Exhibits D-F to Response and Opposition to State Defendants' Motion to Dismiss re [25] filed by Think Computer Corporation. (Carroll, Michael) (Filed on 2/28/2012) Text modified on 3/1/2012 conforming to posted document incorrect event type used when posting Exhibits (bw, COURT STAFF).
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Page 1 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page1 of 11
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| _ EXHIBIT D~Page 2 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page2 of 11
Department of fhe Treasury
Financial Crimes Enforcement Network
Ruling
FIN-2009-R001
Issued: January 22, 2009
Subject: Whether Certain Operations of a Service Provider to Prepaid Stored
Value Program Participants is a Money Services Business
Dear []: -
I am responding to your letter of September 20, 2005 to the U.S. Department of
the Treasury. You seek a determination as to whether your client, [] (“the Company”), is
a money services business (“MSB”) as that term is defined in our regulations by virtue of
having entered into a distributorship agreement with [] (“the Arranger”).
You represent that the Company has traditionaliy engaged in several types of
activities related to the sale of stored value. The Company provides point-of-sale
(“POS”) interface, network and data processing software, and it owns POS terminals
located at retail establishments through which prepaid stored value products and other
related services are sold. The Company contracts with sellers or issuers of stored value
products to process the sale of these products through the Company’s POS terminals.
The Company also serves as the processing conduit among purchasers, retailers, issuers,
and/or issuer’s banks, through its POS terminals and transaction processing platform, for
the sale of stored value products.
You additionally represent that the Company has entered into a distributorship
agreement with the Arranger in which the Company serves as a service provider for the
Arranger in connection with the sale of stored value cards (“Cards”), issued by [] (the
“Bank”) and bearing the Arranger’s brand, by retailers operating as the Arranger’s sales
agents. The Cards can be loaded with up to $1,000 per day and $2,500 per month. The
Company is aware that purchasers of these Cards may send them to family members,
friends, or associates located in countries outside the U.S. Under the distributorship
agreement, the Company will engage in marketing and sales promotion with retailers on
the Arranger’s behalf, capture card purchase and reload funds accepted by retailers, and
transfer those funds to the Bank for crediting to the appropriate stored value accounts.
The Company does not independently sell the Cards or any other stored value product.
Our regulations define the term “money services business” to include a money
transmitter, defined as “any person ... who engages as a business in accepting currency,
| exHiit 7Page 3 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page3 of 11
Page 2
or funds denominated in currency, and transmits the currency or funds or the value of the
currency or funds, by any means through a financial agency or institution ... or any other
person engaged as a business in the transfer of funds” The money transmitter definition
also provides that “the acceptance and transmission of funds as an integral part of the
execution and settlement of a transaction other than the funds transmission itself ... will
not cause a person to be a money transmitter.”
It is clear that the Company’s activities outside of the distributorship agreement
do not meet this definition. When selling and marketing its software and hardware
products to retailers, program managers, and issuing banks, the Company is providing
data processing hardware and software and product networking services — not money
transmitting services — to merchants and financial institutions. In addition, to the extent
that the Company processes specific stored value transactions by submitting payment
instructions obtained from merchants to issuing banks for ACH processing, and remitting
funds received through the ACH process to the merchants, the Company is effectively
operating as a merchant payment processor. FinCEN has already concluded that a —
merchant payment processor acting exclusively on behalf of merchants receiving
payments for goods and services, rather than on behalf of consumers making payments to
merchants, is not a money transmitter.
Moreover, when acting as service provider for the Arranger — capturing the card
purchase and reload amounts accepted by the retailers, withholding its fees, and then
‘transferring to the Issuing Bank the cumulative amounts for the credit of the Arranger —
the Company is doing so solely in connection with the sale of stored value by the
Arranger through its sales agents, the third-party retailers, consistent with the pre-existing
agreement between the Company and the Arranger. The acceptance and transmission of
funds is an integral part of the execution and settlement of a transaction other than the
funds transmission itself, namely the issuance and sale of stored value by the Bank
through third-party retailers, As a result, to the extent that the Company transmits funds
in connection with the sale and reload of stored value as service provider for the Arranger
in the manner described above, the Company is not a money transmitter under our
regulations,
In addition, our regulations define a money services business to include a seller or
redeemer of stored value who sells or redeems stored value in an amount greater than
31 C.F.R. § 103.1 1(au)(5)Ci).
*31 CR. § 103.1 Huu)(5)(Cid.
