 
incorporate the redeeming of monetary instruments into the definition 
of check casher. Given its similarity to check cashing, we believe it 
is unnecessary to treat this activity separately from check 
cashing.\60\ Accordingly, under this proposal, a person engaged in 
redeeming monetary instruments (including traveler's checks and money 
orders) would be a check casher if it redeemed checks for currency or a 
combination of currency and monetary or other instruments. Our intent 
in this revision is not to capture activity that is tantamount to 
merely exchanging one

[[Page 22136]]

monetary instrument for another monetary or other instrument and 
accordingly, the proposed rule would require currency to be included in 
the redeeming.
---------------------------------------------------------------------------

    \60\ FinCEN does not interpret ``redeem'' to include payment 
instruments or mechanisms taken in exchange for goods or services. 
See 1999 Rulemaking, 64 FR at 45441-45443.
---------------------------------------------------------------------------

    The proposed revision also would clarify what activities would not 
be subject to the check casher definition. The proposed definition also 
would include the following: ``Whether a person is a check casher as 
described in this section is a matter of facts and circumstances. The 
term `check casher' shall not include: a person that sells closed loop 
stored value \61\ purchased with a check, monetary instrument or other 
instruments as referenced above in this definition; a person that 
redeems its own checks; \62\ or a person that only holds a customer's 
check as collateral for repayment by the customer of a loan.\63\ These 
businesses are being excluded from the definition of check casher 
because of their limited purpose and low risk.''
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    \61\ We are proposing to define closed-loop stored value as 
stored value that is limited to a defined merchant or location (or 
set of locations), such as a specific retailer or retail chain, a 
college campus, or a subway system. Cf., Federal Reserve Board, A 
Summary of the Roundtable Discussion on Stored-Value Cards and Other 
Prepaid Products (Nov. 12, 2004) available at http://www.federalreserve.gov/paymentsystems/storedvalue/.
    \62\ See FinCEN Guidance FIN-2006-G005 (Frequently Asked 
Questions--Businesses Cashing Their Own Checks) (March 31, 2006).
    \63\ FinCEN Ruling 2002-2 (Definition of Check Casher (Payday 
Lenders)), (Feb. 5, 2002).
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    Finally, under the current regulations, redeemers of traveler's 
checks and money orders currently have SAR obligations while check 
cashers do not. As we are proposing to combine these two current 
categories of MSB, we seek comment on whether FinCEN should amend its 
regulations in a future rulemaking to require check cashers to report 
suspicious activity to FinCEN under the BSA. Would such a requirement 
be necessary, considering, for example, that issuers of traveler's 
checks and money orders will continue to have SAR reporting 
requirements with respect to the instruments that they issue?
Requests for Comment
    <bullet> Should there be an exemption or other relief for certain 
types of lower risk checks (e.g., federal, state, or local government 
entitlement checks)?
    <bullet> Should check cashers be subject to a SAR requirement?
    <bullet> Should there be any other exceptions or limitations on the 
check casher definition?
    <bullet> FinCEN invites comment on the impact of the proposed 
changes, if any, on current business practices.
    <bullet> We specifically seek comment from law enforcement on how 
the proposed changes may affect their investigations and prosecutions.

D. Meaning of the Term ``Issuer or Seller of Traveler's Checks or Money 
Orders''

    FinCEN proposes to replace existing sections 103.11(uu)(3), 
``issuer of traveler's checks, money orders, or stored value'' and 
103.11(uu)(4), ``seller or redeemer of travelers checks, money orders, 
or stored value'' with new section 103.11(uu)(3), ``issuer or seller of 
traveler's checks or money orders.'' This proposed new section defines 
an issuer or seller of traveler's checks or money orders as ``[a] 
person that (i) issues traveler's checks or money orders that are sold 
in an amount greater than $1,000 for any person on any day in one or 
more transactions or (ii) sells traveler's checks or money orders in an 
amount greater than $1,000 for any person on any day in one or more 
transactions.''
    The proposed rule eliminates the ``redeemer'' language that is 
contained in our current definitions. Although the current rules 
include those who ``redeem'' traveler's checks and money orders, 
traveler's checks typically are redeemed by their issuers, making a 
separate redemption category redundant in such circumstances. Moreover, 
redeeming a traveler's check or money order by a non-issuer is close 
enough to the activity of a check casher that we think it can be 
incorporated into that definition with little difficulty.\64\ 
Accordingly, we are removing the ``redeemer'' provision from the 
proposed rule.
---------------------------------------------------------------------------

    \64\ FinCEN has never held that a business that provides goods 
or services in exchange for payment in the form of money orders or 
traveler's checks is an MSB. See 1999 Rulemaking, 64 FR at 45447. 
Accordingly, only a business that redeems these instruments for 
currency, or exchanges them for a combination of currency and 
monetary or other instruments would be considered an MSB, 
specifically a check casher, under the proposed rule.
---------------------------------------------------------------------------

