Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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5/15/2008 Some Foreign Exchange Activities May Not Make a Business an MSB

A currency dealer or exchanger is a type of money services business, as is a money transmitter. Most businesses providing foreign currency exchange services will, therefore, be MSBs. But what if a company provides exchange and transmission services only for affiliated broker-dealers? An MSB does not include a person registered with and regulated or examined by the SEC or CFTC, so could a forex company that restricts itself in this way avoid MSB categorization? What if, in addition to the services for the broker-dealers, the company provides services for some of broker-dealers’ customers? What about a business that provides foreign exchange risk management services, and the foreign currency exchanges it conducts occur only in the context of hedging transactions? What about a business that makes recommendations to businesses as to the banks with the most favorable exchange rates and sometimes serves as an intermediary on the forex transactions the businesses conduct? In three recent rulings issued to representatives of forex-related businesses, such questions were raised and, in some cases, answered. The three rulings will be discussed in a forthcoming Monitor and will necessitate updates to the treatise and the MSB checklist.

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