* See FinCEN Ruling 2003-8 — Definition of Money Transmitter (Merchant Payment Processor) (Noy, 19,
2003) (“to the extent that [one's role) is limited to submitting payment instructions obtained froma
merchant to a bank for ACH processing, and remitting funds received through the ACH process to the
merchant... [one would not be] a money transmitter for the purposes of 3 1 CFR 103.11 (uu)(5)”).
s 5Page 4 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page4 of 11
Page 3
$1,000 per person per day in one or more transactions.’ Stored value is defined as “funds
or monetary value represented in digital electronics format (whether or not specially
encrypted) and stored or capable of storage on electronic media in such a way as to be
retrievable and transferable electronically.”° As service provider for the Arranger,
engaged in the marketing, sale, loading and reloading of the Cards only as an
intermediary between the Arranger and its selling agents, the Company would not be a
seller or redeemer of stored value as that term is defined in our regulations. Rather, the
Company would be engaging in providing back-office services in connection with the
provision of a stored value product.
This ruling is provided in accordance with the procedures set forth at 31 C.F.R.
§ 103.81. In arriving at our conclusions in this letter, we have relied upon the accuracy
and completeness of the representations made in your letter. Nothing precludes us from
reaching a different conclusion or taking further action if circumstances change or any of
* that information provided is inaccurate or incomplete. We reserve the right, after
redacting your name and address and the Company’s name, to publish this letter as
guidance to financial institutions in accordance with our regulations for requesting an
administrative ruling,” You have fourteen days from the date of this letter to identify any
other information you believe should be redacted and the legal basis for redaction.
If you have questions about this ruling, please contact [FinCEN’s regulatory
helpline at (800) 949-2732]. .
Sincerely,
# signed //
Jamal E1-Hindi
Associate Director
Regulatory Policy and Programs Division
“31 CBR. § 103.11 (uu)(4),
°31 CER. § 103,11(vv).
® Beyond the conclusion that the Company is not the issuer or seller of the Card, this ruling reaches no
conclusion as to (1) who among the Arranger and its sales agents is the “seller” of the Card, or (2) whether
the seller of the Card is a money services business as defined by our regulations. With respect to the first
of these points, we note that you have made no representations as to the nature of the agreement between
the Arranger and its sales agents beyond those in this ruling. With respect to the second of these points, we
note that, while you have represented that no mere than $1,000 will be able to be loaded onto one Card on
any given day, you have alse not made any representation regarding whether one single customer might
obtain or maintain more than one Card in one day, and therefore exceed the $1,000 a person/a day
threshold set for stored value.
731 CER. $§ 103.81-87. ,Page 5 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page5d of 11
| _” EXHIBIT EPage 6 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page6 of 11
) pepanment of the Treasury
} Financial Crimes Enforcement Network
Ruling
FIN-2008-R005
Issued;- March 10, 2008
Subject: Whether Certain Reloadable Card Oper ations : are Money Services
Businesses
This letter is in response to a request from [Service Company], a subsidiary of
[Parent], dated June 6, 2007, to the Financial Crimes Enforcement Network (FinCEN) for
an administrative ruling concerning the treatment under the Bank Secrecy Act (BSA).
provisions applicable to money services businesses (MSBs) of [Service Company]
member- “sponsored merchants and retail operators of automated teller machines (ATMs)
that participate in the [Service Company]'s Prepaid Card Reload Program, FinCEN
determines that {Service Company] member-sponsored merchants and ATMs are not
MSBs to the extent that they participate in this program as described below.
You represent that the [Service Company] consists of approximately 5,700 bank,
savings association, credit union, and bank or savings and loan holding company
members (“[Service Company] members”) located throughout the United States that are
financial institutions subject to the requirements of the BSA and its implementing
_ tegulations. There are approximately 140 million [Service Company] cards in circulation -
that may be used at over 1.9 million [Service Company] ATM and point-of-sale (POS)
locations. These personal identification number (PIN) secured ATM, debit and prepaid
cards are issued by [Service Company] members and can be used to withdraw cash, make
purchases, check account balances and engage in certain other transactions at ATMs and
merchant point-of-sale (POS) terminals either owned by, or sponsored by, [Service
Company] members. [Service Company] members that sponsor ATMs and merchants
are fully responsible for transactions initiated at those ATMs and POS terminals to the
same extent as if they owned and operated them.
