Introduction

According to the 2007 National Drug Threat Assessment, Mexican and Columbian drug trafficking organizations rely in part on money services businesses, particularly wire remitters, to launder drug money.[1] The 2005 U.S. Money Laundering Threat Assessment similarly identifies money services businesses as a chief conduit for the illicit transmission of money, including funds used to finance terrorism.[2]

These threats are not new. By the early 1990s, the anti-money laundering laws that Congress had enacted in the preceding decade began to drive money launderers out of depository institutions.[3] Money launderers adapted by shifting their financial activities into less regulated nonbank financial institutions (NBFIs), including money services businesses such as store front wire remitters.[4] Over time, Congress has perceived wire remitters, check cashers, currency exchangers, and similar businesses as particularly susceptible to money laundering schemes.[5] Compared to banks, these businesses face little regulatory scrutiny, and tend to have fleeting relationships with their customers, making customer due diligence very difficult. The financial products they offer provide fungibility and anonymity-two things money launderers like.[6]

Congress initially responded to this emerging money laundering threat by encouraging enhanced state regulation of NBFIs. To support state efforts to curb the use of money transmitters for money laundering, Congress also enacted a criminal statute-18 U.S.C. § 1960-making it a federal crime to conduct a money transmitting business without a requisite state license.[7] Later, in the mid-1990s, Congress enacted a federal registration requirement for money transmitting businesses.[8] To enforce this registration requirement Congress amended § 1960 to add a federal registration prong, thereby making it a crime to conduct a money transmitting business without complying with the newly enacted federal registration requirement.[9] Section 1960 was amended again in 2001 to add a third prong-one making it a crime to operate a money transmitting business with knowledge that funds transmitted through the business derived from criminal activity or are intended to promote crime.[10]

Section 1960 is a stunningly powerful statute. Its state licensing and federal registration prongs punish a regulatory offense somewhat analogously to violations of the Bank Secrecy Act (BSA)-the federal law that imposes a complex regulatory regime of anti-money laundering responsibilities on U.S. financial institutions.[11] However, unlike most BSA violations, § 1960 does not require proof that the defendant knew of the regulatory requirement, proof that the defendant knew his or her conduct was illegal, or even proof that the defendant acted with intent to specifically evade the regulatory requirement.[12] The statute's comparatively low mens rea requirement makes it resemble 18 U.S.C §§ 1956-1957-the two principal federal money laundering statutes. However, § 1960 differs from these statutes because it does not require proof that the funds involved in the financial activity in fact derive from any specified unlawful activity or (in the case of § 1956), that the defendant act with any specific intent.[13] Moreover, § 1960's definition of "money transmitting" reaches not just store-front money transmitting operations, such as Western Union or MoneyGram, but also informal value transfer systems such as hawalas and electronic financial service providers such as Paypal.[14] Observing these features of the statute, one alert commentator recognized as early as 2002 that it had the potential to become the new "prosecutor's darling."[15]

If the statute is powerful, it is also complex. Section 1960(b)'s three prongs define criminal "unlicensed money transmitting businesses." The first prong-the state licensing prong-provides that a money transmitting business conducted without a license in a state that has a licensing requirement and punishes violations of the licensing requirement as either a misdemeanor or felony is an unlicensed money transmitting business. Like other federal criminal statutes that assimilate state law (most notably the illegal gambling business statute-18 U.S.C. § 1955), this prong of § 1960 raises a host of legal and constitutional issues, including novel issues involving the proper venue for a § 1960 charge and whether the statute reaches transmitters outside the United States.

The second prong-the federal registration prong-is not simply complex; it is confusingly so. This prong provides that a money transmitting business that fails to comply with the money transmitting business registration requirements enacted in 1994 and the regulations (effective 2001) that implement those requirements is an unlicensed money transmitting business.[16] The implementing regulations are a tangle of exceptions and qualifications-so much so that the Government Accountability Office (GAO) recently characterized them as "confusing and easily misinterpreted."[17]

Where the first two prongs define what might be termed regulatory offenses, i.e., malum prohibita acts, the third prong-the promotion/proceeds prong-makes it a crime for a person operating any money transmitting business to knowingly transmit money derived from a criminal offense, or to transmit funds knowing that they are intended to promote crime. It thus defines what might be termed a malum per se offense similar to a traditional money laundering offense under 18 U.S.C. § 1956. However, unlike a § 1956 offense, the third prong is not tied to proof that the transaction involved the proceeds of a "specified unlawful activity."[18] Any criminal activity will satisfy the statute's requirements.

The complexity of § 1960 helps explain why, until recently, the government seldom used it. Between 1992, when the statute was enacted, and 2001, when Congress substantially revamped it to meet the challenges of terrorist financing and drug money laundering, there was only one published case addressing the statute.[19] Only now, fifteen years after Congress enacted it, are federal prosecutors beginning to use the statute regularly.[20] Not surprisingly, many casebooks and treatises devoted to federal crimes neglect to include virtually any discussion of § 1960.[21] And, what little attention scholars (and the defense bar) have paid to the statute consists mostly of sideways glances that read more into the statute than is really there.[22] Section 1960 so confused the Sentencing Commission that it mistook a violation as a "reporting" offense.[23] Only a few commentators have grasped that § 1960 is the "stealth" candidate for the money laundering statute of the future."[24]

In this article, I attempt a comprehensive analysis of this misunderstood, but increasingly important, federal criminal statute. The title of the article is not quite ironic, and only slightly ambiguous. It refers mainly to my view that money laundering has gone local; it now takes place in the neighborhood convenience store or bodega that provides money transmitting services.[25] The money transmitting operations of these small "mom and pop" businesses pose money laundering threats that prove difficult for Congress, regulators, and law enforcement agencies to address. The title of the article also references my perception that § 1960 is not just a powerful statute, but also one that greatly simplifies a money laundering investigation and prosecution. (Critics might say it eliminates the need for it). If federal prosecutors can see past the statute's legal and regulatory complexities, they will find the most powerful and potentially effective anti-money laundering tool Congress has ever provided.

I begin in Part II by analyzing the legislative history of § 1960. In Parts III through VI, I examine charging issues. In Parts VII and VIII, I look at constitutional and legal defenses that have been (or conceivably could) be raised to a prosecution under § 1960. I then conclude in Part IX by discussing sentencing and forfeiture issues unique to § 1960 prosecutions.

[26] What regulatory oversight did exist was at the state level. By the early 1990s, a handful of states had imposed licensing and regulatory restrictions on the operation of NBFIs generally, and money transmitting businesses particularly.[27]

This relatively relaxed attitude towards money transmitting businesses changed in 1992 when Congress enacted 18 U.S.C. § 1960 as part of the Annunzio-Wylie Money Laundering Act.[28] As originally enacted, § 1960 prescribed federal punishment for whoever conducted a money transmitting business without a state license in a state where such operation was punishable as a misdemeanor or a felony.[29] By providing a federal criminal sanction for a state offense, Congress sought to enhance and supplement State regulation of these businesses.[30]

Congress enacted § 1960 based on its finding that significant amounts of money had been laundered through the business activities of unlicensed and unregulated cash transmittal operations.[31] As the anti-money laundering laws regulating banks became more effective, money launderers began to resort to these money transmitting businesses to avoid the heightened scrutiny at banks.[32] Thus, the aim of § 1960 was "to combat the growing use of money transmitting businesses to transfer large amounts of the monetary proceeds of unlawful enterprises."[33]

Except for indications that Congress sought to enhance state regulation of money transmitting businesses, little other contemporaneous legislative history explains § 1960's enactment. The Annunzio-Wylie Act emerged late in the legislative drafting of the Housing and Community Development Act of 1992, and thus the section is scarcely unmentioned in the debates for the Annunzio-Wylie Act.[34]

To better grasp the meaning and scope of § 1960, I have to look back to the deliberations of the preceding Congress.[35] Commenting on a proposal that would later emerge as § 1960, a Senate Report on the Crime Control Act of 1990 stated:

The legislation also creates a Federal crime for knowingly operating a money transmitting business in violation of State law where the State requires a license and makes unlicensed money transmitting punishable as a misdemeanor or felony. This latter provision is modeled on 18 U.S.C. § 1955. "Prohibition of illegal gambling business," which makes it a federal crime to operate a gambling business in violation of state law. The Racketeer Influenced and Corrupt Organizations Act [RICO] is another example of a Federal statute where violations of certain State laws are predicate offenses for Federal penalties. The Committee's legislation provides for money penalties, imprisonment for up to five years, and forfeiture of property, including money, used in the violation.[36]

This statement provides two clues about § 1960's provenance. First, the drafters consciously modeled the statute after 18 U.S.C. § 1955. Judicial decisions construing § 1955 (the illegal gambling business statute) may therefore help courts to construe § 1960.[37] Second, the references to prior instances where Congress had incorporated state law, both in Section 1955 and in RICO, evidence some sensitivity to the legal concerns that arise when federal laws assimilate state laws. Sensitive to these concerns, the drafters pointed to other criminal statutes in which Congress had previously assimilated state law as precedent.[38] Though legislative history created in connection to a prior and different version of § 1960 must be viewed cautiously, it is nonetheless useful in understanding the statute.[39]

Other clues about the intended meaning and scope of § 1960 appear in a 1990 Senate Report. The report discloses that while Congress received testimony about the money laundering risks posed by all forms of NBFIs, the witnesses drew Congress' attention to the particular threat posed by money transmitters.[40] One witness before the Senate Subcommittee on Consumer and Regulatory Affairs testified:

As banks became more sophisticated in reporting currency transactions, drug dealers became more creative and began to rely increasingly on unlicensed and illegal money transmitters, on check cashers, and on money order vendors, all users and sources of high amounts of cash . . . It is primarily the unlicensed money transmitter that provides the best means of laundering money and is most often used to structure illegal transactions.[41]

The early legislative history further suggests that the drafters of § 1960 knew to differentiate between money transmitters on one hand, and other types of NBFIs, e.g., check cashers, on the other. The legislative package that initially included § 1960 also included other anti-money laundering provisions as well. Sometimes the drafters intended these provisions to apply to all NBFIs, i.e., not just money transmitters. When this was the intent, the drafters used broad language. For example, the legislative history describes a wire transfer reporting requirement then under consideration that would apply to "money transmitters, check cashers and foreign exchange dealers, not only depository institutions."[42] But when describing § 1960, the drafters employed the terms "money transmitting" or "money transmitting businesses," suggesting that other NBFIs, such check cashers and currency exchangers, were not within § 1960's purview.[43]

A subsequent 1991 House Report seems to confirm that in enacting § 1960 Congress sought to criminalize only illegal "money transmitting" activities. In pertinent part, the 1991 House Report states:

As money launderers have attempted to avoid using traditional financial institutions, they have turned more and more to money transmitting businesses as a means of laundering the proceeds of their operations and of swiftly moving those funds from one place to another. To do so, the launderers have turned increasingly to illegal money transmitting businesses. These are business which often operate without appropriate state licenses. It is the intent of the Committee to make the operation of such business a Federal offense as well, since such illegal business furthers criminal attempts to violate the money laundering prohibitions of federal law.

