Introduction
If you operate a U.S.-based business frequently handling cryptocurrencies, you likely encounter terms like Money Services Business (MSB) and Money Transmitter. Non-compliance with federal/state Anti-Money Laundering (AML) regulations can lead to severe penalties.
Federal laws classify cryptocurrencies as commodities, placing them under the jurisdiction of agencies like the Financial Crimes Enforcement Network (FinCEN). Crypto businesses must register as MSBs, often specifically as money transmitters, requiring licenses in nearly all U.S. states (except Montana).
Types of Crypto Companies Classified as MSBs
Short answer: Nearly all crypto-related businesses.
Under FinCEN’s 2011 MSB Final Rule, MSBs include:
- Currency dealers/exchangers
- Check cashers
- Issuers/sellers of money orders or traveler’s checks
- Money transmitters
While all money transmitters are MSBs, not all MSBs are transmitters.
Defining a Money Transmitter
FinCEN defines a money transmitter as an intermediary facilitating value exchange (e.g., crypto-to-fiat conversions). Activities requiring licensure include:
- Operating crypto ATMs
- Running exchanges/payment processors
- Managing certain wallet services or dApps
FinCEN’s Regulatory Framework for Crypto Transmitters
FinCEN’s 2013 guidance clarified that virtual currencies like Bitcoin fall under money transmitter laws. Key classifications:
- Users: Individuals exchanging crypto for goods/services (not transmitters).
- Exchangers: Businesses swapping crypto/fiat (transmitters).
- Administrators: Entities issuing/redeming virtual currencies.
Note: Hybrid activities may still trigger transmitter status—consult legal experts for nuanced cases.
Compliance Steps for Crypto MSBs
1. Federal Registration
- File via FinCEN’s BSA E-Filing System.
- Maintain an agent list.
2. Implement an AML Program
Requirements:
- Appoint a compliance officer.
- Establish internal controls (e.g., customer screening).
- Conduct independent audits and staff training.
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3. File Suspicious Activity Reports (SARs)
- Report transactions over $2,000 deemed suspicious (e.g., potential money laundering).
- Submit via FinCEN’s portal within 15 days.
4. Obtain State Money Transmitter Licenses (MTLs)
- Required in all states except Montana.
- State laws vary—some are crypto-friendly, others restrictive.
Penalties for Non-Compliance
- Civil fines: Up to $5,000 per violation.
- Criminal charges: Up to 5 years imprisonment.
- Example: In 2019, FinCEN fined crypto trader Eric Powers $35,000 for unregistered MSB operations.
FAQ
Q1: Is a decentralized exchange (DEX) considered a money transmitter?
A1: Potentially, if it facilitates user-to-user trades involving fiat conversions. Pure peer-to-peer platforms may qualify for exemptions.
Q2: How long does state MTL approval take?
A2: Varies by state—typically 6–12 months. Some states (e.g., New York) have stricter requirements like bonding.
Q3: Can a crypto wallet provider avoid MSB registration?
A3: Only if it doesn’t custody funds or enable transfers. Non-custodial wallets generally fall outside transmitter definitions.
Key Takeaways
- Register federally with FinCEN.
- Build a robust AML program.
- Secure state licenses—research jurisdictional nuances.
- Monitor regulatory updates—crypto laws evolve rapidly.
👉 Explore compliance tools for crypto businesses
Disclaimer: This article is for informational purposes only. Consult legal experts for specific compliance advice.
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