Currently, value can only be added to [Service Company] reloadable cards by
[Service Company] members conducting transactions through in-branch payments,
automated clearing house direct deposits, or through receipt of transfers of value to the
cards facilitated by competing reload networks. You represent that the [Service
Company] anticipates expanding its network capabilities to allow [Service Company]
member-sponsored ATMs and merchants to serve as additional conduits for customers
seeking to add value to [Service Company] reloadable cards. The proposed process fér
adding value to a reloadable card at a [Service Company] member-sponsored merchant or
: EXHIBIT {0Page 7 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page7 of 11
Page 2
ATM would require that the member-sponsored ATM or merchant collect funds from the
customer to be forwarded to the [Service Company] member, and that the [Service
Company} member verify that: (i) the account is open and in good standing, (2) the
correct personal identification number is entered, and (3) other member-established limits
on the number, dollar value and frequency of reload transactions have not been exceeded.
The [Service Company] member would then return an approval response to the sponsored
merchant or ATM, and credit the reloadable card, less any service fee. The [Service
Company] member would bear the risk of merchant default on the obligation to forward
funds.
Our regulations define the term “money services business”! to include, among
others, persons doing business as a seller or redeemer of stored value or as a money
transmitter.’ A seller or redeemer of stored value is defined as a person who sells stored
value in an amount greater than $1,000 per person per day.’ Stored value is defined as
“funds or monetary value represented in digital electronics format (whether or not
speciaily encrypted) and stored or capable of storage on electronic media in such a way
as to be retrievable and transferable electronically,”* A money transmitter is defined as
“any person,..who engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds or the value of the currency or funds, by
any means through a financial agency or institution.’ Further, the money transmitter
definition also provides that “the acceptance and transmission of funds as an integral part
of the exccution and settlement of a transaction other than the funds transmission
itself.,.will not cause a person to be a money transmitter.”°
[Service Company] members, which are banks as defined by the BSA’s
implementing regulations’, control how their sponsored merchants and ATMs facilitate
adding value onto [Service Company] prepaid cards. While member-sponsored ATMs
and merchants serve as the physical point in the reload process where the card is
presented to transmit data to the [Service Company] member, aswell as the point where
the customer presents funds for collection, the [Service Company] member controls and
conducts the actual transaction that resuits in the adding of value to the reloadable card. ~
It is the [Service Company] member that verifies the PIN, determines that the terms of
use have not been exceeded, determines the acceptable forms of payment, and bears the
risk of loss if payment is not collected or forwarded. Member-sponsored merchants and
ATMs only act as a conduit between the [Service Company] member and the members’
customers, [Service Company] member-sponsored merchants and ATMS have no
control over the reload process, and cannot even complete a reload transaction if the
'31 CFR. $103.1 I(uu) (definition of a money services business).
"Id.
°31 CAR. $103.1 1@uu)(4),
*31 CFR. $103.1 1{vv).
°31 CFR. $103.1 1(u)(S)€i)(A).
°31 CF.R. $103.1 1(uu)(5)Ci) (emphasis added).
"31 CER. $103,11(c). , ’Page 8 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page8 of 11
Page 3
member bank rejects the request to add value to the card. As a result, we do not deem a
[Service Company] member-sponsored merchant or ATM for purposes of its
participation in the [Service Company] Prepaid Card Reload Program to be a seller of -
stored value.
Finally, [Service Company] member-sponsored merchants and ATMs nominally
accept funds from customers and transmit those funds to the appropriate [Service
Company] members, However, they do so solely in connection with the sale of stored
value by the [Service Company} member to the customer consistent with the pre-existing
agreement between the [Service Company] member and the customer. The acceptance
and transmission of funds is an integral part of the execution and settlement of a
transaction other than the finds transmission itself, namely the sale of stored value. Asa
result, to the extent that [Service Company] member-sponsored merchants and ATMS
transmit funds in connection with such sales of stored value, [Service Company]
member-sponsored merchants and ATMs are not money transmitters.
This ruling is provided in accordance with the procedures set forth at 31 C.F.R. §
103.81. In arriving at our conclusions, we have relied upon the accuracy and
completeness of the representations made in your letter. Nothing precludes FinCEN from
arriving at a different conclusion or from taking other action should circumstances
change, or if any of the information you have provided proves inaccurate or incomplete.