    The proposed rule defines an issuer by virtue of the amount at 
which its monetary instruments or travelers checks are sold, as opposed 
to the amounts at which they are issued. For example, we contemplate 
the amount of the sale including the face value of the monetary 
instruments plus any fees. Because money orders are not issued in round 
dollar increments like traveler's checks, but are rather sold either 
directly by the issuer or by its agent to a customer who specifies the 
exact amount, a business must look at this activity to determine 
whether its transactions exceed the definitional threshold per person 
per day. Similarly, although traveler's checks are usually issued in 
large round amounts (e.g., $20, $50, or $100), the definition is linked 
to the aggregate amount at which those checks are sold, either directly 
by the issuer or at the agent level, to a customer in a single day.
Requests for Comment
    <bullet> Is it appropriate to link the definitional threshold for 
an issuer to the value at which the money orders and traveler's checks 
are sold?
    <bullet> In light of the proposed definition of a check casher, is 
the ``redeemer'' provision no longer necessary for traveler's checks 
and money orders?

E. Meaning of the Term ``Stored Value''

    Under the current rules, FinCEN addresses traveler's checks, money 
orders, and stored value under two separate definitions: issuers and 
sellers or redeemers of those products. FinCEN proposes to group 
issuers, sellers, and redeemers of stored value together. Our intent in 
the proposed new section is not to change the regulatory definitions 
regarding issuers, sellers, or redeemers of stored value in this 
rulemaking but simply to group such providers of stored value together 
in one category. Accordingly, the new section would be revised as 
follows: ``A person who (1) issues stored value (other than a person 
who does not issue such stored value in an amount greater than $1,000 
to any person on any day in one or more transactions) or (2) sells or 
redeems stored value (other than a person who does not sell or redeem 
such stored value for an amount greater than $1,000 from any person on 
any day in one or more transactions).''
    Although FinCEN does not intend to substantively amend the category 
of issuers, sellers, or redeemers of stored value in this rulemaking, 
we are reviewing the current status of the stored value regulatory 
regime, and we are considering possible future revisions. In 1999, 
FinCEN issued a final rulemaking deferring certain requirements for the 
stored value industry based on the complexity of the industry and the 
desire to avoid unintended consequences with respect to an industry 
then in its infancy. Mindful of these continuing issues, FinCEN is 
deferring the proposal of a new rulemaking regarding issuers, sellers, 
and redeemers of stored value at the present time. FinCEN will continue 
to study the nature and the risks of this emerging industry before 
proposing a separate future rulemaking. At this point, FinCEN is not 
proposing to revise the definition of stored value found at 31 CFR 
103.11(vv).

[[Page 22137]]

F. Meaning of the Term ``Money Transmitter''

    We propose to revise the regulation interpreting 31 U.S.C. 
5312(a)(2)(R), which defines funds transmission under the BSA as ``a 
licensed sender of money or any other person who engages as a business 
in the transmission of funds, including any person who engages as a 
business in an informal money transfer system or any network of people 
who engage as a business in facilitating the transfer of money 
domestically or internationally outside of the conventional financial 
institutions system.''
    The implementing regulation, 31 CFR 103.11(uu)(5), currently 
defines a money transmitter as ``Any person, whether or not licensed or 
required to be licensed, who engages as a business in accepting 
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 one or more Federal Reserve Banks, the Board of Governors 
of the Federal Reserve System, or both, or an electronic funds transfer 
network; or any other person engaged as a business in the transfer of 
funds.''
    The proposed definition of money transmitter would read in part, 
``a person who provides money transmission services. The term ``money 
transmission services'' means the acceptance of currency, funds, or 
other value that substitutes for currency from one person AND the 
transmission of such currency, funds, or the value to another location 
or person by any means. ``Any means'' includes through a financial 
agency or institution; a Federal Reserve Bank or other facility of one 
or more Federal Reserve Banks, the Board of Governors of the Federal 
Reserve System, or both; or an electronic funds transfer network.''
    The current regulation additionally contains a facts and 
circumstances limitation that excludes from the money transmitter 
definition persons that are engaged in the business of money 
transmission as an integral part of the execution and settlement of the 
transaction. Integral includes entities that could not engage in their 
businesses without engaging in the transmission of funds. In 
retrospect, it has been difficult for potential money transmitters to 
apply this exemption. We are proposing to clarify the limitations to 
the definition by using concise exceptions and by removing phrases that 
have been difficult to interpret.
    The proposed definition of money transmitter is ``a person who 
provides money transmission services.'' This language is consistent 
with existing language in the BSA.\65\ The proposed definition removes 
the phrase ``engages as a business'' as FinCEN continues to regulate an 
MSB by its activity and the context in which the activity occurs and 
not by its status. The removal of ``engages as a business'' is not 
intended to broaden the regulation beyond its present scope.
---------------------------------------------------------------------------

    \65\ 31 U.S.C. 5330 uses the language ``any business that 
provides * * * money transmitting or remittance services.''
---------------------------------------------------------------------------

