Table of Contents
- Introduction
- What type of crypto companies are MSBs?
- MSB: What is a money transmitter?
- FinCEN vs crypto money transmitters
- What regulatory steps must U.S. MSBs complete?
- What happens if an MSB doesn’t comply with FinCeN
Introduction
If your U.S.-based business regularly handles cryptocurrency, you’ve likely encountered the regulatory terms “money services business” (MSB) and “money transmitter.” If not, you may be operating in regulatory gray—or red—territory, exposing yourself to significant compliance risks under both federal and state anti-money laundering (AML) laws.
At the federal level, the Financial Crimes Enforcement Network (FinCEN) treats many crypto-related activities as falling within the scope of MSBs. While FinCEN considers virtual currency to be a form of “value that substitutes for currency,” rather than legal tender or a commodity, the practical result is clear: most crypto businesses are subject to federal registration and compliance obligations under the Bank Secrecy Act (BSA).
Critically, many such businesses are also classified as “money transmitters,” a designation that triggers extensive regulatory obligations—including AML program requirements and, in most states, licensure in every jurisdiction where customers reside. Only Montana currently lacks a state-level money transmitter licensing regime.The BSA remains a foundational element of the U.S. AML framework and continues to influence global standards, including through the Financial Action Task Force’s (FATF) Travel Rule—a key policy extending AML duties to virtual asset service providers worldwide.
What type of crypto companies are MSBs?
In 1999, FinCEN updated its regulations under the BSA to create a consolidated framework for non-bank financial institutions. This revision introduced the category of Money Services Businesses (MSBs), grouping together several types of entities—including money transmitters, a category that would become central to later crypto regulation.
In 2011, FinCEN issued its MSB Final Rule, which formally defined an MSB as “a person, wherever located, doing business—whether or not on a regular basis or as a licensed business concern—wholly or in substantial part within the United States,” and acting directly or through agents, branches, or offices. The rule specifically included those engaged in money transmission, among other activities.
Under current BSA regulations, MSBs fall into five main categories:
- Currency dealers or exchangers
- Check cashers
- Traveler’s check or money order issuers
- Traveler’s check or money order sellers or redeemers
- Money transmitters
Accordingly, while every money transmitter is classified as a money services business, not all money services businesses qualify as money transmitters.
What is a money transmitter?
The 2019 FinCEN Guidance defines a money transmitter as someone who accepts funds from one person and transfers them to another location or person. To legally operate as a money transmitter in the United States, a business must register at the federal level and obtain licenses in each state where it conducts money transmission activities.
Under 18 U.S.C. § 1960, any business engaged in activities that meet a state’s definition of money transmission is required to be licensed accordingly. This requirement applies regardless of whether the business handles fiat currency or virtual assets.
Cryptocurrency businesses are not exempt. Depending on the nature of their operations, entities such as Bitcoin ATM operators, crypto exchanges, payment processors, certain wallet providers, and even some decentralized applications (dApps) may be considered money transmitters and therefore subject to both federal registration and state licensing obligations.
Below, we outline the key steps required to obtain a money transmitter license for crypto-related businesses and ensure compliance with the applicable regulatory framework.
FinCEN vs Crypto Money Transmitters
After years of legal and regulatory ambiguity, FinCEN finally extended this requirement to the virtual currency industry. In its guidance the After years of regulatory uncertainty, FinCEN formally extended money transmission requirements to the virtual currency sector. In FinCEN’s 2019 Guidance, the agency clarified that for purposes of money transmission regulation, it makes no distinction between fiat currency and virtual currency such as Bitcoin. In other words, businesses transmitting value that substitutes for currency—regardless of the medium—are subject to the same obligations under the Bank Secrecy Act.
Pursuant to 31 C.F.R. § 1010.100, the term “money transmitter” includes those providing money transmission services, or engaging in the transfer of funds. “Money transmission services” entail the “acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”
Note FinCEN’s use of the phrase “other value that substitutes for currency”—a deliberate inclusion meant to capture virtual currencies within the scope of money transmission regulation.
As a result, companies that operate as peer-to-peer exchangers, receive virtual currency from one party and transmit it to another, host wallets, or accept cryptocurrency on behalf of merchants without proper measures in place are generally considered money transmitters under federal law. However, individuals and businesses that merely use virtual currency to buy or sell goods and services—without acting as an intermediary—are not classified as money transmitters. For a further dive into what constitutes an MSB under FinCEN’s 2019 Guidance, see Navigating FinCEN’s Latest Guidance.
