Money Transmittal Issues

Regarding Federal and State Criminal Investigatinos

by John Teakell Attorney-At-Law
Dallas, Texas

I. Introduction

There are several categories of potential federal offenses and state offense regarding money transmissions businesses or money transmittal issues.

First, it is illegal to operate a money-transfer business without a license (state and federal) under 18 U.S.C.A. §1960 and Tex.Fin.Code §§301 - 405.

Second, the government might argue that international money transfers violate federal statutes and U.S. Treasury Department regulations regarding trade or transfers with a prohibited country, such as Iran (the IEEPA (50 U.S.C.A. §§ 1701-1705) and 31 C.F.R. § 560.101 et seq.). The prohibition of transactions with Iran is used as an example herein.

The third might involve money-laundering under 18 U.S.C.A. §§ 1956 and 1957.

Finally, there might be ancillary violations (e.g. failing to report ownership in foreign bank accounts when operating this business, illegal structuring of transactions to avoid reporting requirements, etc.). Some cases also mention the Patriot Act while dealing with operation of hawalas (a system of payments without utilizing wire transfers or checks wherein parties keep a series of ledgers; this system has been and is currently used by persons in the Middle East).

A. Failure to Obtain License for Money Transmittal Business, Regardless of Where the Money is Transmitted:

It looks like the statute (18 U.S.C.A. §1960) does not require knowledge of the licensing requirement to violate the licensing provision. In the pre-Patriot Act era, there used to be a defense if the defendant did not know of the unlicensed operation of the transmittal business (or at least, did not intentionally violate the statute. The post-Patriot Act revisions of 18 U.S.C.A. §1960 now mandate that the mere operation an unlicensed money transmitting business is a violation of the statute, without regard to whether the defendant knew that his conduct was a violation of the licensing statutes. The statute contains both civil monetary penalties and a criminal penalty of up to 5 years in prison. The federal statute is worded such that failing to obtain a state money transmitting license, when the failure to do so is a misdemeanor or felony, also constitutes a violation of the federal law. Texas makes the failure to obtain this license a third degree felony.

The Iranian prohibited transaction regulations have their own civil and criminal penalties, which are more serious (up to 20 years in prison, and/or $50,000/violation fine). Another interesting point is that the statute’s mens rea requirements have been modified a few times over the years. At one point, it was a defense to prosecution if the defendant did not know or intentionally operate the unlicensed money transmitting business (pre-Patriot Act in 2001). So, if the conduct occurred prior to the enactment of the Patriot Act, we would have a good defense there. In the post-Patriot Act era, an unlicensed money transmitting business is defined to include anyone that operates an unlicensed business, even if they did not know that a license was required. But, if you look back at the liability provision in subparagraph (a), you have to knowingly operate an unlicensed money transmitting business in order to be prosecuted. This may have been a mistake on Congress’ part. In other words, it is no defense that you did not know of licensing requirements to qualify as an unlicensed business, but the liability provision seems to require knowing operation of the unlicensed money transmittal business.

Also worth mentioning is that 18 U.S.C.A. § 1960 is up for amendment in the Senate. See 2007 CONG US S.B. 473, 110th CONGRESS, 1st Session, (Feb 01, 2007), along with a comprehensive revision of the money laundering statutes in an effort to combat the terrorist financing.

B. Engaging in Prohibited Transactions With Iran Without the Required License:

The violation of the International Emergency Economic Powers Act (“IEEPA”), and the Iranian Trade Restriction (“ITR”) regulations promulgated thereunder (31 C.F.R. § 560.101 et. seq.), by consummating transactions with Iran, is more serious. This is an independent violation that has no bearing on operating an unlicensed money transmitting business. If you engage in a prohibited transaction with Iran (or through other countries and the ultimate transaction is designed to be with Iran), without a license to engage in such transaction, it is a violation of the IEEPA and ITR provisions. So there is also a “licensing” provision here, unrelated to the license required to operate a money transmitting business. The civil monetary penalty for an IEEPA/ITR violation is up to $50,000 per violation, and the criminal penalty is up to 20 years in prison. However, it appears that there may be a defense. It appears that the violation must be willful. This means that if Defendant did not willfully violate a regulation under the IEEPA or ITR (although there was nevertheless a violation), it appears that he can defeat a criminal prosecution (although he still may have to pay a $50,000 civil fine—see 50 U.S.C.A. 1705). See U.S. v. Quinn, 403 F.Supp.2d 57 (D.D.C. 2005). It is important to note that the defense is not related to willfully failing to get a license to conduct a prohibited transaction, it is for willfully engaging in the transaction in the first place. The criminal does not have to exactly know what provision he is violating to be criminally responsible; just that he knows generally that his conduct is probably prohibited is sufficient to support criminal liability. U.S. v. Elashi, 440 F.Supp.2d 536, 548 n.10 (N.D.Tex. 2006).

II. Statutes