Foreign Money Services Business

A foreign money services business (foreign MSB) is, under United States federal law, a business located outside the United States that performs money services business activities "wholly or in substantial part within the United States." Such a business is treated as a money services business for purposes of the Bank Secrecy Act (BSA) and must register with the Financial Crimes Enforcement Network (FinCEN), appoint a US agent, and comply with the BSA's anti-money-laundering requirements, even though it has no physical presence in the country. Canada uses the same term for a separate status created under its own anti-money-laundering law.

The concept reflects the fact that internet-based money transmission, currency exchange, prepaid and virtual currency services can be offered to customers in a country without any office, staff or agent there.

Until 2011, FinCEN's MSB definitions turned largely on whether a business was located in the United States, which left foreign online providers serving US customers outside the registration and reporting framework. FinCEN closed that gap in July 2011 with a final rule rewriting the MSB definitions so that they also covered persons located abroad whose business is conducted entirely or substantially inside the United States. FinCEN later confirmed in guidance that the rule applies to foreign exchangers and administrators of convertible virtual currency, bringing many overseas crypto businesses into scope.

A foreign MSB must meet essentially the same BSA obligations as a domestic MSB with respect to its US activity, including:

• Registering with FinCEN on Form 107, as described under FinCEN registration, and renewing every two years.
• Designating a person residing in the United States as its agent to accept service of legal process.
• Maintaining an effective AML program, including a compliance officer, written policies, training and independent review.
• Filing suspicious activity reports and, where relevant, currency transaction reports.
• Keeping required records, such as funds transfer records under the recordkeeping and travel rules, and making them available to FinCEN on request.

Registration with FinCEN does not replace state law. A foreign provider serving US customers may also need state licenses, such as a money transmitter license, under each state's own territorial tests, and may need to be screened against US sanctions administered by OFAC.

FinCEN has not set a numerical threshold for "substantial part." Relevant factors include whether the business targets US customers, the share of its customers or transaction volume that is in the United States, whether it uses US agents, US bank accounts or US-dollar settlement aimed at the US market, and how it markets itself. A foreign firm that occasionally serves a US person may fall outside the definition, while one that actively solicits US customers is likely within it. Firms often use geolocation and know-your-customer controls to exclude US persons if they do not intend to register.

The foreign MSB concept covers the same activity categories as domestic MSBs: money transmitters, dealers in foreign exchange, check cashers, issuers and sellers of traveler's checks and money orders, and providers and sellers of prepaid access. Activity thresholds that apply to some categories also apply to foreign firms. A US business that sells a foreign MSB's services through an agent network may itself have MSB obligations as an agent, while the foreign firm acts as the principal MSB.

Canada introduced its own foreign money services business status through amendments to regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that took effect on 1 June 2020. A Canadian foreign MSB is a business without a place of business in Canada that directs and provides money services, including virtual currency services, to persons and entities in Canada. Such businesses must register with FINTRAC, implement a compliance program, keep records and file reports, much like domestic MSBs. Canada's test focuses on directing and providing services to Canadians rather than on the share of business conducted there.

Foreign MSB status matters for virtual asset service providers, online remittance companies and wallet providers that serve a global audience. Enforcement actions by FinCEN against overseas virtual currency businesses have shown that the agency regards failure to register and report as a serious violation, independently of whether illicit funds were proven. Banks providing correspondent or settlement accounts to foreign payment firms frequently check registration status as part of onboarding.