    The proposed definition also removes the phrase ``whether or not 
licensed or required to be licensed.'' While this phrase reflects 
language in 31 U.S.C. 5312, we find the phrase to be unnecessary 
because it does not add substantive value to the meaning of money 
transmitter.
    Consistent with the current definition of money transmitter, the 
proposed language defines ``money transmission services [as] the 
acceptance of currency, funds, or other value that substitutes for 
currency from one person AND the transmission of such currency, funds, 
or the value to another location or person by any means.'' The proposed 
regulatory definition of money transmission services includes the 
phrase ``or other value that substitutes for currency'' to state that 
businesses that accept stored value or other currency equivalents as a 
funding source and transmit that value are providing money transmission 
services.\66\
---------------------------------------------------------------------------

    \66\ This proposed rulemaking largely reserves the discussion of 
stored value for a future date. As previously stated, FinCEN intends 
to issue a separate rulemaking proposing a revised definition of 
stored value and revising related regulations.
---------------------------------------------------------------------------

    By including the transmission of value, the current and proposed 
regulatory definitions of money transmitter are worded to include 
informal value transfer systems, including hawalas.\67\ Such activity 
is money transmission, and the providers are money transmitters subject 
to the requirements of the BSA.\68\
---------------------------------------------------------------------------

    \67\ ``An `informal value transfer system' refers to any system, 
mechanism, or network of people that receives money for the purpose 
of making the funds or an equivalent value payable to a third party 
in another geographic location, whether or not in the same form.'' 
FinCEN Advisory Issue 33 (Informal Value Transfer Systems) (March 
2003). Hawala is an alternative remittance system that operates 
outside of, or parallel to, ``traditional'' banking or financial 
channels.
    \68\ Id.
---------------------------------------------------------------------------

    The proposed regulatory definition of money transmission services 
also adds the phrase ``to another location or person.'' Although this 
phrase is not in the statutory definition of money transmitting 
service, it is implicit in the statutory definition's use of the word 
``transmitting.'' Transactions involving the acceptance of currency 
from one person at one location and the return of that currency to that 
same person at the same location would not be considered a money 
transmission service. The addition of the phrase ``to another location 
or person,'' will explicitly convey our interpretation.
    The phrase ``any means'' is defined in the old rule to include 
transmission ``through a financial agency or institution; a Federal 
Reserve Bank or other facility of one or more Federal Reserve Banks, 
the Board of Governors of the Federal Reserve System, or both; or an 
electronic funds transfer network.'' We moved the phrase ``any means'' 
to a different part of the definition only to increase reader 
comprehension, and the change in placement of the phrase has no 
substantive effect on the meaning of the definition.
    The current regulations also include in the definition, ``Any other 
person engaged as a business in the transfer of funds.'' \69\ This 
phrase has led to confusion making it difficult for a person to assure 
themselves that they do not fall under the definition. Therefore, we 
have removed the phrase from the proposed definition to minimize 
confusion. As noted above, our intention is that hawalas be covered by 
other language in this definition. The deletion of this language is not 
intended in any way to lessen the applicability of our definition of 
``money transmitter'' to hawalas.
---------------------------------------------------------------------------

    \69\ 31 CFR 103.11(uu)(i)(b).
---------------------------------------------------------------------------

    As mentioned above, the current regulation provides for facts and 
circumstances, or limitations regarding the definition of a money 
transmitter, and states ``whether a person `engages as a business' in 
the activities described in paragraph (uu)(5)(i) of this section is a 
matter of facts and circumstances. Generally, the acceptance and 
transmission of funds as an integral part of the execution and 
settlement of a transaction other than the funds transmission itself 
(for example, in connection with a bona fide sale of securities or 
other property), will not cause a person to be a money transmitter 
within the meaning of paragraph (uu)(5)(i) of this section.'' \70\
---------------------------------------------------------------------------

    \70\ 31 CFR 103.11(uu)(5)(ii).
---------------------------------------------------------------------------

    The proposed regulation also has a facts and circumstances 
limitation that incorporates existing interpretations of the current 
limitation by adding explicit language reflecting policy developed 
through administrative ruling letters

[[Page 22138]]

and guidance. The proposed limitation language reads, ``whether a 
person is a money transmitter as described in this section is a matter 
of facts and circumstances. The term `money transmitter' shall not 
include a person that only * * *'' engages in the following activity:
    ``Provides the delivery, communication, or network access services 
used by a money transmitter to support money transmission services. * * 
*'' We find that institutions that are used by money transmitters 
solely for the purpose of providing a medium of communication or 
transportation of information between money services businesses and 
their agents, financial institutions, or service providers should not 
fall under the definition of money transmitter.
    ``Acts as a payment processor to facilitate the purchase or payment 
of a bill for a good or service through a clearance and settlement 
system by agreement with the creditor or seller * * *.'' Although 
payment processors may provide a money transmission service, the 
service is ancillary to their primary business of coordinating payments 
either from a debtor to a creditor or, if operating at the point-of-
sale, from a purchaser to a merchant.\71\ A payment processor could not 
provide the primary service of coordination without providing ancillary 
money transmission services, but because the money transmission 
services are ancillary, and because they are generally low risk, we 
think it appropriate for entities engaged in this activity to be 
excluded from the definition. Note, however, that this limitation only 
applies to transmission services by payment processors on behalf of the 
creditor or seller and not the debtor or buyer. We believe that a 
contractual agreement for transmission services between the creditor or 
seller and the money transmitter is a relatively controlled flow of 
money that poses little money laundering risk, provided that the funds 
are transmitted only to the creditor or seller with whom the payment 
processor has contracted and not to another location or person.
---------------------------------------------------------------------------

