April 28, 1998

Re: ________ – – Possible Unlicensed Banking, Trust or Foreign Money Transmission Business

Dear ________:

This is response to the letter dated January 9, 1997, sent by ________ on your behalf and to our various telephone conversations.

You have asked whether ________ (“Tech”), ________ , or yourself is engaged in a banking business or in the business of receiving money for transmission to foreign countries. Engaging in either business in California would require a licensee from this Department. See Financial Code Sections 3390 and 1800.3 In view of the circumstances discussed below, we have also reviewed the issue of whether either Tech, ________ or you is engaged in the trust business in California, which would also require a licensee from this Department. See Financial Code Sections 1500 and 3390. Based on the information you provided to me in our telephone conversations which is summarized below under the heading “Facts”, we conclude that neither Tech, ________ , nor yourself is engaged in a banking, trust or foreign money transmission business in this State.


My understanding of the information you provided in our telephone conversations of February 25 and March 11,1998, is as follows:

Tech is a corporation organized in the Bahamas. It is wholly owned by ________. One service Tech provides is to hold in California the funds of seven businessmen (the “Customers”), who are citizens of and do business in Russia and other former Soviet Republics, and to disburse those funds in accordance with the Customers’ directions.

For at least two reasons, the Customers do not wish to keep money generated by their businesses in bank accounts in Russia or other former Soviet Republics. First, they are concerned that this money may be lost due to the instability of the governments of these countries. Second, they are concerned that if they maintain large deposit balances in Russian banks, they may become victims of extortion by criminal elements who have infiltrated Russian financial institutions.

You are Tech’s agent in California. Your offices are in ________. ________ manages Tech’s business from Moscow. You, ________ and the Customers are all well know to each other and have a long standing mutual relationship of trust. There are no written agreements governing the services provided by Tech, ________ or yourself for the Customers.

Tech operates as follows:

The seven Customers are divided into three groups (the “Groups”, and individually a “Group”). Group A consists of two individuals associated with one business enterprise; Group B consists of two different individuals associated with another enterprise; and Group C consists of three individuals associated with a third business enterprise. The individuals in Group A want to maintain a joint bank account with each other, the individuals in Group B want to maintain a joint bank account with each other, and the individuals in Group C want to maintain a joint bank account with each other.

To accommodate these desires, you have has established three money market accounts at ________. Each such account (a “Group account”) is in the name of Tech, and is associated with one of the three Groups. A Group account is used exclusively to service the financial needs of the individual members of the Group with which the account is associated.

________ and you are signatories on all three Group accounts. In addition, each individual in Group A is a signatory on the Group A account, and each individual on Group B is a signatory on the Group B account. The individuals in Group C do not wish to be signatories on the Group C account because they fear that the existence of bank documents making them signatories increases the risk of their connection with the accounts being exposed.

When a Customer wishes to deposit money, he causes the money to be wire transferred into his Group account. Deposits usually do not come directly from the Customer. Rather, they represent the proceeds of transactions which the Customer or his enterprise has concluded with a third party. The Customer directs the third party to make payment on the transaction by wiring the payment to his Group account. The Customer then notifies ________ that the deposit has been made. ________ communicates the amount and source of the deposit to you. You confirm that the deposit was received by Citibank and so advise ________.

When a Customer wishes to disburse money from his Group account, he notifies ________ of the amount to be disbursed and the person to whom and place to which the disbursement is to be made. ________ then communicates the disbursement order via a “signed” e-mail to you. You cause the signed e-mail to be faxed to Citibank. Citibank verbally confirms the instruction with you and makes the requested disbursement, usually by wire transfer, in accordance with the instruction.

The Customers ordinarily use the service to pay their business creditors in former Soviet Republics and other countries throughout Europe. The disbursements are, therefore, usually wired to bank accounts in countries other than the United States. The Customers seldom withdraw money directly from the Group accounts using their own signatures.

Tech also acts as agent for the purpose of paying the credit card accounts of the Customers. Credit card companies send a Customer’s account statement directly to Tech. You cause the funds necessary to pay the account to be transferred from the Customer’s Group account to the Tech checking account. You then draws a check on the Tech checking account and remits that check to the credit card company in payment of the Customer’s balance. You immediately advise ________ of the transaction.

________ sends its monthly statements on the Group accounts to you in California, and you pass them on to ________. Records regarding transactions of the Customers through the Group accounts and their respective interests in the Group accounts are maintained by ________ in Moscow. All interest paid by ________ on the Group accounts belongs to the Customers. ________ furnishes each Customer a periodic statement reflecting the activity and balance in his Group account.

Neither Tech, you, nor ________ is entitled to use the funds in the Group accounts for their own purposes. Tech administers the accounts solely as an investment for and for the disbursement purposes of the Customers, and subject to the Customers’ directions.

The Customers pay ________ a flat fee for the services performed by Tech ________ compensates you for your services to Tech by means of performing certain unspecified business services for you in Russia.


We conclude that neither you, Tech, nor ________ is engaged in a banking, trust or foreign money transmission business for which a license would be required under the California Financial Code. Our conclusions are based on the facts and circumstances setforth above. Should any of those facts or circumstances change, our conclusion might be different. In addition, among other laws, this Department administers the Banking Law (Division 1 (commencing with Section 99) of the Financial Code) and those laws relating to the business of transmitting money to foreign countries which are set forth in Chapter 14 (commencing with Section 1800) of the Banking Law. We express no opinion as to any other law, state or federal.

If you have any questions, please feel free to contact me at (415) 263-8512.

Very truly yours,

Commission of Financial Institutions


Senior Counsel


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