In making the operation of such a business illegal, the Committee also intends to make it easier for Federal law enforcement authority to enable the use of civil and criminal forfeiture provisions of Federal law against such operations.[44]

The description of moving funds "from one place to another" evokes money transmitting activity in the narrow sense of that term,i.e., money remitting. Other NBFIs such as check cashers and exchangers do not seem to fit within the meaning of "money transmitting business" as that term was used in § 1960. Check cashers, for example, do not move funds "from one place to another;" they exchange currency for a monetary instrument.

The legislative package that included § 1960 also included a provision that would have required banks to assist the government in identifying the universe of illegal money transmitting businesses.[45] That statute, former 31 U.S.C. § 5327, was repealed in 1996 (before regulations could even implement it). The story of § 5327's enactment and repeal foretells the current problems the government and banks face today in trying to identify unlicensed money transmitting businesses.

Section 5327 would have required banks to identify their customers who were operating as money transmitting businesses and report those customers to the government. The purpose of the law was to create a report that would "assist Federal and State law enforcement agencies in identifying the universe of NBFIs so that the agencies can communicate directly with the institution on deterrence and compliance procedures."[46] But at the urging of the banking lobby and the Financial Crimes Enforcement Network (FinCEN), the bureau of the Treasury Department responsible for promulgating regulation giving effect to the Bank Secrecy Act, Congress repealed § 5327 in 1996 (just four years after enacting the statute and before the implementing regulations even took effect).[47] FinCEN told Congress that it did not need the statute any longer based on the mistaken premise that the federal registration requirement that Congress imposed directly on money transmitting businesses in 1994 rendered § 5327 unnecessary.[48] FinCEN believed that this new federal registration requirement would adequately help it to identify the universe of illegal money transmitting businesses.[49]

Congress made a mistake when it repealed § 5327.[50] Had the statute survived, it would have enabled the government and banks to identify the universe of money transmitting businesses and "communicate directly with the institutions on deterrence and compliance procedures."[51] As things stand, the government has no clear picture of who is a money transmitter, and this has severely compromised its ability to regulate them.[52]

FinCEN bears responsibility. It mistakenly told Congress that the money transmitting business registration requirement that Congress enacted in 1994 would allow the government to identify money transmitting businesses. However, it took seven years for the regulations implementing the registration requirement to take effect. The registration requirement has now been in effect since December 2001, and FinCEN still does not have a reliable estimate of the number of money transmitting or services businesses. The regulations FinCEN wrote carved the federal registration requirement up with so many fact-intensive exceptions and exclusions that there is no way, short of labor-intensive site visits to suspected money transmitting businesses, to figure out who is subject to the registration requirement and who is not.[53]

Today, estimates of the total number of money transmitting businesses vary wildly. In a legislative hearing held in 2004, Senator Richard Shelby of Alabama estimated that there are only about 15,000 money services businesses that had registered out of the approximately 600,000 believed to exist.[54] The U.S. Money Laundering Threat Assessment estimated that only a small fraction (23,000) of the total money services businesses had registered.[55] FinCEN's own studies estimate the total population of money services businesses in the range of 160,000 to 200,000.[56] As of November 2006, FinCEN had identified only 32,081 registered money services businesses-a small fraction of even the most conservative estimates of the total number of such businesses.[57]

If FinCEN cannot figure out who is a money transmitting business subject to its registration requirement, imagine the uncertainty faced by banks who handle transactions for these businesses.[58] Banks have come under extraordinary pressure from law enforcement, regulators, and examiners to conduct greater due diligence concerning their money transmitting business customers.[59] In June 2004, the Office of Comptroller of the Currency (OCC) warned national banks of the risks associated with handling transactions for their unlicensed or unregistered money transmitting business customers.[60]

In response to these pressures, banks have begun asking questions that FinCEN cannot answer: "[h]ow can a banking organization confirm that a money services business is an agent that is not required to register with FinCEN?"[61] Faced with regulatory and law enforcement pressures-and the banking community's inability to identify money transmitting businesses-banks have begun to terminate banking relations with their money transmitting business customers. In response, money transmitting businesses have complained, causing FinCEN and the federal banking agencies to issue interagency guidance to the banking industry on the provision of banking services in April of 2005.[62] In other words, regulators have only recently begun to confront issues that § 5327 would have forced them to address more than a decade ago if the statute had been implemented, rather than repealed.

[63] Reiterating similar findings from earlier in the decade, Congress found that money transmitting businesses are frequently parts of sophisticated schemes to (i) transfer large amounts of money which are the proceeds of unlawful enterprises, and (ii) evade the requirements of the cash-transaction reporting provisions of Title 31.[64] The House Conference Report included testimony that echoed what Congress had heard in the early 1990s. The Assistant Secretary of the Treasury for Enforcement testified that it was, "indisputable that as banks have become more active in preventing and detection of money

laundering, money launderers have turned in droves to the financial services offered by a variety of [money transmitters]."[65] Compared to banks, however, Congress found that "such businesses are particularly vulnerable to money laundering schemes because their level of BSA compliance is generally lower."[66] The Conferees thus viewed the registration requirement at least in part as a means of ensuring greater BSA compliance across this financial sector:

The purpose of the registration requirements is to promote effective law enforcement by the Secretary and to encourage business cooperation in that effort. The Conferees also intend that the registration requirement be used as a way to educate money transmitters about their responsibilities under the BSA. To this end, the Conferees strongly urge the Secretary to include information on SBA [sic] compliance as well as the civil and criminal penalties for violating BSA requirements in the registration packets sent to money transmitters. The registration process should include an acknowledgment by the owner of the business that he or she had read and understands the information.[67]

Thus, other financial institutions that were already subject to extensive federal regulation and BSA examination, such as banks, were therefore specifically exempted from the registration requirement.[68]

Though Congress enacted a federal registration requirement, it did not intend to preempt the enforcement of state licensing and regulatory requirements.[69] State agencies were intended to carry on as the main bodies regulating money transmitting businesses. Section 407 of the 1994 law urged states to adopt uniform laws to license and regulate those money transmitting businesses outside the regulated banking sector.[70]

The newly enacted federal registration requirement (§ 408(b) of Title IV of the Act) added Title 31 U.S.C. § 5330. Section 5330 requires all money transmitting businesses to register with the Secretary of the Treasury, pursuant to regulation that the Secretary was required to promulgate.[71] The Secretary of Treasury implemented those regulations in 1999, and they took effect in December 2001.[72] To enforce the federal registration requirement, Congress amended § 1960, adding a federal registration prong (§ 1960(b)(1)(B)) to a statute that had previously authorized criminal punishment only for a state licensing violation.[73] The federal registration prong made it a felony to conduct a money transmitting business that "fails to comply with the money transmitting business registration requirements 31 U.S.C. § 5330, or regulations prescribed under such section."[74] Congress also amended § 1960 to add an intent element to the state licensing prong.[75] The statute formerly punished the knowing operation of a money transmitting business without a state license. As amended, the statute punished the knowing operation of such a business which "is intentionally operated without an appropriate money transmitting license."[76] As discussed below, Congress would later eliminate this intent element when it amended § 1960 in Title III of the USA PATRIOT Act.

The newly enacted federal registration requirement included a definition of "money transmitting business." Section 5330(d)(1) defined the term "money transmitting business" in part to mean any business other than the United States Postal Service, which "(A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments; (B) is required to file reports under Section 5313; and (C) is not a depository institution (as defined in Section 5313(g))."[77] This definition (particularly the terminology used in § 5330(d)(1)(A)) represents a subtle, but important, linguistic shift. As previously discussed, when Congress enacted § 1960 in 1992, it used the term "money transmitting business" to refer to a particular kind of NBFI, i.e., a money remitter which sends money from one place to another. Congress conceptualized other NBFI activities, such as check cashing and currency exchange, as separate and distinct from "money transmitting." Thus, the definition of the term "money transmitting" in § 1960(b)(2)-a definition that has not been changed since 1992-refers to "transferring funds on behalf of the public." In contrast, in § 5330(d)(1)(A) the term "money transmitting business" refers to a different (and larger) class of activities that include currency exchanging and check cashing.[78]

This tension between the meaning of the term "money transmitting business" in § 5330(d)(1) and the meaning of the term "money transmitting" in § 1960 gives rise to one of the most significant issues of statutory interpretation that courts will confront. A check cashing business is a money transmitting business for purposes of the federal registration requirement in § 5330(d)(1), but is it engaged in money transmitting within the meaning of § 1960? Put simply, can a check casher that fails to register with FinCEN be prosecuted for violating § 1960?