    \71\ FinCEN Ruling 2003-R008 (Definition of Money Transmitter) 
(Nov. 19, 2003).
---------------------------------------------------------------------------

    ``Operates a clearance and settlement system or otherwise acts as 
an intermediary solely between BSA regulated institutions. This 
includes but would not be limited to the Fedwire system, electronic 
funds transfer networks, certain registered clearing agencies regulated 
by the SEC, and derivatives clearing organizations, or other 
clearinghouse arrangements established by a financial agency or 
institution. * * *'' We view persons who solely provide a clearance and 
settlement system or act as intermediaries between BSA regulated 
institutions and do not provide other types of money transmission 
services as mere instrumentalities that the financial institutions use 
to process their transfers. Therefore, these instrumentalities should 
not be included in the definition of money transmitter.
    ``Provides closed loop stored value.'' We also are proposing to 
exclude a person who provides closed loop stored value from the 
definition of money transmitter. Generally, a closed loop system refers 
to stored value that is limited to a defined merchant or location or 
set of locations.\72\
---------------------------------------------------------------------------

    \72\ See supra note 63.
---------------------------------------------------------------------------

    We do not want the language of the proposed money transmitter 
definition to be so broad as to include a person that issues a closed 
loop stored value card, such as most gift cards. For example, we do not 
want a department store that sells gift cards that only may be used at 
that department store, or a mall operator who sells gift cards that may 
only be used within the confines of the mall operator's locations, to 
be subject to the MSB rules as a money transmitter.
    In addition to not being a money transmitter under this proposed 
rule, FinCEN previously determined that a person solely issuing, 
selling, or redeeming closed loop stored value is not an ``issuer, 
seller or redeemer of stored value'' and is therefore not subject to 
BSA regulation as an MSB under that MSB category either.\73\ The fact 
of this exclusion, however, should not be read to imply that all 
persons who provide open loop stored value are money transmitters. In 
part, this is because a significant amount of the open loop stored 
value issued within the U.S. is issued by or through a depository 
institution, a category of financial institution that expressly is 
excluded from the definition of MSB by statute and regulation. \74\ 
Further discussion of open loop stored value will be included in a 
forthcoming rulemaking.
---------------------------------------------------------------------------

    \73\ See FinCEN Ruling 2003-R004 (Definition of Money 
Transmitter/Stored Value (Gift Certificates/Gift Cards)) (Aug. 15, 
2003) (FinCEN does not currently interpret the definition of stored 
value to include closed system products such as a mall-wide gift 
card program).
    \74\ See 31 U.S.C. 5330(d)(1)(C), 31 CFR 103.11(uu).
---------------------------------------------------------------------------

    ``Physically transports currency, other monetary instruments, other 
commercial paper, or other value that substitutes for currency as a 
person engaged in such business from one person to the same person at 
another location or to an account belonging to the same person at a 
financial institution, provided that the person engaged in physical 
transportation has no more than a custodial interest in the currency, 
other monetary instruments, other commercial papers, or other value at 
any point during the transportation;''
    This limitation encompasses past armored car rulings. We previously 
ruled that although armored car services may fall within the definition 
of a money transmitter, to the extent that they deliver currency on 
behalf of BSA regulated institutions, they should not be treated as 
money transmitters when they cannot be viewed as participating, or 
having a stake in the financial transaction that they are conducting on 
behalf of the BSA regulated institution.\75\ We additionally determined 
that an armored car is not a money transmitter when it moves currency 
on behalf of a private party to an account or another location of the 
same party without taking a financial stake in the transaction.\76\
---------------------------------------------------------------------------

    \75\ FinCEN Ruling 2004-R003 (Definition of Money Services 
Business) (Aug. 17, 2004). See also FinCEN 2003-R007 (Definition of 
Money Transmitter) (Oct. 28, 2003).
    \76\ Id. In such instance, the armored car is merely a conduit 
or vehicle and has no control over the financial transaction.
---------------------------------------------------------------------------

    In this proposed exclusion, the person engaged in physical 
transportation cannot have more than a custodial interest in what is 
being moved at any point during the transportation.\77\ Thus, the 
limitation would not apply to such a person if it deposited currency or 
monetary instruments that it was transporting into its own operating 
account at a bank, regardless of the identity of the ultimate recipient 
of the funds represented by the currency or monetary instruments. The 
limitation would also not apply to such a person if it actually 
purchased a monetary instrument, and then transported the monetary 
instrument. We solicit comment on whether our use of the phrase ``no 
more than a custodial interest'' adequately encapsulates a meaningful 
distinction between a person that merely transports items of monetary 
value on behalf of another and a person that takes title or ownership.
---------------------------------------------------------------------------

    \77\ The ``custodial'' language is intended to replace the 
language from past rulings ``stake in the transaction'' for purposes 
of clarifying the armored car limitation.
---------------------------------------------------------------------------

