March 26, 2008
Your letter to the New York State Banking Department (the "Department"), was received on February 20, 2008, and referred to me for review and response. You ask for confirmation that your client ("Client"), does not require licensing as a money transmitter under Article XIII-B of the New York Banking Law (the "Banking Law").
Based on the information provided in your letter, I understand that Client is a New York corporation that operates as a principal in the spot foreign exchange market, making money on the difference between the buy and sell rates of currencies. The company does not deal with the general public nor have clients that are individuals. Its customers consist exclusively of agencies of the U.S. Government, non-governmental organizations with humanitarian projects in developing countries, and major multinational corporations. It is registered with the U.S. Department of the Treasury as a Currency Dealer for purposes of the anti-money laundering rules.
When a customer of Client initiates a transaction with Client, it calls Client asking for a foreign exchange rate for the sale of U.S. Dollars versus another currency or the sale of another currency versus U.S. Dollars. If a transaction is agreed upon, the Client pays the currency being purchased by the customer to the customer at the customer's bank account and the customer transmits the currency it is selling to the Client's bank account.
You note that Article XIII-B of the Banking Law requires a person (i) engaged in selling or issuing checks, (ii) engaged in the business of receiving money for transmission or (iii) transmitting such money to be registered with the Banking Department. You also note that Article XIII-B does not contain a definition of transmitting money and that the Department has taken the position that, given the legislative intent, the term must be interpreted broadly. Consequently, you ask for our concurrence in your opinion that Client need not be licensed as a money transmitter in order to conduct its business as described in your letter. You conclude that Client need not register as a money transmitter because it (1) is solely a foreign exchange business; (2) acts as a principal, and (3) does not transact with the general public.
Based on the facts set forth by you, I would agree that Client is not required to be licensed as a money transmitter in New York State, although I do not necessarily agree with your reasoning. It would appear that your client acts solely as a dealer of foreign exchange. As such, it receives currency from its customers for its own account and not for transmission to any third person. Similarly, it delivers currency to a counterparty with which it is hedging its currency exposure, it makes such deliveries for its own account as principal, and not as agent for the customer.
This is not to say that a foreign currency dealer could never engage in activities that would require licensing under Article XIII-B. For example, if a customer of Client needed Italian lire to purchase goods in Italy, and asked Client to deliver the lire to the account of an Italian manufacturer versus the customer's delivery of D.S. Dollars to Client's account in the United States, I believe this transaction would be a transmission of funds within the meaning of Article XIII-B, even if Client did not charge a separate "funds transmission" fee.
Finally, although it does not change the outcome of the analysis above, I did not agree with your argument that Article XIII-B pertains only to transmitters for "the general public" (i.e. natural persons), and not to multinational corporations, government organizations, or any other legal entity. In fact, the Department has taken the position that Article XIII-B properly applies to money transmitters that serve any entity. To be sure, the purpose of the statute is to protect "the general public," but it has become clear in recent years that the regulatory oversight set forth in Article XIII-B serves that function best when applied to money transmitters that serve all types of entities.I hope you find this advice useful. Under the Department's policies we do not maintain the confidentiality of responses to requests for interpretations of the Banking Law. However, we will redact both your name and the client's from any documents made public.
Very truly yours,
Marjorie E. Gross
and General Counsel