We reserve the right, after redacting your name and address to publish this letter as
guidance in accordance with our regulations. Please inform us within fourteen (14) days
from the date of this letter of any other information that you believe should be redacted
from this letter and the legal basis for redaction.
If you have any questions regarding this administrative ruling, please contact
iFinCEN’s regulatory helpline at (800) 949-2732].
Sincerely,
Hsigned//
Jamal El-Hindi
Associate Director
Regulatory Policy and Programs DivisionPage 9 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page9 of 11
| EXHIBIT FPage 10 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page10 of 11
Financial Crimes Enforcement Network
Department of the Treasury
FinCEN Ruling 2003-8 — Definition of Money Transmitter (Merchant Payment
Processor)
November 19, 2003
Dear[ ]: ,
This letter responds to your letter dated February 5, 2003, requesting an
administrative ruting with respect to whether [ _] is required to register with FinCEN as
- a Money Services Business in accordance with 31 CFR 103.41 by virtue of operating
‘{ ]. Based on the representations contained in your letter, FinCEN has determined that
[ fi is not a Money Services Business as defined in 31 CFR 103.!1(uu), by virtue of the
ACH processing services provided by [ __], and is therefore not required to register with
FinCEN. ;
According to your letter, {| operates a service called [ —_] that provides third-
party origination services for Automated Clearing House (“ACH”) transactions on behalf
of merchants, Through { ], merchants can accept customer payments for purchases
made through a merchant’s web site, or by telephone, in the form of a checking account
debit. [ }’s merchant customers obtain payment instructions to debit a customer's
checking account and submit these payment instructions to[ ]through[ ].[ ]
batches and submits the debit information to[_]’s bank for processing through the ACH
system, Once[ ]’s bank initiates the ACH, the depository institution at which the
merchant’s customer maintains a checking account debits the account of the customer,
_ and sends a credit instruction through ACH to[ ]’s bank, which then credits the
amount to an operating account maintained at the bank by[ _]. After a temporary
holding period to ensure that the transaction initiated by the merchant is not returned,
{ ] remits the funds to the merchant. Through[ _ ], merchants are also able to initiate
credits to provide refiinds to customers. You have asked whether [ _] would be deemed
a money transmitter in accordarice with 31 CFR 103.11(uu)(5) by virtue of providing this
service.
- The definition of money transmitter for purposes of BSA regulations found at
_ 31 CFR 103.11 ¢(uu)(5) includes:
(A) [a]ny person, whether or not licensed or required to be licensed, who
engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds, or the value of the currency
or funds, by any means through a financial agency or institution, a Federal
Reserve Bank or other facility of one or more Federal Reserve Banks, the
| | XH pir :Page 11 Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page11 of 11
Board of Governors of the Federal Reserve System, or both, or an
electronic funds transfer network; or
(B) [ajny other person engaged as a business in the transfer of funds.
FinCEN does not currently interpret the definition of money transmitter to include the
third-party origination service that is described in your letter. The nature of the
transactions you describe is the transfer of funds through the ACH system froma
customer to a merchant as payment for goods and services. [ _]’s role in the ;
transactions is to provide merchants with a portal to a financial institution that has access
to the ACH system. [ _ ] acts on behalf of merchants receiving payments rather than on
behalf of customers making payments. For these reasons, the service that[ _] provides
through [ _] more closely resembles payment processing/settlement than money
transmission, Therefore, to the extent that the role of [ _] in such transactions is limited
to submitting payment instructions obtained from a merchant to a bank for ACH
processing, and remitting the funds received through the ACH process to the merchant
(or in some cases, refunding money to the merchant’s customer through an ACH
transaction), FinCEN would not deem [J a money transmitter for purposes of 31 CFR
103.1 1(@m)(5)}.