To the extent the legislative history provides any guidance, it suggests that Congress thought that the term "money transmitting business," which it used and defined in § 5330, had the same meaning as the identical term in § 1960. The 1994 amendments to § 1960 appear in § 408(c) of Title IV of the Act, and the federal registration requirement itself appears in § 408(b). Section 408(a)(2) explains that:

[I]t is the purpose of this section [referring to the section creating the registration requirement and amending Section 1960 to add the federal registration prong] to establish a registration requirement for businesses engaged in providing check cashing, currency exchange, or money transmitting or remittance services, or issuing or redeeming money orders, travelers' checks, and other similar instruments, and to assist the Secretary of Treasury, the Attorney General, and other supervisory and law enforcement agencies to effectively enforce the criminal, tax, and regulatory laws and prevent such money transmitting businesses from engaging in illegal activities.[79]

Unfortunately, apart from this statement of purpose, there is no other legislative history to confirm this understanding. The House Conference Report contains only a bare mention of the amendments to § 1960.[80] To the extent there was debate over the enforcement of the § 5330 registration requirement, the debate seems to have centered on a civil forfeiture provision that had been included in both the House and Senate versions, but deleted by the Conferees "so that the Attorney General may complete a comprehensive review of civil forfeiture policy."[81]

FinCEN could have confronted (and perhaps even resolved) the ambiguity when it drafted the regulations that implemented the federal registration requirement in § 5330(d) of Title 31. It could, for example, have explained that the meaning of the term "money transmitting business" in § 5330(d)(1)(A) is coextensive with the meaning of the same term in § 1960(b)(1)(B).[82] That, after all, seems to have been what Congress intended.[83] But if FinCEN saw the tension between the scope of the registration requirement and the criminal provision meant to enforce it, it chose only to increase it, not relieve it. FinCEN's regulations did not carry forward Congress' term "money transmitting business" from § 5330(d)(1)(A). Instead, FinCEN opted to use its own made-up term ("money services business") as an umbrella term. Beneath this umbrella, FinCEN placed the same businesses that Congress defined as "money transmitting business:" money transmitters, check cashers, currency dealers and exchangers, issuers of travelers checks, money orders or stored value, and sellers and redeemers of traveler's checks, money orders, or stored value."[84]

FinCEN's actions created problems for § 1960 prosecutions. Its umbrella term, "money services business," is totally alien to both § 1960 and § 5330(d)(1)(A). Only the term "money transmitter," as used in the regulations to define a narrow subcategory of "money services business," provides any point of reference to the statutory scheme. FinCEN's use of the term "money services business" therefore invites all categories of "money services businesses" (except money transmitters) faced with prosecution under § 1960 to argue that they fall outside the scope of the statute. A check casher, for example, might argue that while it may be a "money services business" within the meaning of the regulations, it is not a "money transmitter" or "money transmitting business" within the meaning of either the regulations or § 1960.[85]

[86] There are three reasons for this.[87] First, the federal registration requirements were not implemented until 1999, and did not take effect until December 2001.[88] In the absence of a regulation implementing the federal registration requirement there could be no criminal violation of the federal registration prong of § 1960.[89]

Second, in the wake of the Supreme Court's decision in United States v. Ratzlaf, there was a substantial question as to whether the licensing prong of § 1960 required the government to prove that the defendant knew that he or she lacked the requisite state license, and that state law punished such conduct as a misdemeanor or felony.[90] Prior to the USA PATRIOT Act amendments, the state licensing prong required proof that the business was "intentionally operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law." The government's concern was that courts would seize upon the word "intentionally" (as the Supreme Court in Ratzlaf had seized upon the word "willfully" in 31 U.S.C. § 5322(a)) to construe the statute to require proof that the defendant knew of the legal obligation to license and knew it was illegal to operate without such a license.[91] One court, applying the pre-2001 version of § 1960, construed the state licensing prong in just such a fashion.[92]

Third, despite repeated encouragement from Congress, many states still had not enacted state licensing provisions for money transmitting businesses.[93] Indeed, an impetus for federal regulation in the area of money transmitting businesses is the widespread belief that the states lacked sufficient resources to devote to regulation and supervision of money transmitting businesses.[94]

[95] Between August 1996 and October 1997 the Secretary of Treasury issued a series of Geographic Targeting Orders requiring business in specified areas that transmit money to designated foreign countries (Columbia and the Dominican Republic, to name two) to report all such transmissions above $750.[96] The government's August 1999 brief in the Velastegui case-the only reported appellate decision construing § 1960 to that point-provided further indication that the money laundering threats posed by money transmitters had not abated. In its brief, the government identified nineteen recent prosecutions in New York and neighboring states involving the prosecution of money remitters for money laundering and related offenses.[97]

Against this backdrop, and that of September 11, 2001, Congress enacted Title III of the USA PATRIOT Act. Title III includes a number of provisions designed to enhance the government's anti-money laundering efforts, including amendments to § 1960 and related forfeiture provisions.[98] Title III amends § 1960 in two material ways.[99] First, it clarifies the scienter requirement under the statute's state licensing prong- § 1960(b)(1)(A).[100] Where under former law the government had to prove the defendant operated the business intentionally without a license, amended § 1960(b)(1)(A) omits the intent element and affirmatively negates any mistake of law defense. Section 1960(b)(1)(A) now applies to any business that "is operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable."[101] As discussed in Part III.A.5 below, § 1960(b)(1)(A) is now clearly understood to define a general intent crime.

Second, Title III of the USA PATRIOT Act amends § 1960 to add a third prong to the statute. The newly enacted § 1960(b)(1)(C) (proceeds/promotion prong) includes as an "unlicensed money transmitting business" any business which "otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity."[102] Thus, a person who either agrees to transmit or to transport "drug proceeds for a drug dealer, or agrees to transport funds from any source for a terrorist, knowing such funds are to be used to commit a terrorist act, violates § 1960 if such activity occurred as part of the conduct of a money transmitting business."[103] The provision is aimed principally, but not exclusively, at terrorist financing.[104]

In addition to amending § 1960, Congress passed two other closely related amendments. First, it expanded the definition of a financial institution in 31 U.S.C. § 5312(a)(2)(R) and the definition of a "money transmitting business" in § 5330(d)(1)(A) to include "any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system."[105] Commentators point to these amendments as one basis for concluding that § 1960 reaches informal value transfer systems such as hawalas as drug courier/cash pick up operations.[106]

Though not an amendment to § 1960 per se, Congress also provided for the civil forfeiture of all property involved in a § 1960 violation.[107] As discussed above, a civil forfeiture provision had been included in the 1994 House and Senate versions of the 1994 Money Laundering Suppression Act, but the Conferees deleted that provision to allow the Attorney General to examine the use of the civil forfeiture statutes. In the intervening time, Congress had enacted the Civil Asset Forfeiture Reform Act of 2000 (CAFRA), a statute that dramatically enhanced procedural protections for claimants in civil forfeiture cases.[108] These procedural reforms enacted in CAFRA apparently eased Congress' concerns about the government's use of civil forfeiture, thus clearing the way in 2001 for Congress to make a violation of § 1960 a basis for civil forfeiture.[109]

[110] The significance of this amendment is two-fold. First, by adding § 1960 to the list of RICO predicates, Congress made § 1960 both a RICO predicate crime and a "specified unlawful activity" for purposes of the money laundering statutes (18 U.S.C. §§ 1956-57).[111]

The addition of § 1960 to the list of "specified unlawful activities" in the money laundering statutes is somewhat surprising. Elsewhere, Congress has excluded Bank Secrecy Act crimes from those that qualify as "specified unlawful activities" under the money laundering statutes.[112] While a violation of § 1960 is not a Bank Secrecy Act crime per se, a violation of the registration prong is analogous to other Bank Secrecy Act type violations, and with the right set of facts could be prosecuted under the Bank Secrecy Act. [113]

Second, the fact that § 1960 is now a "specified unlawful activity" means that the government can forfeit any property, real or personal, which constitutes or is derived from proceeds traceable to a § 1960 violation, "or a conspiracy to commit such offense."[114] Because the government already had the authority to civilly forfeit all property, real or personal, "involved in" the § 1960 offense and traceable thereto, this additional grant of forfeiture authority is almost completely redundant.[115] It does, however, provide for the forfeiture of proceeds in cases of conspiracies to commit a § 1960 offense. No comparable forfeiture authority exists under either 18 U.S.C. § 981(a)(1)(A) or § 982, which authorizes civil and criminal forfeiture for § 1960 violations.

[116] It has also been used with increased frequency in cases involving suspected terrorist financing activity.[117] The 2007 National Money Laundering Strategy calls for the relevant law enforcement agencies to "work aggressively to identify and prosecute MSBs that facilitate money laundering."[118]

These cases have generated a body of published decisions that help to define the elements of a § 1960 violation. The crime of operating an unlicensed money transmitting business has different elements depending on how the government charges the case. It is now fairly settled that the state licensing prong (§ 1960(b)(1)(A)) has five elements: (1) the defendant conducts a money transmitting business, (2) that affects interstate or foreign commence; (3) is unlicensed under state law; (4) in a state where state law requires a license for such operation, and (5) state law punishes the lack of a license as a felony or misdemeanor. The first three elements are factual elements as to which the government must prove that the defendant had knowledge.[119] The last two elements are legal elements as to which the government does not need to prove the defendant had knowledge.[120]

The federal registration prong (§ 1960(b)(1)(B)) shares the same three factual elements as the state licensing prong, but merges the two legal elements in the state licensing prong into one: the business must be unregistered under federal law.

[121] This element comprises at least five distinct questions: (1) what is the allowable unit of prosecution, (2) who is subject to prosecution, (3) what does "money transmitting" mean, (4) what activity constitutes a "business," and (5) what mens rea must the government establish to satisfy the statute's knowledge requirement?