    This proposed exclusion would apply to transport initiated by any 
person, not only to transport initiated by a BSA-regulated institution. 
Additionally, when transport is initiated by a bank, a broker-dealer or 
other SEC-regulated

[[Page 22139]]

financial institution, or a futures commission merchant or other CFTC-
regulated institution, a transport business such as an armored car 
would not be a money transmitter, regardless of whether the transport 
is to another location or person. In such circumstances, when the 
transport business does not take title or ownership or the items do not 
in any manner convert, the transport business merely is acting as an 
extension of the bank or the SEC- or CFTC-regulated financial 
institution, all of which are exempt from the proposed definition of 
money services business at paragraph (uu)(7). We solicit comment on the 
use of ``custodial'' language to convey that title or ownership or 
items do not convert during physical transport like armored car 
services.
    ``Accepts and transmits funds only integral to the sale of goods or 
the provision of services, other than money transmission services, by 
the person who is accepting and transmitting the funds.''
    Similar to circumstance (B), we view persons that sell goods or 
provide services other than money transmission services, and only 
transmit funds as an integral part of that sale of goods or provision 
of services, not to be money transmitters. For example, brokering the 
sale of securities, commodity contracts, or similar instruments is not 
money transmission notwithstanding the fact that the person brokering 
the sale may move funds back and forth between the buyer and seller to 
effect the transaction. The person who is accepting and transmitting 
the funds simply offers a service other than money transmission 
services. Also, this limitation would include a debt management company 
that, unlike in circumstance (B), contracted with a debtor as a medium 
to provide payment to its creditors.\78\ This circumstance is similar 
to circumstance (B), but uses broader language to encompass those 
persons who operate under facts and circumstances similar to those 
stated herein.
---------------------------------------------------------------------------

    \78\ FinCEN Ruling 2004-R004 (Definition of Money Services 
Business) (Nov. 24, 2004).
---------------------------------------------------------------------------

Requests for Comments
    <bullet> Should intermediaries of money transmission services 
acting between two BSA regulated entities be removed from the 
definition of money transmitter?

Related Regulations--

G. Service of Legal Process

    There currently is no provision within 31 CFR part 103 that 
requires foreign-located MSBs to designate an agent to accept service 
of legal process in the United States. In order to enhance the ability 
of U.S. law enforcement and regulatory agencies to reach these MSB 
registrants, we are proposing the following additional language to 31 
CFR Sec.  103.41: ``Each foreign-located person engaged in activities 
in the United States as a money services business shall designate the 
name and address of a person who resides in the United States and is 
authorized, and has agreed to be an agent, to accept service of legal 
process with respect to compliance with this part, and shall identify 
the address of the location within the United States for records 
pertaining to (b)(1)(iii) of this section.''

IV. Request for Comments

    FinCEN invites comments on all aspects of the proposal to revise 
the MSB definitions and related regulations. If you are currently an 
MSB, please indicate in your response which MSB service(s) you offer 
and whether you offer the services in an agent capacity. We 
specifically invite comment on the above-referenced Request for 
Comments, as well as the following:
    Funds--Is there a need to define the term ``funds'' for purposes of 
the BSA? We use ``funds'' to refer to money held in bank accounts and 
``value of funds'' to denote something different from money actually 
held in a bank account, such as the value reflected on a stored value 
card in a chip-based product.
    MSB Regulations--
    <bullet> Aggregating MSB Services. Should transactions involving 
multiple MSB services be aggregated for purposes of determining whether 
definitional thresholds have been met?
    <bullet> Stored Value. FinCEN intends to issue a separate 
rulemaking proposing a revised definition of stored value and revising 
related regulations. However, we seek your input on stored value 
generally, and specifically on the following:
    [cir] Definition of stored value: We seek input on refining the 
current definition of ``stored value'' in 31 CFR 103.11(v). In doing 
so, we would like your comment on the appropriateness of a definition 
that would be based upon the following principles:
    <bullet> Definition should be technologically neutral and 
consistent with actual use of stored value within the economy.
    <bullet> Definition should be neutral in regards to the type of 
entity that provides/issues the stored value.
    For purposes of this request for comment, please provide your 
comments and suggestions on how to better define the term ``stored 
value'' given the following two existing legal definitions:
    <bullet> Current definition in 31 CFR 103.11 (vv). ``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.''
    <bullet> Uniform Money Services Act definition of stored value as 
``monetary value that is evidenced by an electronic record'' where 
``record'' is ``information that is inscribed on a tangible medium or 
that is stored in an electronic or other medium and is retrievable in 
perceivable form'' and ``monetary value'' is ``a medium of exchange, 
whether or not redeemable in money'' and ``money'' is ``a medium of 
exchange that is authorized or adopted by the United States or a 
foreign government. The term includes a monetary unit of account 
established by an intergovernmental organization or by agreement 
between two or more governments.''
    <bullet> Alternatively, we seek comment on this potential 
definition: ``electronic monetary value that is generally accepted as a 
medium of exchange, whether or not redeemable for currency or funds.''
    [cir] Treatment of stored value as money transmission. Some states 
already have started to include stored value within their money 
transmission laws. We have recognized, moreover, that some stored value 
is a subset of our definition of money transmitter.\79\ For purposes of 
this request for comment, we would request input on the following:
---------------------------------------------------------------------------