In arriving at our decision in this matter, FinCEN relied upon the accuracy and
completeness of the representations made in your February 5, 2003 letter. Nothing
precludes FinCEN from seeking further action should any of this information prove
inaccurate or incomplete, Finally, we note that you have requested that certain
_information contained in your letter be held in confidence and exempt from disclosure
under the Freedom of Information Act, 5 U.S.C. 552. FinCEN reserves the right to
publish this letter as guidance to financial institutions with all identifying information
about you,[ ],f{ },and{ J, redacted. You will have 14 days after the date of this
letter to identify any other information you believe should be redacted and the legal basis
for the redaction. Should you have any questions, please telephone Christine De! Toro of
my staff at (703) 905-3590,
Sincerely,
Hsigned//
Judith R. Starr
Chief Counsel
ce: David M. Vogt, Executive Associate Director, Office of Regulatory Programs
Deborah Silberman, Chief, MSB/Casinos/IRS Programs
Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page2 of 11
Department of fhe Treasury
Financial Crimes Enforcement Network
Ruling
FIN-2009-R001
Issued: January 22, 2009
Subject: Whether Certain Operations of a Service Provider to Prepaid Stored
Value Program Participants is a Money Services Business
Dear []: -
I am responding to your letter of September 20, 2005 to the U.S. Department of
the Treasury. You seek a determination as to whether your client, [] (“the Company”), is
a money services business (“MSB”) as that term is defined in our regulations by virtue of
having entered into a distributorship agreement with [] (“the Arranger”).
You represent that the Company has traditionaliy engaged in several types of
activities related to the sale of stored value. The Company provides point-of-sale
(“POS”) interface, network and data processing software, and it owns POS terminals
located at retail establishments through which prepaid stored value products and other
related services are sold. The Company contracts with sellers or issuers of stored value
products to process the sale of these products through the Company’s POS terminals.
The Company also serves as the processing conduit among purchasers, retailers, issuers,
and/or issuer’s banks, through its POS terminals and transaction processing platform, for
the sale of stored value products.
You additionally represent that the Company has entered into a distributorship
agreement with the Arranger in which the Company serves as a service provider for the
Arranger in connection with the sale of stored value cards (“Cards”), issued by [] (the
“Bank”) and bearing the Arranger’s brand, by retailers operating as the Arranger’s sales
agents. The Cards can be loaded with up to $1,000 per day and $2,500 per month. The
Company is aware that purchasers of these Cards may send them to family members,
friends, or associates located in countries outside the U.S. Under the distributorship
agreement, the Company will engage in marketing and sales promotion with retailers on
the Arranger’s behalf, capture card purchase and reload funds accepted by retailers, and
transfer those funds to the Bank for crediting to the appropriate stored value accounts.
The Company does not independently sell the Cards or any other stored value product.
Our regulations define the term “money services business” to include a money
transmitter, defined as “any person ... who engages as a business in accepting currency,
| exHiit 7
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page3 of 11
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or funds denominated in currency, and transmits the currency or funds or the value of the
currency or funds, by any means through a financial agency or institution ... or any other
person engaged as a business in the transfer of funds” The money transmitter definition
also provides that “the acceptance and transmission of funds as an integral part of the
execution and settlement of a transaction other than the funds transmission itself ... will
not cause a person to be a money transmitter.”
It is clear that the Company’s activities outside of the distributorship agreement
do not meet this definition. When selling and marketing its software and hardware
products to retailers, program managers, and issuing banks, the Company is providing
data processing hardware and software and product networking services — not money
transmitting services — to merchants and financial institutions. In addition, to the extent
that the Company processes specific stored value transactions by submitting payment
instructions obtained from merchants to issuing banks for ACH processing, and remitting
funds received through the ACH process to the merchants, the Company is effectively
operating as a merchant payment processor. FinCEN has already concluded that a —
merchant payment processor acting exclusively on behalf of merchants receiving
payments for goods and services, rather than on behalf of consumers making payments to
merchants, is not a money transmitter.
Moreover, when acting as service provider for the Arranger — capturing the card
purchase and reload amounts accepted by the retailers, withholding its fees, and then
‘transferring to the Issuing Bank the cumulative amounts for the credit of the Arranger —
the Company is doing so solely in connection with the sale of stored value by the
Arranger through its sales agents, the third-party retailers, consistent with the pre-existing
agreement between the Company and the Arranger. The acceptance and transmission of
funds is an integral part of the execution and settlement of a transaction other than the
funds transmission itself, namely the issuance and sale of stored value by the Bank
through third-party retailers, As a result, to the extent that the Company transmits funds
in connection with the sale and reload of stored value as service provider for the Arranger
in the manner described above, the Company is not a money transmitter under our
regulations,
In addition, our regulations define a money services business to include a seller or
redeemer of stored value who sells or redeems stored value in an amount greater than
31 C.F.R. § 103.1 1(au)(5)Ci).
*31 CR. § 103.1 Huu)(5)(Cid.