[122] Discrete acts of money transmitting are not separately chargeable, and an isolated instance of money transmitting does not establish the existence of a money transmitting business.[123]

A defendant may participate in a single money transmitting business, which meets the definition of an "unlicensed" money transmitting business for multiple reasons, yet the unit of prosecution remains a single offense. In other words, the business might violate a single prong of § 1960 in multiple ways, e.g., by failing to obtain appropriate licenses from two or more states may even violate multiple prongs of § 1960, or by failing to obtain appropriate state licenses, and failing to register with FinCEN. Nonetheless, the defendant's participation in such a business would constitute a single § 1960 offense.[124] If, on the other hand, the government proves the existence of two different money transmitting businesses, and proves that the defendant participated in each of them, then the defendant could be charged in two separate counts.[125] For example, the defendant may be an agent of Western Union who operates without a state license, and may operate an informal and unlicensed money transmitting business outside the scope of his or her agency with Western Union.

[126] The Talebnejad court interpreted this provision to mean that criminal liability under the state licensing prong-§ 1960(b)(1)(A)-attaches only for those "who are, in some substantial degree, in charge of the operation; the statute does not reach mere employees."[127] The court reached this conclusion in the course of rejecting an argument that the indictment failed to allege that the defendants had a duty to acquire a license under Maryland law. By limiting § 1960(b)(1)(A) to those individuals who are in some substantial degree in charge of the operation of the business, the Talebnejad Court headed off prosecutions against employees of the money transmitting business who have no responsibility for obtaining the appropriate state license. Though Talebnejad does not expressly address whether the "mere employee" exclusion would extend to prosecutions under the federal registration prong-§ 1960(b)(1)(B)-it almost certainly would. The application of the registration prong to employees raises the same issues as the application of the state licensing prong to mere employees. Indeed, based on language of the federal registration requirement there is a strong textual argument for limiting its application to those who own or control the money transmitting business.[128]

While the Talebnejad court's holding is logical, it is hard to square with precedent. Congress modeled § 1960 after § 1955 (the illegal gambling business statute).[129] Section 1955 uses similar terms to describe the actus reus of the illegal gambling business offenses-"[w]hoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business . . ." In construing § 1955, the Supreme Court held that the statute proscribes any degree of participation in an illegal gambling business beyond that of a mere bettor.[130] The Court emphasized that participation in the gambling business is a federal offense, and it is only the gambling business itself that must violate state law.[131] This means that the government does not need to prove that the defendant himself or herself performed any act of gambling prohibited by state law. Extended to § 1960, this reasoning would mean that the government could convict an employee who conducts an unlicensed money transmitting business even though the employee has no responsibility for obtaining the requisite license or registration for the money transmitting business. The Talebnejad court did not address, much less distinguish Sanabria, leaving us to guess how that court would square its holding with the Supreme Court's construction of § 1955-the statute on which § 1960 was modeled.

The Talebnejad court's attempt to exempt "mere employees" from the reach of § 1960 raises other issues. Though the Talebnejad court expressly limited its construction to defendants charged under § 1960(b)(1)(A), it is unclear whether Talebnejad's holding extends to prosecutions under § 1960(b)(1)(C). That prong of § 1960 includes as an "unlicensed money transmitting business" any such business that "otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity." If Talebnejad's "mere employee" exclusion extended to this prong it would mean that an employee of a money transmitting business who knowingly transmits funds to a group such as Al Qaeda through the business could not be prosecuted under § 1960(b)(1)(C). This construction of § 1960(b)(1)(C) does not make sense, especially given the extensive legislative history indicating that Congress intended the statute to reach precisely this conduct.

It is possible to harmonize Talebnejad's holding that employees cannot be prosecuted under the state licensing prong of § 1960 and Sanabria's holding regarding cases prosecuted under the proceeds/promotion prong of § 1960. As to the licensing and registration prongs, Sanabria might be distinguishable on the ground that whereas § 1955 defines a malum per se crime (gambling), § 1960(b)(1)(A) and (B) define malum prohibita or regulatory crimes. A low-level participant in an illegal gambling business has reason to know that gambling is a crime, but a low-level participant in an illegal money transmitting business might have no reason to know of the state and federal regulatory law that governs the licensing and registration of money transmitting businesses, much less know that the money transmitting business had failed to comply with those requirements. In contrast, a low-level participant in a money transmitting business has just as much reason to know that it is a crime to knowingly transmit money derived from crime or intended to promote crime as does a low-level employee in a gambling business have reason to know that gambling is a crime. The employee in that situation is involved in transactions that make the money transmitting business unlicensed within the meaning of the statute. Thus, at least for purposes of the proceeds/promotion prong it makes sense to hold "mere employees" accountable for transmitting funds knowing them to be derived from criminal activity or knowing that they are intended for a criminal purpose.

The Talebnejad court's exemption of employee-level participants from § 1960 also invites the question whether an employee-level participant could nonetheless be charged for conspiracy to violate § 1960. In Iannelli v. United States, the Supreme Court held that the gambling business statute (upon which § 1960 was modeled) was not the equivalent of a conspiracy statute.[132] Thus, a defendant could be convicted both of a substantive violation of § 1955 and a conspiracy to violate § 1955. Similarly, Talebnejad's holding raises the question whether and in what circumstances an "employee-level" participant who could not be prosecuted as a principal under § 1960 could nonetheless be prosecuted for aiding and abetting a § 1960 violation.[133]

While the government must prove the existence of an unlicensed money transmitting business, § 1960 does not punish the business nor does it punish discrete acts of illegal money transmitting. Rather, it punishes "whoever" conducts the business. This means that the money transmitting business itself, e.g., the corporate or other entity through which the illegal money transmitting business operates, is not the proper defendant under § 1960.[134] It also means that a defendant can be convicted of conducting the business, even if the defendant does not participate in any money transmitting activity.[135] For example, a person may be a silent majority (or perhaps even a minority) owner of the money transmitting and have no direct involvement in its day-to-day operations. That person would nonetheless be subject to prosecution.[136]

[137] In the broad sense, the term "money transmitting" or "money transmitting business" refers to any business that provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, stored value cards, and other similar instruments.[138] Thus far, all of the reported decisions involving challenges to § 1960(b)(1)(A) fit within the narrower definition.[139]

The argument for applying § 1960(b)(1)(A)-the state licensing prong-broadly to reach "money transmitting" businesses in the broad sense begins by asserting that the scope of § 1960 is co-extensive with the applicable state law definition of "money transmitting." If a state licenses check cashers, for example, as a form of "money transmitter" then the state's definition of "money transmitter" controls over § 1960(b)(2)'s definition. This argument finds some support in case law construing § 1955-the illegal gambling business statute. In a case arising under that statute, a defendant who functioned as custodian of gambling funds argued that his activity did not satisfy § 1955(b)(2)'s definition of "gambling."[140] The court of appeals rejected the argument: "[w]e have held that the mere custodianship of gambling-related funds is sufficient to constitute a violation of 18 U.S.C. § 1955 because such custodianship is considered to be 'gambling' under state law even though it may not appear to fit within 'gambling as defined in Section 1955(b)(2).'"[141]

But at least as to the state licensing prong, the narrower definition is probably correct. First, § 1960(b)(2) defines "money transmitting" to include transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad." The ordinary meaning of the word "transfer" is to move or send money to a different location.[142] Check cashers, currency exchangers, and issuers and redeemers of travelers' checks do not "transfer" money in this ordinary sense. Instead they exchange one form of currency for another. Alternatively, in the case of check cashers, they exchange currency for a monetary instrument.

Second, the legislative history of the state licensing prong suggests that Congress intended to treat "money transmitters" (in the narrow sense) differently than it treated check cashers and exchangers. The Senate Report repeatedly differentiated between money transmitters, check cashers, and money exchanges: "[i]ncreasingly, money launderers are using money transmitters, check cashers, money exchanges and other nonbank financial companies for initial placement and the number of such businesses is growing rapidly in some States." Moreover, elsewhere in the 1992 Housing Redevelopment Act itself, Congress differentiated between "money transmitters" in the narrow sense and the broader category check cashers and the like.[143] These distinctions seem purposeful. Though Congress viewed the whole subject area as rife with money laundering, it perceived that "money transmitters" (narrow sense) were particularly worrisome.

The more difficult question is whether this narrow construction of the term "money transmitting" makes sense in a case charged under the federal registration prong. In such cases, a much stronger argument can be made that the federal registration prong of § 1960 reaches unregistered check cashing and currency exchange-type businesses. When Congress added the federal registration prong to § 1960, it also enacted the federal registration requirement. That requirement specifically defined "money transmitting business" to include check cashers, currency exchanges, and like businesses.[144] In addition, the legislative findings suggest that Congress meant for unregistered "money transmitting businesses" to be subject to prosecution under § 1960.[145] As to the federal registration prong, even a prominent defense lawyer has conceded that the term "money transmitting business" in § 1960 is probably as broad as in § 5330(d).[146]

For all of these reasons, the issue of whether the government can charge money services businesses, other than money transmitters, under § 1960 remains a significant one.[147]

[148] The lack of a definition-both in § 1960 and in § 5330-has generated concern on the part of numerous businesses for which money transmitting was an incidental part of providing other services, e.g., brokers and dealers of securities. [149]

The "business" requirement ensures that persons cannot be prosecuted and convicted for a single, isolated instance of improper transmittal of money. The Second Circuit explained its holding in precisely these terms in United States v. Velastegui, and FinCEN has embraced this explanation.[150] Thus, in terms of the quantity of activity required to trigger the statute, an isolated instance of money transmitting activity will not suffice. Less clear is what quality of activity constitutes business activity.

In the case of the state licensing prong, the answer will inevitably turn on state law. For example, a state may impose a licensing requirement on money transmitters that send money overseas, but not those who transmit within the United States. Additionally, state law may define money transmitting business activity in terms that exclude certain courier or other informal money transfer activities. Thus, the scope and reach of § 1960(b)(1)(A) will turn on the scope and reach of the underlying state licensing requirements.[151] In many cases, particularly those involving emerging products and technologies, the scope of state money transmitting laws presents a significant legal issue.[152]

The quality of activity that triggers the federal registration prong is more clearly defined.[153] Section 5330(d)(1) provides:

The term "money transmitting business" means any business other than the United States Postal Service which

(A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments or any other person who engages as a business in transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;

(B) is required to file reports under Section 5313; and

(C) is not a depository institution (as defined in Section 5313(g)).

