October 11, 2007
Re: [—] Program Licensing Inquiry
Dear Mr. [—]:
You have inquired as to whether the Bank [—] existing correspondent bank customers would be required to obtain money transmission licenses under Article XIII-B of the New York Banking Law in order to participate in the [—] Program ([—] Program) as described below.
As was explained [—] representative in correspondence meetings, and telephone conversations [—] proposes to offer the [—] program to certain of its correspondent bank customers. The [—] Program will allow a person located in the United States, with a US bank account (Sender), to transfer US dollar funds electronically by means of entries into a [—] correspondent bank's internet website, from the Sender's US bank account to a beneficiary designated by the Sender. In most cases, the beneficiary will receive the local currency equivalent of the US dollar transaction. [—] developed the [—] Program in response to its correspondent bank customers that wanted to provide remittance services at lower cost. The correspondent banks will market the services of the [—] Program to the Senders and to potential beneficiaries. [—] has explained that the Senders will be persons in the US from the immigrant population. The beneficiaries will largely be made up of customers of the correspondent banks in the foreign countries. It is expected that the services of the [--] Program may bring new business into the correspondent banks in the foreign countries to the extent that beneficiaries may become new retail account customers.
[—] has determined that a correspondent bank will only be approved to participate in the [—] Program after a review has been made of the correspondent bank under [—]'s know-your-customer (KYC) and anti-money laundering (AML) policies and the correspondent bank has in place such policies that satisfy [—]'s requirements. [—]'s Anti-Money Laundering Operating Committee (AMLOC) will determine if a correspondent bank has appropriate KYC and AML standards in place. In this regard, for example, [—] has indicated that the dollar value range of payments made under the [—] Program will be set by AMLOC on a per bank and per country basis, and will include limits set on both on an individual transaction basis and on an aggregate monthly basis.
The correspondent banks to which the [—] services will be offered will include those banks that are customers of [—] that are licensed to operate branch and/or agency offices in New York pursuant to New York's Banking Law, as well as correspondent bank customers of [—] that are not located and licensed under New York Banking Law. The relationship between [—] and the correspondent banks participating in the [—] Program will be governed by an ACH agreement. In particular, [—] will supply the correspondent banks with ACH services, such as the initiation of debit orders from the Senders' accounts. An agreement between a Sender and a correspondent bank will permit the correspondent bank to initiate ACH debits from the Sender's bank account. It is expected that this type of agreement will be in the form of a "click-through" agreement on a correspondent bank's website.
The [—] Services
According to [—], the correspondent banks will determine the services/payout options that they want to offer their Senders using the [—] Program. A Sender can enter a correspondent bank's website from anywhere in the world to conduct a transaction under the [—] Program. Senders will, not be able to gain access to a correspondent bank's website for the [—] Program from any [—] office or from any US office of any correspondent bank. However, employees of the correspondent banks may be Senders in their personal capacities, and in that regard, they may be able to use their bank-provided equipment to gain access from the correspondent bank offices.
The Sender enrolls in the desired service under the [—] Program by entering certain personal identifying information into the correspondent bank's website for the [—] Program, as well as the particular information needed for their selected service. All of this information is captured by [—] through the use of [—]'s ACH file transmission services. The Sender's instructions will cause [—] to generate an ACH debit entry based upon the details of the selected service. The debit entry is then submitted to the ACH system for collection, at which point, the Sender's US bank account will be debited for the US dollar amount of the transaction with an off-setting credit to the correspondent bank's account at [—]. An electronic file containing the transaction information is then sent by [—] to the correspondent bank in order for the beneficiary of the transaction to be paid. As is next explained, payment to a beneficiary may be made in different ways.
Examples of Services Under [—] Program
Account to Account Transfer - Beneficiary Has Account at Correspondent Bank
A Sender seeks to send $100 from Sender's US bank account to a beneficiary located in Chile. $100 is to be paid to the beneficiary in local currency. The beneficiary has a bank account at the correspondent bank that the Sender uses to conduct the transaction. The local currency equivalent of $100 US dollars is credited to beneficiary's account at the correspondent bank.
Account to Account Transfer - Beneficiary Has No Account at Correspondent Bank
A Sender seeks to send $100 from Sender's US bank account to a beneficiary located in Chile. $100 is to be paid to the beneficiary in local currency. The beneficiary does not have an account at the correspondent bank that the Sender uses to conduct the transaction, but has an account at another bank. The correspondent bank arranges for the local currency equivalent of $100 to be credited to the beneficiary's account at another bank.
