18 U.S. Code § 1960 - Prohibition of Unlicensed Money Transmitting Businesses
The federal government closely regulates businesses involved in the transmission or transfer of funds, mainly when those transmissions affect interstate or foreign commerce in any way.
Engaging in a money-transmitting business without being duly licensed or registering the company by federal regulations is a serious federal crime under Title 18 U.S. Code 1960.
In other words, this federal statute makes it illegal to conduct financial transactions or provide services related to transmitting funds at the foreign or interstate level without being duly licensed by an appropriate state or federal agency.
This includes activities such as currency exchanges and wire transfers and providing services such as payment processing and check cashing.
18 U.S.C. 1960, the federal criminal money transmitting statute, prohibits operating a money-transmitting business without complying with state licensing or federal registration requirements.
After the 9/11 terrorist attacks on the World Trade Center, federal prosecutors started focusing on money-transmitting businesses motivated by concerns over using institutions to launder money from terrorist organizations and drug trafficking networks.
Operating an unlicensed money-transmitting business is a federal offense that carries stiff penalties. If convicted of this crime, you could look at up to five years in federal prison.
What Does the Law Say?
The verbiage in Title 18 U.S.C. 1960 says, "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."
It prohibits any person or entity from knowingly conducting, controlling, managing, supervising, directing, or owning an unlicensed money-transmitting business.
However, since transferring money is legal, the bigger question is what constitutes an unlicensed or unauthorized money-transmitting business, and when will it violate federal law? Let's take a look below.
What Does "Affecting Interstate or Foreign Commerce" Mean?
"Affecting interstate or foreign commerce" can refer to a variety of issues, such as:
- Wire transfers out of state or to a foreign country;
- Having offices in multiple states; or
- Drafting checks on a national bank, which is interstate by definition, even if the money is transferred within state lines.
What Is Considered Money Transmitting?
For purposes of this law, the term "money transmitting" covers any method of transferring funds for the public, including wire, check, draft, facsimile, or courier, both domestically and internationally.
What Constitutes an Unlicensed Money Transmitting Business?
According to 18 U.S.C. 1960, any money-transmitting business affecting foreign or international commerce is considered "unlicensed" if any of the following are true:
- The business is operating unlicensed in a state where unlicensed money transmitting is a crime;
- The business has failed to comply with federal registration requirements for a business of its type; OR
- The business transfers funds known to have been either derived from criminal activity or intended to support criminal activity.
Regarding the first point, it should be noted that the law does not count ignorance as an excuse regarding state licensing. While prosecutors must prove the intentional operation of the business, they do not have to prove you did not know your business was supposed to be licensed in the state where it was operating.
What Are Some Examples?
EXAMPLE 1: An ambitious entrepreneur, John, sets up an online platform allowing individuals to buy and sell cryptocurrency. Despite the platform's rapid growth and widespread use, John does not secure the necessary licenses to operate a money-transmitting business legally.
Although his platform operates using virtual currency rather than traditional funds, it still falls under the broad definition of a "money transmitting" business as it provides a service for transmitting funds. He can be charged under 18 U.S.C. 1960.
EXAMPLE 2: Sophia operates a small grocery store. Unbeknownst to many, Sophia also runs an unlicensed money exchange service from her store, allowing customers to exchange different types of currency at rates slightly favorable than those offered by licensed banks or exchanges. Sophia can be charged with violating 18 U.S.C. 1960 because her currency exchange service falls within the definition of a money-transmitting business.
What Are the Related Federal Laws?
18 U.S. Code Chapter 95 racketeering, has numerous federal statutes that are related to the 18 U.S.C. 1960 prohibition of unlicensed money transmitting businesses, including 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 the Penalties for 18 U.S.C. 1960?
The penalties for violating Title 18 U.S.C. 1960 can be severe. You could face imprisonment for up to five years, a fine, or both if convicted.
In addition to these penalties, any property involved in the violation or traceable to it, including all proceeds obtained directly or indirectly, may be forfeited to the United States. This means that not only could you be facing jail time and financial penalties, but you could also lose your business assets.
What Are the Defenses for 18 U.S.C. 1960?
As discussed below, a well-formulated strategy by a federal criminal defense lawyer is crucial when facing Title 18 U.S.C. 1960 charges.
Perhaps we can argue that there was a lack of knowledge. One of the critical elements of this offense is that you must have "knowingly" operated an unlicensed money-transmitting business.
You can't have knowingly violated the law if you did not know that the business was unlicensed. For example, perhaps you were managing the business for someone else without knowing it wasn't licensed, or you were unaware that the funds being transferred were the proceeds of criminal activity.
Perhaps we can argue that there was a lack of intent. This could be a strong defense if you can demonstrate that there was no intent to violate the law.
This might involve showing that you took reasonable steps to comply with licensing requirements but were unsuccessful due to circumstances beyond your control.
Perhaps we can argue that you are the victim of mistaken Identity. If you can show that you were mistakenly identified as the operator of the unlicensed business, or if there has been some other mistake in the investigation or prosecution, this could also serve as a defense.
Perhaps we can negotiate with the federal prosecutor for a favorable plea agreement when guilt is not in doubt. Contact us to review the case details. Eisner Gorin LLP has offices in Los Angeles, California.