* See FinCEN Ruling 2003-8 — Definition of Money Transmitter (Merchant Payment Processor) (Noy, 19,
2003) (“to the extent that [one's role) is limited to submitting payment instructions obtained froma
merchant to a bank for ACH processing, and remitting funds received through the ACH process to the
merchant... [one would not be] a money transmitter for the purposes of 3 1 CFR 103.11 (uu)(5)”).
s 5
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page4 of 11
Page 3
$1,000 per person per day in one or more transactions.’ Stored value is defined as “funds
or monetary value represented in digital electronics format (whether or not specially
encrypted) and stored or capable of storage on electronic media in such a way as to be
retrievable and transferable electronically.”° As service provider for the Arranger,
engaged in the marketing, sale, loading and reloading of the Cards only as an
intermediary between the Arranger and its selling agents, the Company would not be a
seller or redeemer of stored value as that term is defined in our regulations. Rather, the
Company would be engaging in providing back-office services in connection with the
provision of a stored value product.
This ruling is provided in accordance with the procedures set forth at 31 C.F.R.
§ 103.81. In arriving at our conclusions in this letter, we have relied upon the accuracy
and completeness of the representations made in your letter. Nothing precludes us from
reaching a different conclusion or taking further action if circumstances change or any of
* that information provided is inaccurate or incomplete. We reserve the right, after
redacting your name and address and the Company’s name, to publish this letter as
guidance to financial institutions in accordance with our regulations for requesting an
administrative ruling,” You have fourteen days from the date of this letter to identify any
other information you believe should be redacted and the legal basis for redaction.
If you have questions about this ruling, please contact [FinCEN’s regulatory
helpline at (800) 949-2732]. .
Sincerely,
# signed //
Jamal E1-Hindi
Associate Director
Regulatory Policy and Programs Division
“31 CBR. § 103.11 (uu)(4),
°31 CER. § 103,11(vv).
® Beyond the conclusion that the Company is not the issuer or seller of the Card, this ruling reaches no
conclusion as to (1) who among the Arranger and its sales agents is the “seller” of the Card, or (2) whether
the seller of the Card is a money services business as defined by our regulations. With respect to the first
of these points, we note that you have made no representations as to the nature of the agreement between
the Arranger and its sales agents beyond those in this ruling. With respect to the second of these points, we
note that, while you have represented that no mere than $1,000 will be able to be loaded onto one Card on
any given day, you have alse not made any representation regarding whether one single customer might
obtain or maintain more than one Card in one day, and therefore exceed the $1,000 a person/a day
threshold set for stored value.
731 CER. $§ 103.81-87. ,
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page5d of 11
| _” EXHIBIT E
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page6 of 11
) pepanment of the Treasury
} Financial Crimes Enforcement Network
Ruling
FIN-2008-R005
Issued;- March 10, 2008
Subject: Whether Certain Reloadable Card Oper ations : are Money Services
Businesses
This letter is in response to a request from [Service Company], a subsidiary of
[Parent], dated June 6, 2007, to the Financial Crimes Enforcement Network (FinCEN) for
an administrative ruling concerning the treatment under the Bank Secrecy Act (BSA).
provisions applicable to money services businesses (MSBs) of [Service Company]
member- “sponsored merchants and retail operators of automated teller machines (ATMs)
that participate in the [Service Company]'s Prepaid Card Reload Program, FinCEN
determines that {Service Company] member-sponsored merchants and ATMs are not
MSBs to the extent that they participate in this program as described below.
You represent that the [Service Company] consists of approximately 5,700 bank,
savings association, credit union, and bank or savings and loan holding company
members (“[Service Company] members”) located throughout the United States that are
financial institutions subject to the requirements of the BSA and its implementing
_ tegulations. There are approximately 140 million [Service Company] cards in circulation -
that may be used at over 1.9 million [Service Company] ATM and point-of-sale (POS)
locations. These personal identification number (PIN) secured ATM, debit and prepaid
cards are issued by [Service Company] members and can be used to withdraw cash, make
purchases, check account balances and engage in certain other transactions at ATMs and
merchant point-of-sale (POS) terminals either owned by, or sponsored by, [Service
Company] members. [Service Company] members that sponsor ATMs and merchants
are fully responsible for transactions initiated at those ATMs and POS terminals to the
same extent as if they owned and operated them.
