May 19, 2021

Crypto M&A: The Central Role of Money Transfer Regulations

This Weil blog says that cryptocurrency-related M&A may be the next big thing, and details some of the challenges presented by federal and state money transfer, or MT, laws & regulations that buyers and sellers will have to navigate. Here’s an excerpt that provides an overview of those regulations:

Unless otherwise exempt, under the MT laws of each state in which a company transacts, a special license is required to engage in the “business of money transmission,” or in other words, to receive and transmit money. The Financial Crimes Enforcement Network (“FinCEN”) defines MT as “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.” FinCEN’s reference specifically to “other value” in its MT definition suggests these laws may apply in the cryptocurrency context.

MT activity would render such company a money services business (“MSB”) under the federal Bank Secrecy Act (“BSA”), subjecting it to a registration requirement with FinCEN and related anti-money laundering (“AML”) compliance rules. In general, payment services companies, including crypto payment processors, that facilitate monetary transactions but are not part of the flow-of-funds are not subject to MT licensing or MSB registration requirements.

The unique nature of crypto platforms may subject them to MT-related requirements. FinCEN, which implements the BSA, has noted that certain activities involving cryptocurrency, including the receipt and transmission thereof, are subject to BSA registration requirements, even in instances where the activity might not be subject to MT licensing requirements at the state level.

The memo goes on to review guidance from FinCEN clarifying the types of cryptocurrency-related activities that could subject a business or financial institution to compliance obligations under the BSA.  It also addresses state-specific regimes, due diligence considerations for acquirors & notification requirements applicable to proposed changes in control of an MSB.

John Jenkins