Armored Car Company providing Cash Management Services to Bitcoin ATM Operators not Engaging in Money Transmission

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IN REPLY REFER TO: _________

FILE NO: _________

January 27, 2021

VIA EMAIL ONLY

 

Re: ___________________________ – Opinion Request

 

Dear Mr. ­­­________:
 

Thank you for your letter to the Department of Financial Protection and Innovation (“Department”) dated November 27, 2020 on behalf of _____________ (“_________”). You request a determination from the Department as to whether _________’s proposed business activity is subject to licensure under the Money Transmission Act (“MTA”).

BACKGROUND

_________ is a ______ limited liability company. _________ conducts business as a licensed armored car company providing secure cash-in-transit services for financial institutions and other clients. _________ seeks to offer services to cryptocurrency kiosk (“Bitcoin ATM”) operators in California. You state there are currently a number of Bitcoin ATM operators in California who provide cryptocurrency exchange services that allow consumers to make cash purchases of Bitcoin and other cryptocurrencies. You state that during the normal course of business, Bitcoin ATM operators accumulate significant amounts of cash, creating security risks and the need for cash management solutions.

_________ seeks to offer a service whereby: (i) a Bitcoin ATM operator’s cash will be placed in secure containers at the operator’s location and transported via armored courier and/or secured common carrier to __________’s vault location, (ii) the cash will be counted and verified by __________, and (iii) __________ will electronically transmit an equivalent amount of Bitcoin, minus transaction fees, to the Bitcoin ATM operator. The Bitcoin that __________ pays out to Bitcoin ATM operators will come from __________’s own inventory. In sum, __________ seeks to provide cash management solutions to Bitcoin ATM operators who would like to exchange their accumulated cash for Bitcoin, which they may then resell through their business operations.

You state __________ will not engage in any third-party funds transfers. __________’s service will be limited to the acceptance and verification of currency from approved customers (Bitcoin ATM operators) and delivery of an equivalent amount of Bitcoin, minus transaction fees, back to the same customer. You state __________ will not act as a repository of its customer’s funds, meaning it will not hold physical currency or cryptocurrency on behalf of customers. You also state __________ will not engage in the exchange of U.S. dollars for any foreign fiat currencies or the exchange of cryptocurrencies for any foreign fiat currencies.

ANALYSIS

The MTA prohibits a person from engaging in the business of money transmission in California, unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.[1] Financial Code section 2003, subdivision (q)(3) defines “money transmission” to include receiving money for transmission. Financial Code section 2003, subdivision (u) defines “receiving money for transmission” to mean receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.

You argue __________’s proposed service does not constitute regulated activity under the MTA. Specifically, you argue that __________’s proposed service will only occur between __________ and its customers, i.e. Bitcoin ATM operators, with no third parties involved. Therefore, you argue the proposed business activity will not involve receiving money or monetary value in the United State for transmission within or outside the United States by electronic or other means.

The Department agrees that __________’s proposed business activity does not meet the definition of “receiving money for transmission.” Essentially, __________ will sell Bitcoin for U.S. dollars, similar to the Bitcoin ATM operators that __________ seeks to provide services to. The sale of Bitcoin by __________ out of its own inventory for cash obtained and transported from customer locations to __________’s vault location does not meet the definition of “receiving money for transmission.” Therefore, __________’s proposed business activities in connection with Bitcoin ATM operators are not subject to licensing under the MTA.

The Department’s determination is limited to the activities described herein and does not extend to any other activities in which __________ may engage. Any change in the facts and circumstances or the products or services that __________ provides could lead to a different determination.

Nothing in this letter should be interpreted to relieve __________ from any obligations under the laws administered by FinCEN or any other agency of the federal government.

Please contact the undersigned at __________________________ or _____________ if you have any questions.

 

Sincerely,

 

Manuel P. Alvarez

Commissioner

Department of Financial Protection and Innovation

 

By

______________

Counsel

_______

cc: Robert Venchiarutti, Department of Financial Protection and Innovation, Money Transmitter Division


[1] Fin. Code, § 2030, subd. (a).

Last updated: Feb 25, 2021 @ 4:38 pm