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Money Transmitting

18 U.S.C. § 1960 - Prohibition of Unlicensed Money Transmitting Business

Operating an unlicensed money-transmitting business is a federal white-collar crime that carries stiff penalties.

The law, embodied in Title 18 U.S. Code 1960, makes it illegal to conduct financial transactions or provide services related to the transmission of funds at the foreign or interstate level without being duly licensed by an appropriate state or federal agency.

Prohibition of Unlicensed Money Transmitting Business - 18 U.S.C. § 1960

This includes activities such as currency exchanges and wire transfers, as well as providing services such as payment processing and check cashing. You could face up to five years in federal prison if convicted of this crime.

After the 9/11 terrorist attacks, federal prosecutors started paying more attention to money-transmitting businesses motivated by concerns over using institutions to launder money from terrorist organizations and drug trafficking networks.

Thus, these entities' operators might face serious federal criminal charges because they failed to obtain a state license or register with the Financial Crimes Enforcement Network (FinCEN), an entity within the United States Treasury Department.

Simply put, 18 U.S.C. 1960, the federal criminal money transmitting statute, makes it a crime to operate a money-transmitting business without complying with state licensing or federal registration requirements.

Further, it's also an offense to operate this type of business knowing that the transmitted funds are the proceeds of, or meant to promote, criminal activity.

This statute has been used by prosecutors for numerous money-transmitting businesses, such as wire transfer and check cashing agencies and currency exchanges. Let's review this federal law further below.

What Does the Law Say?

The initial text of 18 U.S.C. 1960 reads quite simply as follows: "Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than five years, or both."

Since it's not illegal to transfer money, the larger question here is what constitutes an unlicensed or unauthorized money-transmitting business, and at what point does it violate federal law?

Specifically, violations of U.S.C. 1960 occur when the business transmits money across state or national boundaries (i.e., "affects interstate or foreign commerce) and when any of the following three elements are true:

  • The business is not correctly licensed within the state or territory where it's located and where not having a license to do so is a crime;
  • The owner/operator fails to register the business with the Treasury Department's Financial Crimes Enforcement Network (FinCEN) in accordance with Title 31 U.S.C. 5330; or
  • The business handles the transmitting of funds known by the owner/operator to have been the proceeds of criminal activity or for the promotion of illegal activity.

Other important things to know about this law:

"Money transmitting" refers to all forms of transferring funds for the public. This includes wire transfer, check, courier, fax, etc.

This law only applies to businesses transferring funds that "affect interstate or foreign commerce." In the rare instance where a company only transfers funds within state lines or not using any form of federal infrastructure, only applicable state laws would apply.

Violating 18 U.S.C. 1960 is one of a handful of crimes in which prosecutors don't have to prove intent. With the Patriot Act of 2001, Congress amended Section 1960(b)(1)(A) to include the phrase "whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable."

So while you must have "knowingly" owned or operated the money-transmitting business itself, prosecutors no longer have to prove that you knew your business needed to be licensed or that it was in violation of the law to convict you of a crime.

What Are the Related Statutes?

18 U.S. Code Chapter 95 racketeering, has several statutes that are related to 18 U.S.C. 1960 prohibition of unlicensed money transmitting businesses, such as the following:

  • 18 U.S.C. 1951 - Interference with commerce by threats or violence;
  • 18 U.S.C. 1952 - Transportation in aid of racketeering enterprises;
  • 18 U.S.C. 1953 - Interstate transportation of wagering paraphernalia;
  • 18 U.S.C. 1954 - Influence operations of employee benefit plan;
  • 18 U.S.C. 1955 - Prohibition of illegal gambling businesses;
  • 18 U.S.C. 1956 - Laundering of monetary instruments;
  • 18 U.S.C. 1957 - Engaging in monetary transactions in property;
  • 18 U.S.C. 1958 - Use of facilities for murder-for-hire;
  • 18 U.S.C. 1959 - Violent crimes in aid of racketeering activity.

What Are Some Examples?

EXAMPLE 1: Thomas sets up a check-cashing business without realizing he accidentally failed to complete the registration paperwork correctly.

Penalties for Prohibition of unlicensed money transmitting businesses

He cashes a check from an out-of-state bank and runs the check through to collect the funds. As a result, Thomas could be charged under 18 U.S.C. 1960 even though he did not intend to break the law.

EXAMPLE 2: Sylvia owns a business that provides payment processing services for e-commerce transactions. She registers her business with FinCEN but fails to apply for the proper licenses with her home state.

Sylvia could be charged under 18 U.S.C. 1960 even though she did not intend to break the law or commit fraud in any way.

EXAMPLE 3: David runs a money transfer business appropriately licensed by the state and registered with FinCEN. Arnold, a known drug trafficker in his area, approaches David and asks him to wire a large sum of money overseas.

David agrees to run the transaction while reasonably suspecting where the money came from. Although David's business is duly licensed and registered, he can still be prosecuted under 18 U.S.C. 1960 because knowingly transferring criminal funds effectively voids his license and places him in the category of an "unlicensed money transmitting business."

What Are the Penalties for 18 U.S.C. 1960?

The penalties for operating an unlicensed money-transmitting business are pretty straightforward. If you're convicted of violating 18 U.S.C. 1960, you face the following possible penalties:

  • A fine of up to $250,000; and
  • Up to five years in federal prison.

What Are the Defenses for 18 U.S.C. 1960?

While lack of intent does not hold up well as a defense with this particular federal crime, there are several defenses an experienced criminal defense attorney might use. These are discussed below.

Perhaps we can argue that there is a lack of evidence that the business is involved in transmitting funds.

Defenses for Unlicensed Money Transmitting Business

Perhaps we can argue that there is insufficient or unreliable evidence of interstate/foreign commerce involvement, or maybe the government failed to prove any element of the crime beyond a reasonable doubt.

It is also important to remember that the Patriot Act's loosening of the necessity to prove intent was meant to target large-scale, organized financial crimes involving millions of dollars.

It is not intended to be applied as a "gotcha" or as an excuse to charge people with a crime when they are merely trying to conduct legitimate financial business.

A good attorney may be able to get the charges dropped or the penalties reduced on the grounds that you were not operating as part of a large-scale criminal operation.

If you are facing federal criminal charges or are under investigation, contact our law firm by phone or contact form to review the case details and legal options. Eisner Gorin LLP is based in Los Angeles, California.

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