The regulations that give effect to this provision employ similarly broad language.[154] Further, FinCEN issued a ruling indicating that the money services business registration requirement extends to certain currency transporters.[155]

The breadth of federal registration requirements raises the question whether § 1960 would apply to the activities of the typical courier pick-up and delivery operation. Congress seems to have intended that it would. The House Report explaining the 2001 amendments to § 1960 explains that, "a person who agrees to transmit or to transport drug proceeds for a drug dealer, or funds from any source for a terrorist, knowing such funds are to be used to commit a terrorist act, would be engaged in the operation of an unlicensed money transmitting business."[156] Nonetheless, one commentator has concluded that § 1960 would not apply to the courier pick-up and delivery operation. He points to the language in § 1960(b)(2) defining "money transmitting" to refer to money transmitting services offered "on behalf of the public." The phrase "on behalf of the public" would seem to preclude the application of the law to "individuals who are engaged in laundering on their own, or their associates' money."[157]

An older line of money laundering cases may help resolve the ambiguity. In the 1980s, an expansive body of case law developed to allow the government to prosecute money launderers for Bank Secrecy Act violations on the theory that the individual money launderer was a financial institution. These cases permitted criminal charges against individual drug traffickers and money launderers as though they were financial institutions subject to banking laws.[158] In one case, a court allowed the government to prosecute a money launderer as a bank that operated without appropriate authority in violation of the Glass-Steagall Act.[159]

Given the legislative history and the "individual as financial institution" line of cases, § 1960 would appear to apply to the pick-up/courier situation. In this construction, the phrase "transferring funds on behalf of the public" must be read narrowly to refer to third parties instead of the public at large.[160] However, the farther this argument is stretched, the greater the concern that a person would lack notice that his/her seemingly private conduct came within the ambit of the statute.[161] A person who merely transmits money on behalf of family members, for example, could conceivably come within the ambit of the statute, but the application of the statute to that person would raise serious due process concerns.

Another emerging area of uncertainty is whether new technology payment service providers come within the meaning of the term "money services business." The money services business regulations assume a world in which banks and nonbanks are clearly differentiated. Increasingly, however, payment methods such as Paypal or e-Gold Ltd., not to mention open-system prepaid debit cards provided through MasterCard and Visa, blur this distinction. These new businesses offer account-based payment services that allow customers to prepay and draw down a store of funds.[162] As a practical matter, these new businesses have the look and feel of a bank, but legally speaking may not be banks. If these businesses are banks, rather than money transmitting or services businesses, then they are not subject to the federal registration requirement and, depending on state law, may not be subject to state money transmitting licensing requirements.[163] Of course, any defense premised on the theory that the defendant operated an unlicensed bank, as opposed to an unlicensed money transmitting business, is fraught with peril.[164]

[165] The USA PATRIOT Act amended § 1960(b)(1)(A) to clarify that this prong defines a general intent crime.[166] This means that the defendant must know the factual elements of the crime (that the defendant operated a money transmitting business, which affected interstate and foreign commerce, and which failed to obtain the requisite license), but does not need to know the legal elements. For example, the defendant does not need to know that there is a state licensing requirement or know that the state punishes violations of its licensing law as a misdemeanor or felony.[167]

Even after the USA PATRIOT Act, the state licensing prong's mental element remains a contentious issue. The state licensing prong only prescribes punishment for violations of state law that are themselves punishable as a misdemeanor or felony. In Talebnejad the issue was whether this meant that a § 1960 prosecution under the state licensing prong required the government to prove the element of the state licensing offense, including any heightened mental element. The district court concluded that § 1960 required such proof; the court of appeals reversed.[168] Outside the Fourth Circuit, and prosecutions brought under the state licensing prong based on violations of state law, this issue will continue to be litigated.[169]

The federal registration prong never had an intent element and it does not incorporate any provision of state law. Thus, when Congress amended the state licensing prong to eliminate the intent element in 2001, it did not similarly amend the federal registration prong. There was no reason to do so; the federal registration never had the added intent element. Nonetheless some defendants have seized upon the 2001 amendments to § 1960(b)(1)(A). They point to Congress' insertion of the language into that provision: "whether or not the defendant knew that the operation was required to be licensed," to argue by negative inference that the federal registration requirement (which lacks comparable language) has a heightened mens rea requirement. Except for the now overruled district court decision in Talebnejad, this argument has been uniformly rejected.[170]

[171] In the case of an informal value transfer system in which funds do not move through financial institutions, the handing over of the currency may satisfy the nexus requirement if the funds are tainted or if they lead to some subsequent transaction that affects commerce.[172] So too, transactions made in the ordinary course of operating the business may satisfy the requirement.[173]

[174] To be convicted of a violation of § 1960, the defendant must know the facts that bring his or her conduct within the ambit of the statute. This leaves room for the defendant to argue that he or she did not know that the business operated without the appropriate license or registration.[175] It even leaves room for an objective mistake of fact defense, i.e., that the defendant mistakenly believed that he had the requisite state license.

[176] It is beyond the scope of this article to examine the licensing requirements of each such state. Nonetheless a few general observations should be made.

First, a money transmitting or services business may be an agent of a registered money services business, and thus is not required to register with FinCEN. That status does not relieve such an agent from the duty to obtain an appropriate license under state law.

Second, the scope of state statutes will vary widely. Some, for example, may impose a licensing requirement for international money transmitters, but not domestic ones.[177] Others may impose licensing requirements for money transmitters, but not check cashers or issuers of stored value.[178] Still others may impose licensing requirements on agents (but not branches) of existing money transmitting businesses. Some states may treat material misstatement or omissions in the licensing application as invalidating any license the state may have issued.[179] The precise reach of the state law will vary. Finally, and perhaps most importantly, the geographic reach of the licensing requirements may vary widely. A money transmitting business may be based in one state or even abroad, yet its operations may touch many other states.[180]

In such a circumstance, the money transmitting laws of the individual states will define whether their licensing requirement and its criminal penalties are implicated by the activity.[181] These issues will prove particularly challenging in cases involving internet-based money transmitting businesses which lack a physical presence, or at least lack a physical presence in the United States.[182]

[183] Does the government have to prove that the preconditions to misdemeanor or felony punishment are triggered? I think so. For a business to be "conducted" without an appropriate money transmitting license in a State where "such operation" is punishable as a misdemeanor or felony seems to require that the government satisfy any preconditions to misdemeanor or felony punishment.

[184] The statute is also unusually complex. Nowhere else has Congress entrusted the meaning of an element of a Title 18 offense to regulators within the Treasury Department. And, as discussed below, the regulations that implement the federal registration requirement, and thus define who is subject to prosecution under § 1960, includes tangles of exceptions and qualifications. The Parts that follow (IV.A-D) address the many exclusions, exceptions and qualifications regulators have placed on the federal registration requirement.

[185] Such stored value products originated in France as traditional "chip" or "smart" cards for the French phone system. Later these devices migrated to the United States as a payment technology.

The term "prepaid debit card" refers to the prepayment of value process, i.e., pay now and extract value later, and describes most of the prepaid/stored value products available today.[186] The term is not related to the technology used to provide access to the funds. These cards have largely supplanted paper gift certificates and travelers checks, and increasingly are used as alternatives for traditional paper-based transactions such as payroll payments, cross-border remittances, and government assistance programs.[187] Moreover, prepaid cards have emerged as a means of delivering financial services to a large segment of the population that is either not served or underserved by traditional banks.[188]

Prepaid cards are of two types. The first type is a closed-system card usable for only a limited number of well-defined purposes.[189] Merchant gift cards, prepaid long distance service cards, and mass transit system cards are examples of such closed-system cards.[190] The second type is an open-system prepaid card which can be used across a broad range of locations and purposes.[191] The VISA or MasterCard prepaid debit card is an example of this type.

FinCEN is reluctant to burden issuers, sellers, and redeemers with regulation. Although the regulatory definition of "money services business," includes issuers, sellers, and redeemers of "stored value" in an amount greater than $1,000 in currency or monetary instruments from any one person on any day, FinCEN has thus far decided to exclude such issuers from the registration requirement.[192] FinCEN's justification is that the registration requirement would have a "chilling effect" on technological advancements.[193] Thus, under the existing regime an issuer or redeemer of a prepaid debit card cannot be prosecuted under the federal registration prong of § 1960 because issuers and redeemers successfully lobbied to be excluded from the registration requirement.[194]

This hands-off regulatory approach to prepaid cards has endured despite the growing realization here and abroad that prepaid debit cards and similar devices represent a significant and growing money laundering threat.[195] Among other things, these cards are not a form of currency or money instrument, and are therefore not subject to the currency and monetary instrument reporting (CMIR) requirements.[196] This makes them an excellent alternative to currency as a device for avoiding punishment and forfeiture for CMIR and bulk cash smuggling violations. Similarly, FinCEN exempted stored value issuers from the requirement of filing suspicious activity reports, meaning that a money launderer does not have to worry about a stored value issuer filing a suspicious activity report of the laundering transaction. A recent report issued by the Financial Action Task Force (FATF)-a multi-government body that sets international anti-money laundering standards- urges a closer examination of specific measures that countries can adopt to limit risks posed by the prepaid debit card industry.[197]

For now however, issuers, sellers, and redeemers of stored value are not subject to prosecution under § 1960(b)(1)(B) because they are not subject to the federal registration requirement.

[198] Such businesses are, however, subject to other applicable BSA requirements, and may be subject to any applicable state licensing requirements.

While FinCEN requires money services businesses to maintain lists of agents, it does not require businesses to report such lists to FinCEN.[199] Moreover, even the agent lists that MSBs maintain are not necessarily accurate. The regulations require only that the money services business revise its lists on January 1st for the immediately preceding 12-month period.[200] This means that if a regulator or law enforcement agent consults an MSB list of agents in, for example, October, the list will not necessarily include agents that the MSB added over the preceding ten month period, since MSB is not required to update the list until the following January.