Currently, value can only be added to [Service Company] reloadable cards by
[Service Company] members conducting transactions through in-branch payments,
automated clearing house direct deposits, or through receipt of transfers of value to the
cards facilitated by competing reload networks. You represent that the [Service
Company] anticipates expanding its network capabilities to allow [Service Company]
member-sponsored ATMs and merchants to serve as additional conduits for customers
seeking to add value to [Service Company] reloadable cards. The proposed process fér
adding value to a reloadable card at a [Service Company] member-sponsored merchant or
: EXHIBIT {0
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page7 of 11
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ATM would require that the member-sponsored ATM or merchant collect funds from the
customer to be forwarded to the [Service Company] member, and that the [Service
Company} member verify that: (i) the account is open and in good standing, (2) the
correct personal identification number is entered, and (3) other member-established limits
on the number, dollar value and frequency of reload transactions have not been exceeded.
The [Service Company] member would then return an approval response to the sponsored
merchant or ATM, and credit the reloadable card, less any service fee. The [Service
Company] member would bear the risk of merchant default on the obligation to forward
funds.
Our regulations define the term “money services business”! to include, among
others, persons doing business as a seller or redeemer of stored value or as a money
transmitter.’ A seller or redeemer of stored value is defined as a person who sells stored
value in an amount greater than $1,000 per person per day.’ Stored value is defined as
“funds or monetary value represented in digital electronics format (whether or not
speciaily encrypted) and stored or capable of storage on electronic media in such a way
as to be retrievable and transferable electronically,”* A money transmitter is defined as
“any person,..who engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds or the value of the currency or funds, by
any means through a financial agency or institution.’ Further, the money transmitter
definition also provides that “the acceptance and transmission of funds as an integral part
of the exccution and settlement of a transaction other than the funds transmission
itself.,.will not cause a person to be a money transmitter.”°
[Service Company] members, which are banks as defined by the BSA’s
implementing regulations’, control how their sponsored merchants and ATMs facilitate
adding value onto [Service Company] prepaid cards. While member-sponsored ATMs
and merchants serve as the physical point in the reload process where the card is
presented to transmit data to the [Service Company] member, aswell as the point where
the customer presents funds for collection, the [Service Company] member controls and
conducts the actual transaction that resuits in the adding of value to the reloadable card. ~
It is the [Service Company] member that verifies the PIN, determines that the terms of
use have not been exceeded, determines the acceptable forms of payment, and bears the
risk of loss if payment is not collected or forwarded. Member-sponsored merchants and
ATMs only act as a conduit between the [Service Company] member and the members’
customers, [Service Company] member-sponsored merchants and ATMS have no
control over the reload process, and cannot even complete a reload transaction if the
'31 CFR. $103.1 I(uu) (definition of a money services business).
"Id.
°31 CAR. $103.1 1@uu)(4),
*31 CFR. $103.1 1{vv).
°31 CFR. $103.1 1(u)(S)€i)(A).
°31 CF.R. $103.1 1(uu)(5)Ci) (emphasis added).
"31 CER. $103,11(c). , ’
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page8 of 11
Page 3
member bank rejects the request to add value to the card. As a result, we do not deem a
[Service Company] member-sponsored merchant or ATM for purposes of its
participation in the [Service Company] Prepaid Card Reload Program to be a seller of -
stored value.
Finally, [Service Company] member-sponsored merchants and ATMs nominally
accept funds from customers and transmit those funds to the appropriate [Service
Company] members, However, they do so solely in connection with the sale of stored
value by the [Service Company} member to the customer consistent with the pre-existing
agreement between the [Service Company] member and the customer. The acceptance
and transmission of funds is an integral part of the execution and settlement of a
transaction other than the finds transmission itself, namely the sale of stored value. Asa
result, to the extent that [Service Company] member-sponsored merchants and ATMS
transmit funds in connection with such sales of stored value, [Service Company]
member-sponsored merchants and ATMs are not money transmitters.
This ruling is provided in accordance with the procedures set forth at 31 C.F.R. §
103.81. In arriving at our conclusions, we have relied upon the accuracy and
completeness of the representations made in your letter. Nothing precludes FinCEN from
arriving at a different conclusion or from taking other action should circumstances
change, or if any of the information you have provided proves inaccurate or incomplete.
We reserve the right, after redacting your name and address to publish this letter as
guidance in accordance with our regulations. Please inform us within fourteen (14) days
from the date of this letter of any other information that you believe should be redacted
from this letter and the legal basis for redaction.
If you have any questions regarding this administrative ruling, please contact
iFinCEN’s regulatory helpline at (800) 949-2732].
