BSA/AML and OFAC compliance, built for virtual currency and MSB businesses.

A money services business (MSB) is a non-bank financial institution defined under federal regulations at 31 CFR §1010.100(ff) to include money transmitters, dealers in foreign exchange, check cashers, issuers and sellers of traveler's checks or money orders, providers and sellers of prepaid access, and the U.S. Postal Service. A money transmitter is one category of MSB that accepts currency, funds, or other value that substitutes for currency and transmits that value to another location or person — including by means of convertible virtual currency (CVC).

FinCEN guidance — including FIN-2013-G001 (March 2013) and the more comprehensive FIN-2019-G001 (May 2019) — confirms that administrators and exchangers of convertible virtual currency generally qualify as money transmitters under the BSA and are therefore MSBs subject to federal registration, recordkeeping, reporting, and AML program requirements.

At the federal level, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, is the primary regulator for MSB BSA/AML compliance. The Internal Revenue Service (IRS) Small Business/Self-Employed Division is delegated authority to examine MSBs for BSA compliance on FinCEN's behalf. The Office of Foreign Assets Control (OFAC), also part of Treasury, administers and enforces U.S. economic and trade sanctions programs that apply to all U.S. persons, including MSBs.

At the state level, most states require money transmitters to be separately licensed and supervised by the state's banking or financial institutions department. State licensing obligations are independent of federal MSB registration and are based on where the business operates and serves U.S. customers.

MSBs are subject to the Bank Secrecy Act and its implementing regulations at 31 CFR Chapter X, including registration with FinCEN (31 CFR §1022.380), AML program requirements (31 CFR §1022.210), recordkeeping (31 CFR §1010.410 and §1022.410), and reporting obligations — including Currency Transaction Reports (31 CFR §1010.311) and Suspicious Activity Reports (31 CFR §1022.320).

The Anti-Money Laundering Act of 2020 modernized the BSA framework and, together with FinCEN's National AML/CFT Priorities (issued June 30, 2021), reinforced the expectation that BSA/AML programs be effective, risk-based, and reasonably designed.

MSBs are also subject to OFAC sanctions regulations under 31 CFR Chapter V, which prohibit U.S. persons from engaging in transactions with sanctioned persons, entities, and jurisdictions.

At a minimum, an MSB must register with FinCEN (and obtain applicable state money transmitter licenses), and establish a written AML program reasonably designed and effective to prevent the MSB from being used to facilitate money laundering and terrorist financing (31 CFR §1022.210). The program must, at a minimum, (1) incorporate policies, procedures, and internal controls based on the MSB's risk assessment; (2) designate a compliance officer responsible for day-to-day compliance; (3) provide for ongoing employee training; and (4) provide for independent review of the program.

Substantive requirements include customer identification and monitoring; recordkeeping; and SAR/CTR reporting where applicable. OFAC compliance requires risk-based sanctions screening of customers and transactions, blocking or rejecting prohibited transactions, and timely reporting to OFAC.

FinCEN's interpretive guidance — most comprehensively in FIN-2019-G001 — takes the position that businesses engaged in accepting and transmitting convertible virtual currency (CVC), or in exchanging CVC for fiat or other CVC, generally qualify as money transmitters under the BSA. This typically includes CVC exchanges, kiosk operators, peer-to-peer exchangers operating as a business, hosted-wallet providers, and many CVC payment service providers.

Classification as a money transmitter triggers federal MSB registration with FinCEN, state money transmitter licensing where applicable, and the full BSA/AML and OFAC compliance obligations described above. Whether a particular business model qualifies as money transmission is a fact-specific analysis based on activities, control of customer funds or value, and other factors discussed in FinCEN guidance.