The wholesale exclusion of agents from the registration requirement has been the subject of intense criticism from virtually every quarter. The decision undermines the usefulness of the registration requirement to banks, examiners, regulators, and the law enforcement community. Law enforcement agents, the IRS-Small Business/Self Employed Division (which examines MSBs), and depository institutions with MSB customers, each find it difficult to discriminate between those MSBs that are subject to the federal registration requirement, and those that are exempted from it.[201] Echoing these criticisms, the Government Accountability Office (GAO) points out that the agency exclusion makes it difficult for the IRS to do its job.[202]

[203] In contrast, the federal registration prong-§ 1960(b)(1)(B)-should arguably reach such businesses. As I discuss below, however, the complex federal regulatory definition of these businesses makes it difficult to use the federal registration prong of § 1960 to prosecute individuals conducting these businesses.

The determination of whether these entities are "money services businesses" and subject to the federal registration requirement turns on whether they cross a monetary threshold. The definition of a currency dealer or exchanger excludes a person who does not exchange currency in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions.[204] The definition of a check casher excludes a person who does not cash checks in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions.[205] The definitions of issuers, redeemers, and sellers of traveler's checks and money orders similarly impose a $1,000 threshold.[206] These dollar thresholds make it difficult for law enforcement agents to determine whether a business engaged in check cashing and other activities is subject to the registration requirement.

Moreover, in February 2006, FinCEN advised that a business which develops and implements written policies and procedures excluding it from the definition of money services business would cease to be, and would not be treated as, a money services business for purposes of Bank Secrecy Act requirements relevant to money services businesses under 31 C.F.R. 103:[207] "[t]he date the business begins to implement such written policies and procedures is the effective date on which the business ceases to be a money services business."[208] This advice creates a potential defense not just to a § 1960 charge, but to other alleged violations of the Bank Secrecy Act as well. A check casher under criminal investigation for conducting a check cashing business without registering with FinCEN could simply implement a written policy not to accept checks above the $1,000 thresholds. With a wave of the check casher's wand, their business ceases to be subject to the registration requirements as of the date the check casher implements the policy, and ceases to be subject to various other Part 103 requirements, e.g., the requirement to file currency transaction reports (31 C.F.R. § 103.22).

Like many regulatory decisions made by FinCEN, this one does not have the needs of law enforcement foremost in mind. FinCEN has not provided any mechanism that would allow a law enforcement agency to verify when a check casher or other MSB subject to the $1,000 threshold implements such a policy. Thus, a check casher facing possible criminal charges might be tempted simply to "back date" the implementation date, and thus manufacture a FinCEN-approved defense to a § 1960 charge. Of course, bank records and other documents might betray the fact that check casher handled checks of $1,000 or more on behalf of a single customer in a single day, but even this problem might not be insurmountable for the check casher. FinCEN opined that a business that crosses the $1,000 definitional threshold on a one-time basis is not a check casher, leaving room for the check casher to argue that its $1,000 plus transactions were infrequent or isolated.[209]

[210] Thus, a money transmitting business that operated for 180 days without filing a registration, and then ceased doing business, could not be prosecuted under § 1960(b)(1)(B).

As a practical matter, prosecutors will seldom make the mistake of charging a § 1960(b)(1)(B) violation based on the operation of a money transmitting business during this initial 180-day period. The 180-day grace period may also have impact at sentencing. The exclusion of the initial 180-day period may have a bearing on the advisory guideline analysis under U.S.S.G. § 23S1.3.[211]

[212] There must be a financial (§ 1956) or a monetary transaction (§ 1957). Section 1960(b)(1)(C) allows for the prosecution of transportation crimes in the case of money transmitting businesses that knowingly handle crime proceeds or money intended to commit crime.

Second, and except in the international context, the money laundering statutes do not reach so-called "reverse money laundering" transactions. Reverse money laundering is the process of concealing the future use of money to finance crime, regardless of whether the funds themselves derive from crime.[213] Prior to the USA PATRIOT Act, only one statute-18 U.S.C. § 1956(a)(2)(A)-criminalized reverse money laundering, and only then in international money laundering cases. Section 1960(b)(1)(C) includes a reverse money laundering provision aimed primarily, but not exclusively, at terrorist financing transactions.[214]

Third, the money laundering statutes each contain a requirement beyond simply conducting a knowing transaction with crime proceeds. In § 1956, the defendant must act with one of several specific intents, e.g., to conceal or disguise the crime proceeds or to promote the carrying on of a specified unlawful activity. In the case of § 1957, the monetary transaction must involve more than $10,000 in crime proceeds. Section 1960 criminalizes the knowing transmission of crime proceeds without regard to these specific intents.

Finally, in the case of any money laundering charge (except under § 1956(a)(2)(A)), the government must prove that the funds involved in the offense derive from a "specified unlawful activity." Though the list of "specified unlawful activities" is long, it is not exhaustive. Section 1960 requires only that the funds derive from "unlawful activity," not "specified unlawful activity." The use of the term "unlawful activity" suggests that a money transmitting business that knowingly transmits the proceeds of any state crime (e.g., state prostitution offense) or proceeds of federal crimes (e.g., tax evasion) that are not included in the list of "specified unlawful" activities could be prosecuted under § 1960(b)(1)(C).

An issue common to both the "proceeds" and "promotion" portions of § 1960(b)(1)(C) is whether they reach the activities of low-level participants in a money transmitting business. Recall that Talebnejad holds that mere employees of a money transmitting business cannot be prosecuted under the licensing and registration prongs of § 1960 because they are not to some substantial degree in charge of the operation. Extended to § 1960(b)(1)(C) this holding may prove problematic. In many instances the individual in the money transmitting business who knowingly transmits drug proceeds, for example, will be an employee of the business-not a person in charge. Surely, Congress intends for § 1960 to reach such conduct. After all, Congress modeled § 1960 on § 1955, and the Supreme Court held the latter statute reached any degree of participation in an illegal gambling business (except mere bettor). One way to distinguish Talebnejad is to note that unlike the state licensing and federal registration prongs-which define malum prohibitum offense-the proceeds/promotion prong defines a malum per se offense analogous to the illegal gambling business offense defined in § 1955.

The licensing and registration prongs define alternative methods for a person to violate § 1960-they do not define separate offenses.[215] Less clear is whether a violation of § 1960(b)(1)(C) constitutes a separate offense, or simply an alternative way to prove the existence of any unlicensed money transmitting business. The unit of prosecution under the state licensing and federal registration prongs turns on the conduct of the unlicensed money transmitting business. In contrast, the proceeds/promotion prong defines a transaction-specific crime. In addition to proving that the defendant operated a money transmitting business, the government must also prove under § 1960(b)(1)(C) that the business otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.[216] In other words, the proceeds/promotion prong adds a knowledge element that is transaction specific: the defendant conducting the money transmitting business must know that the funds involved in a specific funds transmission derive from (or are intended to promote) unlawful activity. Conceivably, the unit of prosecution under § 1960(b)(1)(C) is defined by each transportation or transmission of funds that occurs within the conduct of the money transmitting business. However, there is no reported case involving a prosecution under § 1960(b)(1)(C), and the provision has no analogue in § 1955.

[217]

[218]

[219] In determining where the offense, begins, continues or is completed, courts look to the essential elements of the crime.[220]

The essential elements of the state licensing and federal registration prongs of § 1960 are that the defendant conducts a money transmitting business which affects interstate commerce without obtaining the requisite license or registration. In many cases, venue will lie where the defendant conducts the business.[221] But in other cases, the defendant may conduct the business from one jurisdiction, but the business' operations will touch other jurisdictions. For example, the person conducting the business in California could conceivably be prosecuted in Massachusetts, but only if the business accepts funds from customers in Massachusetts for transmission in interstate or foreign commerce.[222] Alternatively, a person may conduct the money transmitting business in California while failing to register with FinCEN- an act which presumably occurs at the IRS facility in Detroit where all FinCEN registrations are required to be filed. In such cases, venue would be proper in California as well as in the Eastern District of Michigan because an essential element of the crime occurs in both venues.[223]

Because venue in a § 1960 case is fairly elastic, § 1960 cases are likely to be more susceptible than most cases to venue transfer motions. Such venue motions are particularly likely in cases where a money transmitter accepts funds from customers in one state, but maintains its principal operations in another state.[224]

[225] But so long as the conduct proscribed by the statute is done in the United States, and so long as the business itself operates in such a way as to subject itself to state licensing or federal registration requirements, then the statute's reach does not implicate the doctrine of extraterritorial jurisdiction.[226]

Other cases will be more difficult. In some cases the defendant may conduct a money transmitting business outside the United States, yet the business may have some contacts within the United States. For example, the business may clear wire transfers through its correspondent account at a U.S. bank, or its customers may be in the United States, even though their transactions occur outside the United States. Or, more directly, a person may conduct, manage or supervise the foreign-end of a money transmitting business that itself operates in the United States. In that scenario, the money transmitting business itself may be subject to U.S. laws, but the proscribed conduct occurs wholly outside the United States.

Congress has the undisputed authority to enforce its laws beyond the territorial boundaries of the United States. However, the Supreme Court has held that it will not give extraterritorial application to U.S. laws unless Congress clearly expresses an intention that the law should apply extraterritorially.[227] No court has yet addressed whether any prong of § 1960 would permit the United States to prosecute a person outside the United States who conducted, controlled or owned an unlicensed money transmitting business.

There is some reason to believe § 1960 could apply extraterritorially. The text of § 1960(b)(2) defines "money transmitting" to include "transfers within this country or to location abroad by wire, check, draft, facsimile, or courier." And, the legislative history is replete with examples where Congress had in mind international wire transfer activity. Persons on both ends of the conduct of an unlicensed money transmitting business (the one in the United States and the one abroad) could conceivably be subject to criminal prosecution under the statute.