    \79\ See 1997 Proposed Rule, 62 FR at 27893. (The Department of 
the Treasury stated that businesses that operate systems that permit 
the transmission of stored value are within the statutory definition 
of money transmitting services and specifically within the 
regulatory definition of money transmitter.) See also, 1999 
Rulemaking, 64 FR at 45446. (FinCEN determined not to exclude 
``stored value'' from the definition of ``money transmitter'' but 
rather treated it as a subclass so that it could be excluded from 
the operation of certain substantive rules, in particular MSB 
registration and suspicious activity reporting requirements).
---------------------------------------------------------------------------

    <bullet> How would treating all forms of stored value as a form of 
money transmission impact the needs of industry, law enforcement, or 
regulators?
    <bullet> Should open loop stored value be regulated differently 
from closed loop? If so, how?
    <bullet> Should only certain uses or types of value transfers 
involving stored value be considered money transmission? If so, please 
describe or explain.
    <bullet> If stored value were excluded completely from being 
considered a

[[Page 22140]]

form of money transmission, how would that affect the industry, law 
enforcement, or regulators?
    [cir] Treatment of stored value players and products
    <bullet> Should we regulate only issuers of stored value or also 
sellers and redeemers as well? Why? How should we define them? Should 
there be a threshold for determining whether an entity is an issuer, 
seller, or redeemer of stored value? What should the threshold be? 
Should the definitional threshold be consistent with the other 
categories of MSBs that are subject to thresholds?
    <bullet> Should regulatory requirements vary depending on whether 
the stored value product is in bearer form or not? Should regulatory 
requirements vary depending on whether the stored value product is 
anonymous versus tied to an identifiable account holder?
    <bullet> Should memory chip products be regulated differently from 
magnetic stripe products?
    <bullet> Are the distinctions between open and closed loop stored 
value systems still meaningful? FinCEN recognizes that modern closed 
loop stored value systems operate internationally. As a result, these 
international closed-loop systems may pose additional money laundering 
risks when compared with the shopping mall-wide stored value systems 
that we have previously determined are not stored value for purposes of 
the BSA rules.
    <bullet> What other issues or questions should be considered in 
developing the appropriate regulatory framework for stored value in 
light of the actual risks of money laundering and terrorist financing 
associated with these systems?
    <bullet> Foreign-located MSBs
    [cir] Should foreign MSB principals engaged in MSB activities with 
U.S. persons or residents through U.S. agents or through a U.S. bank 
account, be subject to the BSA rules?
    [cir] Would adding check-cashers and issuers, sellers or redeemers 
of money orders and/or traveler's checks to 31 CFR 103.175(h), making 
them each foreign financial institutions that are subject to special 
due diligence by banks, broker-dealers, and other financial 
institutions that are obligated to comply with our rule implementing 
the correspondent account provisions of the USA PATRIOT Act, be a 
sufficient alternative? What would the consequences be?
    [cir] Would U.S.-based MSBs move offshore if foreign MSBs are 
excluded?
    [cir] How should domestic agents of foreign-located principals be 
treated if foreign-located principals are excluded from registration?
    <bullet> Thresholds
    [cir] For ease of compliance, should the regulatory threshold 
remain uniform for the categories of MSBs that have a threshold or 
should the threshold differ among the types of businesses to 
distinguish between the risks of certain types of activities? How would 
this affect the operations of businesses providing multiple MSB 
services?

V. Proposed Location in Chapter X

    As per the Federal Register Notice of November 7, 2008, FinCEN is 
separately proposing to remove Part 103 of Chapter I of Title 31, Code 
of Federal Regulations, and add Chapter 1000 to 1099 (Chapter X). As 
such and if finalized, the proposed changes herein would be reorganized 
according to the changes proposed in the Notice of Proposed Rulemaking 
(NPRM) for Chapter X. The planned reorganization will have no 
substantive affect on the proposed regulatory changes herein. The 
proposed regulatory changes of this specific NPRM would be renumbered 
according to the proposed Chapter X as follows:
    (a) 103.11(h) would be moved to 1010.100(m).
    (b) 103.11(uu) and its parts would be moved to 1010.100(gg)
    (c) 103.41(a)(2) would be moved to 1022.380(a)(2). Current sections 
103.41(a)(2) and (a)(3), proposed to be redesignated, would be 
renumbered therein as 1022.380(a)(3) and (a)(4) respectively.
    (d) 103.175(h)(3) would be moved to 1010.605(f)(3).

VI. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et 
seq.), FinCEN certifies that these proposed regulation revisions will 
not have a significant economic impact on a substantial number of small 
entities. This rulemaking imposes no new recordkeeping or reporting 
requirements on the MSB. In large part, the proposed rule updates the 
MSB definitions to integrate past guidance and rulings into the 
regulatory text. Incorporating existing interpretations into the 
regulatory text would have no impact on small entities that have been 
aware of these interpretations for years. In addition, the proposal 
combines all of stored value into one category, without substantively 
changing the existing definition, so that issuers of stored value and 
sellers or redeemers of stored value are in the same category. This 
structural proposal would not impact small entities. Accordingly, a 
regulatory flexibility analysis is not required.