Sincerely,
Hsigned//
Jamal El-Hindi
Associate Director
Regulatory Policy and Programs Division
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| EXHIBIT F
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page10 of 11
Financial Crimes Enforcement Network
Department of the Treasury
FinCEN Ruling 2003-8 — Definition of Money Transmitter (Merchant Payment
Processor)
November 19, 2003
Dear[ ]: ,
This letter responds to your letter dated February 5, 2003, requesting an
administrative ruting with respect to whether [ _] is required to register with FinCEN as
- a Money Services Business in accordance with 31 CFR 103.41 by virtue of operating
‘{ ]. Based on the representations contained in your letter, FinCEN has determined that
[ fi is not a Money Services Business as defined in 31 CFR 103.!1(uu), by virtue of the
ACH processing services provided by [ __], and is therefore not required to register with
FinCEN. ;
According to your letter, {| operates a service called [ —_] that provides third-
party origination services for Automated Clearing House (“ACH”) transactions on behalf
of merchants, Through { ], merchants can accept customer payments for purchases
made through a merchant’s web site, or by telephone, in the form of a checking account
debit. [ }’s merchant customers obtain payment instructions to debit a customer's
checking account and submit these payment instructions to[ ]through[ ].[ ]
batches and submits the debit information to[_]’s bank for processing through the ACH
system, Once[ ]’s bank initiates the ACH, the depository institution at which the
merchant’s customer maintains a checking account debits the account of the customer,
_ and sends a credit instruction through ACH to[ ]’s bank, which then credits the
amount to an operating account maintained at the bank by[ _]. After a temporary
holding period to ensure that the transaction initiated by the merchant is not returned,
{ ] remits the funds to the merchant. Through[ _ ], merchants are also able to initiate
credits to provide refiinds to customers. You have asked whether [ _] would be deemed
a money transmitter in accordarice with 31 CFR 103.11(uu)(5) by virtue of providing this
service.
- The definition of money transmitter for purposes of BSA regulations found at
_ 31 CFR 103.11 ¢(uu)(5) includes:
(A) [a]ny person, whether or not licensed or required to be licensed, who
engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds, or the value of the currency
or funds, by any means through a financial agency or institution, a Federal
Reserve Bank or other facility of one or more Federal Reserve Banks, the
| | XH pir :
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Case5:11-cv-05496-HRL Document26 Filed02/28/12 Page11 of 11
Board of Governors of the Federal Reserve System, or both, or an
electronic funds transfer network; or
(B) [ajny other person engaged as a business in the transfer of funds.
FinCEN does not currently interpret the definition of money transmitter to include the
third-party origination service that is described in your letter. The nature of the
transactions you describe is the transfer of funds through the ACH system froma
customer to a merchant as payment for goods and services. [ _]’s role in the ;
transactions is to provide merchants with a portal to a financial institution that has access
to the ACH system. [ _ ] acts on behalf of merchants receiving payments rather than on
behalf of customers making payments. For these reasons, the service that[ _] provides
through [ _] more closely resembles payment processing/settlement than money
transmission, Therefore, to the extent that the role of [ _] in such transactions is limited
to submitting payment instructions obtained from a merchant to a bank for ACH
processing, and remitting the funds received through the ACH process to the merchant
(or in some cases, refunding money to the merchant’s customer through an ACH
transaction), FinCEN would not deem [J a money transmitter for purposes of 31 CFR
103.1 1(@m)(5)}.
In arriving at our decision in this matter, FinCEN relied upon the accuracy and
completeness of the representations made in your February 5, 2003 letter. Nothing
precludes FinCEN from seeking further action should any of this information prove
inaccurate or incomplete, Finally, we note that you have requested that certain
_information contained in your letter be held in confidence and exempt from disclosure
under the Freedom of Information Act, 5 U.S.C. 552. FinCEN reserves the right to
publish this letter as guidance to financial institutions with all identifying information
about you,[ ],f{ },and{ J, redacted. You will have 14 days after the date of this
letter to identify any other information you believe should be redacted and the legal basis
for the redaction. Should you have any questions, please telephone Christine De! Toro of
my staff at (703) 905-3590,
Sincerely,
Hsigned//
Judith R. Starr
Chief Counsel
ce: David M. Vogt, Executive Associate Director, Office of Regulatory Programs
Deborah Silberman, Chief, MSB/Casinos/IRS Programs
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