However, there are more compelling reasons to question § 1960's extraterritorial application. First, when the statute refers to "locations abroad" it does so to define the meaning of the term "money transmitting." As discussed, Congress has not made it a crime to engage in unlicensed "money transmitting;" it made it a crime to conduct an unlicensed money transmitting business. When Congress intended a criminal money laundering statute to reach persons abroad, it said so far more explicitly.[228] In fact, one could persuasively argue that by omitting § 1960 from § 1956's extraterritorial provision, Congress expressed its intention not to apply § 1960 extraterritorially.[229]

Second, the state licensing and federal registration prongs do not lend themselves to extraterritorial application. To convict a foreign person under the state licensing prong of § 1960, a court would have to conclude that the state had a licensing requirement that extended to foreign money transmitters.[230] Such a conclusion would raise not simply Commerce Clause concerns, but may even raise concerns touching on foreign relations.[231] The federal registration prong could more readily apply to foreign money transmitter, if the transmitter's conduct reached the United States. But even here, FinCEN has shown caution. FinCEN has opined that a foreign currency exchanger with its principal place of business in a foreign country is not required to register with FinCEN, notwithstanding the fact that the currency exchanger uses a U.S. bank account to clear transactions.[232]

[233]

One of the factual elements of both the state licensing and federal registration prong is the requirement that the defendant know that he did not have a license. As applied to this element, the knowledge requirement rests uncomfortably against the language in § 1960(b)(1)(A) which makes it clear that the defendant does not have to know about the licensing requirement, and with cases that have similarly construed the federal registration prong- § 1960(b)(1)(A).

In most cases, the court will infer a defendant's knowledge that the money transmitting business did not have the license from the fact that the defendant operated that business without a license or registration. But such evidence should not foreclose a defense based on mistake of fact. A defendant who knows of the licensing or registration requirement, yet entertains an objectively reasonable mistaken belief that he maintained the requisite license and/or registration, would have a defense to a § 1960 prosecution under the state licensing or federal registration prongs. Because the statute defines a general intent crime, a good faith but unreasonable mistaken belief would not suffice. [234]

[235] One court held the challenge failed on the threshold issue whether § 1960 treats similar classes of people differently.[236] The court observed that the statute indeed creates a dichotomy between one class that faces state sanction and thus federal prosecution and another class that does not face state sanction and thus does not face federal prosecution, but this dichotomy does not trigger an equal protection analysis.[237] Section 1960(b)(1)(A) applies uniformly across the country; it is the state laws on which the federal statute piggy backs that are not uniform.[238]

Beyond this threshold issue, the central issue in other cases is the degree of scrutiny courts should apply. Defendants have argued unsuccessfully for "strict scrutiny" based on the theory § 1960(b)(1)(A) implicates a fundamental right because it imposes punishments-the loss of liberty through incarceration, and the loss of property through forfeiture and fines-based on a violation.[239] Courts respond that "[i]t seems unlikely that strict scrutiny of the classification of punishments or impositions on the basis of a "fundamental interest" analysis has any place in modern equal protection law."[240]

If § 1960(b)(1)(A) is not subject to a strict scrutiny analysis, then the alternative constitutional analysis-rational basis review-is comparatively easy. In enacting § 1960(b)(1)(A), Congress explained that although many states had enacted state licensing laws: "in many instances, insufficient State resources have been devoted to regulation and supervision of the industries or to the pursuit of criminal cases against illegal operators."[241] Buttressing this conclusion is the fact that Congress modeled § 1960, and its incorporation of applicable state law, after 18 U.S.C. § 1955 (the illegal gambling business statute).[242] Section 1955 similarly withstands equal protection challenge.[243] Thus, notwithstanding the patchwork way in which § 1960 incorporates state law, the statute does not violate the Equal Protection Clause.[244]

[245] This is not unusual. Ordinarily, "the knowledge requisite to knowing violation of a statute is factual knowledge as distinguished from knowledge of the law."[246]

However, as the Fourth Circuit noted in Talebnejad, on one occasion the Supreme Court held that due process requires a defendant to know the law that makes his conduct illegal, and the circumstances of that case are sufficiently analogous to merit discussion. In Lambert v. California, the Supreme Court considered the constitutionality of an ordinance that imposed criminal sanctions for violation of a registration requirement.[247] The defendant had been charged with violating a municipal code provision making it an offense for a person who had been convicted of a crime punishable in California as a felony to remain in the city for more than five days without registering with the chief of police. The statute subjected the felon to criminal penalties even if the felon was unaware of the registration requirement. The Court held that the Due Process Clause places some limits on the traditional rule that ignorance of the law is no excuse: "[w]here a person did not know of the duty to register and then where there was no proof of the probability of such knowledge, he may not be convicted consistently with due process."[248]

The Fourth Circuit in Talebnejad distinguished Lambert. It explained that the "key to the ruling of the Court was its characterization of the conduct at issue as "wholly passive," in that violation of the ordinance was "unaccompanied by any activity whatever, mere presence in the city being the test."[249] In fact, the Lambert majority took care to distinguish the registration requirement at issue in that case from other registration requirements. Justice Douglas wrote:

Registration laws are common and their range is wide. Many such laws are akin to licensing statutes in that they pertain to the regulation of business activities. But the present ordinance is entirely different.[250]

In contrast to the registration requirement in Lambert, the licensing requirement in § 1960(b)(1)(A)-and by extension the registration requirement in § 1960(b)(1)(B)-reach the active conduct of operating a business.

In a separate concurring and dissenting opinion, Justice Gregory agreed that § 1960 was not facially unconstitutional. He nonetheless indicated that in some circumstances, § 1960's scienter requirement may raise constitutional concerns. In most circumstances, the individual's direct and knowing participation in the operation of the money transmitting business will provide adequate notice that his or her conduct might be regulated by law.[251] But Justice Gregory allowed for the possibility that someone who owned just a small stake in the business, or who had only an attenuated connection to the business, might be the sort of passive activity that would implicate Lambert's holding.[252]

C.

[253]

At least as applied to conventional money transmitting businesses prosecuted under § 1960(b)(1)(A) and § 1960(b)(1)(B), the conclusion that the statute gives fair notice is unremarkable. Due process requires that a penal statute "give fair warning of the conduct that it makes a crime."[254] In most cases, the underlying state licensing law, and the federal registration law and regulations, will provide the definiteness required to answer any fair notice or vagueness concerns. For federal registration offenses, 31 U.S.C. § 5330(d) specifically defines a money transmitting business.[255] The regulations that implement § 5330(d)(1) add some clarification. In particular, they clarify what it means to be a "business" for purposes of the registration requirement.[256] For example, the statute and regulations make it unequivocally clear that depository institutions and securities brokers cannot be prosecuted under § 1960(b)(1)(B).[257] Moreover, though the statute's scienter requirement is low compared to reporting offenses, it nonetheless exists. Courts seldom find criminal statutes with a scienter requirement void as applied to that defendant's conduct.[258]

However, the outer edges of the statute have yet to be tested, and when tested may expose some vagaries in the statutory and regulatory scheme. Section 1960's reach extends beyond the classic money transmitting businesses-the store front remitter-to include informal money transmitting businesses, such as hawalas and money brokers for drug organizations.[259] Section 1960 reaches these kinds of informal value transfer systems, but its full reach has yet to be tested, particularly in cases involving emerging technologies such as stored value products and on-line payment systems. Moreover, the degree to which small stake investors and minor participants in a money transmitting business come within the ambit of the statute remains untested.[260] Also untested is the extent to which intermittent or informal money transmitting activity, e.g., a person who frequently but irregularly carries currency to Pakistan on behalf of associates or friends might come within the statute's reach.[261] Courts will also continue to struggle with whether § 1960(b)(1)(A) incorporates state law.[262]

[263]

In fact, no prong of § 1960 defines a reporting offense. The section shares some similarities to Bank Secrecy Act violations, including reporting offenses, but in fact it is more closely analogous to a § 1955 offense or even a violation of the Glass-Steagall Act. It is as though Congress enacted a law proscribing criminal punishment for banks that fail to license and register, and the Sentencing Commission looked at the violation and decided it most closely resembled a trade or business' failure to file a Form 8300 report on a currency transaction. Nonetheless, there it is. A court sentencing a defendant convicted of a § 1960 violation (except a § 1960(b)(1)(C)) consults Section 2S1.3 of the United States Sentencing Guidelines (USSG) in determining the defendant's advisory guideline sentencing range.[264]

Given that the Commission seems to have misunderstood the §1960 offense, it is not surprising that its decision to reference § 1960 to section 2S1.3 has the potential to yield high advisory guideline sentences. In computing a defendant's advisory guideline sentence under section 2S1.3, the court begins with an offense level six, and adds the number of offense levels from section 2B1.1 that correspond to the value of the funds involved in the offense. In a case involving structuring, for example, this formula has the potential to yield high sentences, but not unreasonably so. A person who purchases a $50,000 automobile in a structured currency transaction would, under section 2S1.3, face a base offense level of twelve (12). However, when the operator of an unlicensed money transmitting business is run through a section 2S1.3 analysis, the guideline computation gets large, fast. In the case of an illegal money transmitting business, the value of the funds involved in the offense equals the total amount of funds transmitted through the illegal money transmitting business.[265] A person who operates an unlicensed money transmitting business that transmits slightly more than $100,000,000, an infinitesimally small amount compared to what a typical bank transmits in a single day, faces a base offense level of thirty-two (32).[266] Assuming no other adjustments, and assuming no criminal history, the advisory guidelines would call for a sentence of 121-151 months. In cases involving on-going money transmitting business activity, the computation described above will result in a base offense level comparable to (if not higher than) that which would apply in a money laundering case. This is despite the fact that in a § 1960 prosecution under either the state licensing or registration prongs, the government does not have to show that any of the funds transmitted were derived from criminal activity.