VII. Paperwork Reduction Act Notices

    The reduction of the recordkeeping requirement contained in this 
proposed rule is being submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Since we are making requirements clearer for foreign 
entities, there is a potential that certain foreign-located MSBs 
conducting business in the United States may see an increase in the 
collection and reporting of information. However, any such potential 
may likely be offset by the corresponding exceptions we have made 
explicit regarding the type of business activity that would make a 
business an MSB. Comments on the issue of possible foreign reporting 
and other questions should be sent to the Desk Officer for the 
Department of Treasury, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Paperwork Reduction Project (1506), 
Washington, DC 20503 with a copy to the Financial Crimes Enforcement 
Network by mail or comments may also be submitted by e-mail to <a href="/cdn-cgi/l/email-protection#610e0813003e1214030c081212080e0f210e0c034f040e114f060e17"><span class="__cf_email__" data-cfemail="e28d8b9083bd9197808f8b91918b8d8ca28d8f80cc878d92cc858d94">[email protected]</span></a> with a copy to <a href="/cdn-cgi/l/email-protection#31435456525e5c5c545f45427157585f52545f1f565e47"><span class="__cf_email__" data-cfemail="afddcac8ccc0c2c2cac1dbdcefc9c6c1cccac181c8c0d9">[email protected]</span></a>. Please 
submit comments by one method only. Comments are welcome and must be 
received by September 9, 2009.
    This proposed rulemaking does not impose any new reporting or 
recordkeeping requirements. Instead, it seeks to clarify the scope of 
the existing MSB definitions and related rules. To the extent that we 
have eliminated any uncertainty or ambiguities with this proposal and 
to the extent that we narrow the scope of businesses subject to 
reporting or recordkeeping requirements, we will have reduced 
regulatory obligations.\80\
---------------------------------------------------------------------------

    \80\ This amendment to 31 CFR 103.11 and 103.41 makes explicit 
that certain foreign MSBs that conduct operations in the U.S. must 
register with FinCEN as an MSB and will be subject to certain BSA 
recordkeeping and reporting requirements.
---------------------------------------------------------------------------

Amendment to the Bank Secrecy Act Regulations--Definitions and Other 
Regulations Relating to Money Services Businesses

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. Sec.  3506(c)(2)(A), and its implementing regulations, 
5 CFR 1320, the following information concerning the collection of 
information of the Amendment to the Bank Secrecy Act Regulations--
Definitions and Other Regulations Relating to Money Services Businesses 
is presented to assist those persons wishing to comment on the 
information collection.

[[Page 22141]]

    FinCEN anticipates that this proposed rule, if enacted as proposed, 
would result in no additional forms to be filed annually.\81\ This is 
an estimate, based on a projection of the size and volume of the 
industry.
---------------------------------------------------------------------------

    \81\ Id.
---------------------------------------------------------------------------

    Description of Affected Financial Institutions: Money Services 
Businesses as defined in 31 CFR 103.11(uu).
    Estimate Number of Affected Financial Institutions: 42,000.
    Estimate Average Annual Burden Hours per Affected Financial 
Institution: The estimated average decrease in burden associated with 
the recordkeeping requirements in this proposed rule is one hour per 
affected financial institution.
    Estimated Total Annual Burden: minus 42,000 hours. FinCEN 
specifically invites comment on the accuracy of FinCEN's estimate of 
the reduction in burden on respondents and any other aspects of our PRA 
estimates.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of FinCEN, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced; and
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology.

VIII. Executive Order 12866

    It has been determined that this proposed rule is not a significant 
regulatory action for purposes of Executive Order 12866.

IX. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that may result in expenditure by state, local, and tribal governments, 
in the aggregate, or by the private sector, of $100 million or more in 
any one year. If a budgetary impact statement is required, section 202 
of the Unfunded Mandates Act also requires an agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule. FinCEN has determined that it is not required to 
prepare a written statement under section 202 and has concluded that on 
balance the proposals in the Notice of Proposed Rulemaking provide the 
most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

List of Subjects in 31 CFR Part 103

    Authority delegations (government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Proposed Amendments to the Regulations

    Accordingly, 31 CFR part 103 is proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FINANCIAL TRANSACTIONS

    1. The authority citation for part 10 is revised to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, 
Public Law 107-56, 115 Stat. 307.

    2. Section 103.11 is amended as follows:
    a. Adding paragraph (i);
    b. Revising paragraph (uu) introductory text;
    c. Revising paragraph (uu)(1);
    d. Revising paragraph (uu)(2);
    e. Revising paragraph (uu)(3);
    f. Revising paragraph (uu)(4);
    g. Revising paragraph (uu)(5);
    h. Adding paragraph (uu)(7).


Sec.  103.11  Meaning of terms.