Despite providing detailed guidance, FinCEN acknowledges that a business is not automatically deemed a money transmitter simply because it engages in certain covered activities. The agency has been careful to avoid a one-size-fits-all application of its rules, emphasizing that context matters and that each business model must be evaluated on a case-by-case basis.
There is no bright-line test—interpretation often depends on the specific facts and functions involved. As with much of the legal landscape, gray areas persist, making it essential for crypto companies and individuals to seek tailored advice from qualified legal and compliance professionals.
What regulatory steps must U.S. MSBs complete?
Complying with money services business (MSB) regulations can be complex and intimidating—particularly for companies operating in the evolving virtual currency space. The key is to start with the foundational steps
Step 1: Federal Registration
If your crypto business meets the definition of an MSB, your first step is to register with FinCEN, the Financial Crimes Enforcement Network. Since 2011, this has been a federal requirement for any business engaging in money transmission.
Registration is completed through the BSA E-Filing System. You’ll also need to prepare and maintain a list of your agents, if applicable, and update your registration every two years.
Step 2: Creating an AML Program
Once registered, the next critical requirement is to develop and implement a comprehensive Anti-Money Laundering (AML) program that meets FinCEN’s standards under the Bank Secrecy Act (BSA). This program must be in place before you begin offering products or services.
A compliant AML program must include:
- Appointment of a qualified AML Compliance Officer
- Written policies and procedures for monitoring and reporting suspicious activity
- Independent review of the AML program
- Ongoing training for relevant personnel
Given the complexity and importance of these obligations, working with a compliance attorney or AML specialist—such as the team at Kelman Law—can help ensure your program is both effective and regulator-ready.
Understanding SAR and CTR Requirements
A core element of your AML obligations involves reporting certain transactions through Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs).
MSBs must file a CTR for any cash transaction exceeding $10,000 by a single person on a single business day. This is mandatory under the BSA.
Since 1998, FinCEN has required MSBs to report suspicious transactions through SARs. Following the enactment of the Patriot Act, SARs have become a global cornerstone of AML/CFT efforts.
MSBs must file a SAR for any transaction involving $2,000 or more that appears to involve:
- Funds derived from illegal activity
- Attempts to evade BSA requirements
- Transactions with no apparent lawful purpose
SARs are submitted through the BSA E-Filing Portal. For detailed FinCEN guidance on filing eligible SARs, refer here.
Step 3: Obtaining State-Level Money Transmitter Licenses (MTLs)
After addressing federal registration and AML obligations, your crypto MSB must secure state-level money transmitter licenses (MTLs) in each U.S. state where you operate or have customers. The only exception is Montana, which does not currently regulate money transmission.
Unfortunately, this is where compliance gets more burdensome. State definitions of money transmission vary widely, and many states are still evolving their approach to virtual currency businesses. Some have enacted crypto-friendly regulations, while others remain restrictive or ambiguous—creating a fragmented and dynamic regulatory landscape.
Because there is no uniform framework, crypto companies must navigate licensing requirements on a state-by-state basis, considering not only licensing but also bonding requirements, net worth thresholds, and ongoing reporting.
The Penalties for Not Registering as an MSB
FinCEN has made one point abundantly clear: ignorance of the law is not a defense. The agency regularly issues public guidance and expects financial institutions—including crypto businesses—to stay informed and compliant with their obligations under the Bank Secrecy Act (BSA).
Failure to register as a money services business (MSB) can carry serious consequences, including:
- Civil penalties of up to $5,000 per violation, and
- Criminal penalties of up to five years in prison under 18 U.S.C. § 1960.
A landmark enforcement action in 2019 highlighted FinCEN’s willingness to target even individual actors in the virtual currency space. In that case, Eric Powers, a peer-to-peer Bitcoin trader, was fined $35,000 and permanently barred from operating as a money transmitter after failing to register as an MSB and comply with AML requirements.
FinCEN Director Kenneth Blanco underscored the broader message in the wake of the Powers case:
“Obligations under the BSA apply to money transmitters regardless of their size.”
The takeaway is clear: compliance is not optional, even for small or informal crypto businesses.
Where to start
The big question remains: Does your crypto business qualify as a money services business under the law?
Many virtual asset activities—from exchanging crypto to facilitating payments—fall squarely within FinCEN’s MSB framework. The only way to get definitive clarity is to consult with a legal or compliance professional who specializes in cryptocurrency regulation and AML obligations. We provide the legal counsel needed to navigate these exciting developments. If you believe we can assist, schedule a consultation here.