Defendants faced with sentencing for a violation of § 1960 variously argue that section 2S1.3(a) overstates the seriousness of the offense. Their argument takes one of two forms. First, defendants argue for a downward adjustment under application note 19(c) of USSG § 2B1. That application note states that, "[t]here will be cases in which the offense level determined under this guideline substantially overstates the seriousness of the offense. In such cases, a downward departure may be warranted."[267] This argument also certainly fails. Section 2S1.3(a)(2) instructs the district court to add the number of offense levels "from the table" in section 2B1.1; it does not refer to any other provision of section 2B1.1: "[a]n instruction to use a particular subsection or table from another offense guideline refers only to the particular subsection or table referenced, and not to the entire offense guideline."[268]

The better argument tracks the reasoning of a recent dissenting opinion from the Fourth Circuit Court of Appeals. In her concurring opinion in United States v. Clark, Judge Motz suggested that a court sentencing for a violation of the state licensing prong may consult state sentences in determining the appropriate federal sentence.[269] Comparisons to state law will almost always favor the defendant because few, if any, state laws provide for sentences anywhere near as severe as section 2S1.3.

Section 2S1.3(b)(1) directs the court to add two more offense levels if either: (a) the defendant knew or believed the funds derived from unlawful activity, or (b) the offense of conviction was a violation of subchapter II of Title 31, e.g., structuring, and the defendant committed the offense as part of a pattern of unlawful activity involving more than $100,000 in a twelve-month period. The reference to Title 31 offenses is significant. In many cases, a defendant who conducts an unlicensed money transmitting business may engage in related crimes such as structuring or comparable BSA violations.[270] If so, the safe harbor provision discussed below is categorically unavailable.

The defendant may qualify for a reduction in the advisory guideline to a level six if (a) neither of the section 2S1.3(b) enhancements apply, (b) the defendant shows he did not act with reckless disregard as to the source of the funds, (c) shows the funds were the proceeds of lawful activity, and (d) shows the funds were to be used for a lawful purpose. In a case where a section 2S1.3(b)(2) enhancement applies, a defendant will never qualify for the safe harbor. Moreover, in a case involving illegal money transmitting, the defendant will have a difficult time demonstrating that the funds were the proceeds of lawful activity and were intended for lawful purpose.[271]

[272]

The Sentencing Commission may need to rethink how it treats § 1960(b)(1)(C) offenses. Its decision to refer them to section 2S1.1 may, depending on one's point of view, either understate the seriousness of the § 1960(b)(1)(C) offense or overstate the seriousness of the § 1960(b)(1)(A) and (B) offenses. To illustrate, consider the following hypothetical. Suppose a person operates a money transmitting business while failing to register with FinCEN-a violation of § 1960(b)(1)(B)-and is sentenced under section 2S1.3. Section 2S1.3 requires the court, in computing the base offense level, to add the number of offense levels from the table in Section 2B1.1 that corresponds to the "value of the funds." In a § 1960(b)(1)(A) prosecution the "value of the funds" will equal the total amount of money transmitted through the money transmitting business during the period of time it operated while failing to register with FinCEN. This could be a huge amount. For instance, in a case in which an unlicensed money transmitting business sent slightly more than $1,000,000, section 2S1.3 would call for a base offense level (before any other adjustments) of twenty-two (22).

Contrast that with a money transmitting business handling a comparable volume ($1,000,000) in wire activity. The conductor of that business maintains all of the requisite licenses and registrations, and is not involved in any underlying unlawful activity, but knowingly transmits $100,000 in funds derived from unlawful activity. Most people would agree that such conduct is far more serious than the simple failure to register with FinCEN and more squarely implicates Congress' rationale for enacting § 1960 in the first place. Yet, under section 2S1.1 the base offense level for the latter offense level would be eight (8) plus the number of offense levels from the table in section 2B1.1 that correspond to the "value of the laundered funds." The "value of the laundered funds" is not the total amount transmitted through the business, but only the portion of the funds that were actually laundered through the business, i.e., $100,000. This means that the court would only add eight (8) offense levels from the table in section 2B1.1. The base offense level (before any other adjustments) would only be sixteen (16). This is significantly less than the base offense level of twenty-two (22) received by the defendant who merely failed to register with FinCEN.

[273]

However, the term "involved in" may have a different reach for offenses under § 1960. Unlike the money laundering statutes, the state licensing and federal registration prongs of § 1960 do not punish transaction-based activity, i.e., money transmitting activity. Moreover, they do not punish the omission that makes the money transmitting business unlicensed, i.e., the failure to license or register. Instead, they punish individuals for their role in conducting the illegal money transmission business. In other words, these prongs punish those who own, conduct, control, and supervise the illegal money transmitting business. This means that the property "involved in" the § 1960 offense may vary depending on the offender's role in the business. Property involved in the knowing ownership of the illegal money transmitting business may include all of the business assets, but not necessarily customer funds that pass through the business, unless perhaps it could be said the business owned those funds as they passed through the business' accounts.[274] In contrast, property involved in the conduct of the business may not include all of the assets owned by the business, but it may include all of the funds that pass through the business.[275]

It could be argued that the funds that passed through the illegal money transmitting business are gone, and no longer remain available for forfeiture, except perhaps by way of a forfeiture money judgment.[276] However, the criminal and civil forfeiture statutes both authorize the forfeiture of property traceable to the § 1960 offense.[277] Under tracing rules, property that is subject to forfeiture remains subject to forfeiture even as it changes form.[278] Furthermore, in the case of funds held in bank accounts, and in other fungible forms, Congress relaxed the tracing requirements to permit the forfeiture of equivalent funds.[279]

Like the money laundering statutes, § 1960(b)(1)(C) defines a transaction-specific crime. In addition to proving that the defendant operated a money transmitting business, the government must also prove that the business otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity. Thus, the funds "involved in" the transportation or transmission of funds are the tainted funds themselves, funds commingled with the tainted funds, and property that facilitates the transportation or transmission offense, e.g., the car used to transport the tainted funds. The scope of such forfeiture closely resembles the scope of forfeiture available in a money laundering case.

[280]

The more difficult issue is whether the customers of those businesses will also have standing to contest the forfeiture of the funds. Thus far, only a handful of published cases address this issue. In the leading case, United States v. 47 10-ounce Gold Bars, the United States brought a civil forfeiture action against the precious metal reserves of an internet gold exchange business.[281] The government contended that such precious metals were "involved in" the conduct of an illegal money transmitting business in violation of 18 U.S.C. § 1960, and therefore subject to forfeiture under 18 U.S.C. § 981(a)(1)(A). Two customers of the gold exchange asserted claims to the precious metals, arguing that they purchased gold and silver, and maintained that gold and silver in the gold exchange's inventory. Following the reasoning of a New York district court that addressed a similar issue, the court held that the plaintiff lacked standing to contest the forfeiture because the customers "retained neither title nor dominion and control over the seized property," and were thus like a customer who deposits funds in a general bank account.[282] In effect, the customer is merely a general creditor of the money transmitting business. As a rule, general creditors lack standing to contest the forfeiture of the debtor's assets.[283]

3.

[284] He knew of the reporting requirement and lied when questioned by a customs agent about how much currency he was carrying. In his subsequent criminal prosecution under § 5322, the government sought to forfeit the entire sum of money ($357,144) involved in the reporting offense.[285]

The Court said that the touchstone of an excessive fines analysis was whether the forfeiture was grossly disproportional to the gravity of the offense.[286] The Court held that the forfeiture of the entire amount of the currency was grossly disproportionate to the gravity of the offense.[287] It emphasized that Bajakajian's crime was solely a reporting offense, and unrelated to the illegal activities that animate the purpose of the statute because the government had no proof that Bajakajian was a money launderer, drug trafficker, or tax evader.[288] Moreover, the defendant faced only low-range guideline fine and sentence. Finally, the harm caused by the offense conduct was minimal; the government was deprived of information, but that was all.[289]

There are many parallels between the forfeiture for the CMIR violation at issue in Bajakajian and potential forfeitures for a violation of either the state licensing or federal registration prong of § 1960. Both the CMIR offense and the § 1960 offense involve the failure to do something-to file a report in the case of CMIR violation, and to license or register in the case of the § 1960 violation. Both offenses punish conduct potentially unrelated to other criminal conduct, and thus reach a defendant who "does not fit into the class of persons for whom the statute was principally aimed." Furthermore, in the case of both offenses, the harm to the public may be minimal.

Nonetheless, the gravity of the offense in a § 1960 case prosecuted under either the state licensing or federal registration prongs is likely greater than the offense involved in Bajakajian. Bajakajian involved a one-time currency transaction reporting offense.[290] The offensive conduct in any § 1960 case necessarily involves on-going activity; the statute does not punish isolated instances of illegal money transmitting activity.[291] The Fifth Circuit Court of Appeals distinguished Bajakajian on similar grounds in a case involving a regulatory offense.[292]

Moreover, in Bajakajian the defendant merely deprived the government of information, thus the harm from the offense was fairly limited. A person that evades the CMIR reporting requirement deprives the government of information that is highly useful in money laundering and tax investigations, but there is no broader harm to the public.[293] In contrast, a person who evades a state licensing or federal registration requirement effectively evades a whole host of regulatory requirements that apply to such businesses. The conduct is comparable to operating a bank outside of the vast regulatory regime that governs banking at the state and federal levels. Moreover, licensed competitors of the unlicensed money transmitting business suffer. They have to bear the considerable expense by adhering to the regulatory requirements, and are placed at a disadvantage when competing with the unlicensed money transmitter.

In contrast to violations of state licensing and federal registration prongs, the forfeiture of funds under the proceeds/promotion prong of § 1960 should not raise an excessive fines issue. In other contexts, courts consistently hold that the forfeiture of crime proceeds, such as drug proceeds, can never be constitutionally excessive.[294] Similarly, the civil forfeiture of funds used to promote crime, e.g., money intended to finance terrorism, would not trigger an excessive fines analysis. Such forfeiture might rightly be characterized as purely remedial, and thus not subject to an Eighth Amendment analysis.[295]