* * * * *
    (i) Closed loop stored value. Stored value that is limited to a 
defined merchant or location (or set of locations), such as a specific 
retailer or retail chain, a college campus, or a subway system.
* * * * *
    (uu) Money services business. The term ``money services business'' 
shall include a person wherever located engaged in activities that take 
place wholly or in substantial part within the United States, in one or 
more of the capacities listed in paragraphs (uu)(1) through (uu)(6) of 
this section, whether or not on a regular basis or as an organized 
business concern. This includes but is not limited to maintenance of 
any agent, agency, branch, or office within the United States.
    (1) Dealer in foreign exchange. A person who 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.
    (2) Check casher--(i) In general. A person that accepts checks (as 
defined in the Uniform Commercial Code [U.C.C. Article 3--Negotiable 
Instruments Sec.  3-104]), or monetary instruments (as defined at Sec.  
103.11(u)(1)(ii), (iii), (iv), and (v)) in return for currency or a 
combination of currency and other monetary instruments or other 
instruments, in an amount greater than $1,000.
    (ii) Facts and circumstances; Limitations. Whether a person is a 
check casher as described in this section is a matter of facts and 
circumstances. The term ``check casher'' shall not include:
    (A) A person that sells closed loop stored value purchased with a 
check, monetary instrument or other instruments as referenced above in 
this definition;
    (B) A person that solely accepts monetary instruments as payment 
for goods or services other than check cashing services;
    (C) A person that engages in check cashing for the verified maker 
of the check who is a customer otherwise buying goods and services;
    (D) A person that redeems its own checks; or
    (E) A person that only holds a customer's check as collateral for 
repayment by the customer of a loan.
    (3) Issuers and sellers of traveler's checks or money orders. A 
person that:
    (i) Issues traveler's checks or money orders that are sold in an 
amount greater than $1,000 for any person on any day in one or more 
transactions; or
    (ii) Sells traveler's checks or money orders in an amount greater 
than $1,000 for any person on any day in one or more transactions.
    (4) Issuer, seller, or redeemer of stored value. A person that:
    (i) Issues stored value (other than a person that does not issue 
such stored value in an amount greater than $1,000 to any person on any 
day in one or more transactions); or
    (ii) Sells or redeems stored value (other than a person that does 
not sell or redeem such stored value for an amount greater than $1,000 
from any person on any day in one or more transactions).

[[Page 22142]]

    (5) Money transmitter--(i) In general. A person that provides money 
transmission services. The term ``money transmission services'' means 
the acceptance of currency, funds, or other value that substitutes for 
currency from one person AND the transmission of such currency, funds, 
or the value to another location or person by any means. ``Any means'' 
includes through a financial agency or institution; a Federal Reserve 
Bank or other facility of one or more Federal Reserve Banks, the Board 
of Governors of the Federal Reserve System, or both; or an electronic 
funds transfer network.
    (ii) Facts and circumstances; Limitations. Whether a person is a 
money transmitter as described in this section is a matter of facts and 
circumstances. The term ``money transmitter'' shall not include a 
person that only:
    (A) Provides the delivery, communication, or network access 
services used by a money transmitter to support money transmission 
services;
    (B) Acts as a payment processor to facilitate the purchase or 
payment of a bill for a good or service through a clearance and 
settlement system by agreement with the creditor or seller;
    (C) Operates a clearance and settlement system or otherwise acts as 
an intermediary solely between BSA regulated institutions. This 
includes but would not be limited to the Fedwire system, electronic 
funds transfer networks, certain registered clearing agencies regulated 
by the SEC, and derivatives clearing organizations, or other 
clearinghouse arrangements established by a financial agency or 
institution;
    (D) Provides closed loop stored value;
    (E) Physically transports currency, other monetary instruments, 
other commercial paper, or other value that substitutes for currency as 
a person engaged in such business from one person to the same person at 
another location or to an account belonging to the same person at a 
financial institution, provided that the person engaged in physical 
transportation has no more than a custodial interest in the currency, 
other monetary instruments, other commercial papers, or other value at 
any point during the transportation; or
    (F) Accepts and transmits funds only integral to the sale of goods 
or the provision of services, other than money transmission services, 
by the person who is accepting and transmitting the funds.
* * * * *
    (7) Limitation. For the purposes of this section, the term ``money 
services business'' shall not include:
    (i) A bank;
    (ii) A person registered with, and functionally regulated or 
examined by, the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
* * * * *
    3. Section 103.41 is amended by redesignating paragraphs (a)(2) and 
(a)(3) as paragraphs (a)(3) and (a)(4) respectively, and adding new 
paragraph (a)(2) to read as follows:


Sec.  103.41  Registration of money services businesses.

    (a) * * *
    (2) Foreign-located money services business. Each foreign-located 
person engaged in activities in the United States as a money services 
business shall designate the name and address of a person who resides 
in the United States and is authorized, and has agreed to be an agent 
to accept service of legal process with respect to compliance with this 
part and shall identify the address of the location within the United 
States for records pertaining to paragraph (b)(1)(iii) of this section.
* * * * *

    Dated: May 5, 2009.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. E9-10864 Filed 5-11-09; 8:45 am]
BILLING CODE 4810-02-P


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