Cash Payments to Beneficiary
A Sender seeks to send $100, to be received in cash, from Sender's US bank account to a beneficiary located in Chile. The beneficiary may or may not have a banking relationship with the correspondent bank being used to effectuate the payment. When the correspondent bank receives the file on the transaction it will send a notice to the beneficiary (by mail or e-mail or text message) instructing the beneficiary to come to the bank to receive the money. Typically, local currency will be paid to the beneficiary. However, there will be US dollar cash payments made as well, depending on the country where the disbursement is being made. According to [—] the correspondent bank makes the determination, based on its own guidelines and local regulation, as to the proof of identity required for cash pick-up.
[—] representatives have explained that cash payments will only be permitted for correspondent banks that [—] has determined have the appropriate AML and KYC policies. Cash payments, for the most part, will be made to individuals. Nevertheless, it is, possible that some payments of this sort will be made to business entities. [—] has indicated that cash payments to business entities will be relatively few. This is because there will be dollar limits set on cash payments, both on an individual transaction basis and on an aggregate monthly basis, and because the[—] Program is not designed, for example, to pay multiple invoices generally seen in business transactions.
Payments Made by Check to Beneficiary
A Sender seeks to send $100 from Sender's US bank account to a beneficiary, the payment of which is to be made by check. Payments of this type will typically occur, for example, in India where an ACH equivalent electronic system is not fully developed, thus limiting inter-bank account to account transfers.
The beneficiary of a payment to be made by check may or may not have a banking relationship with the correspondent bank effectuating the payment. Upon receipt by the correspondent bank of a transaction file detailing a payment to a beneficiary, the payment by check can be made in one of the following ways. Depending on the payment instructions, the correspondent bank may draw a check on its own account made payable to the beneficiary and mail it to the beneficiary. It may also draw a check on its own account made payable to a bank at which the beneficiary has an account. Upon receipt of the check by the beneficiary's bank, the account of the beneficiary will be credited. Again, most payments to beneficiaries will be made in local currency.
A Sender seeks to pay a bill to a vendor located in a foreign country. The correspondent banks in the [—] Program that will offer bill payment services can have agreements with certain vendors in a foreign country, such as utility companies, to perform bill payment services. The correspondent banks may also offer bill payment services whereby a particular vendor can be paid directly without there being an agreement between the correspondent bank and the vendor in that regard.
[—] has explained that when the correspondent bank receives the file on the transaction, bill payments may be made in the following ways, depending on the particular country where the payment is being effectuated. Specifically, payments for bills may be made to a vendor in the form of a credit to their account at the correspondent bank. It is also possible that the correspondent bank will receive instructions to payout for credit to a vendor bank account held at another bank. Other types of local settlement mechanisms may also exist. For example, a payment to a vendor may be made by the issuance of a check drawn on the correspondent bank's own account made payable to the vendor. For the most part, bill payments will be in local currency value amounts.
The Money Transmitter Licensing Issue
As to your inquiry regarding whether [—] correspondent banks need to be licensed as money transmitters under Article XIII-B of New York's Banking Law (Banking Law) in order to participate in the [—] Program, I note the following. To begin with, as you have indicated in correspondence, Section 641 of Article XIII-B of the Banking Law exempts from the money transmission licensing requirement banks chartered under Article II of the Banking Law, as well as foreign banking corporations licensed under Article II of the Banking Law. Therefore, [—] and its correspondent bank customers located in the State and licensed under the Banking Law do not require a New York money transmission license to participate in the [—] Program.
This leaves the question of whether [—]’s correspondent bank customers located outside of New York State, and thus not licensed under the Banking Law, must obtain a money transmission license under Article XIII-B in order to participate in [—] Program. Based on the description of the [—] Program provided by [—] as detailed above, the State of New York Banking Department (Department) is of the opinion that [—]'s correspondent bank customers located outside of New York State would not require a money transmission license under Article XIII-B if they were to participate in the [—] Program. Consistent with the position taken by the Department regarding previous money transmission licensing inquiries, it is the lack of a direct or indirect physical presence in the State that is significant in reaching the decision that [—]'s correspondent bank customers located outside of New York are not conducing the business of money transmission as contemplated under Article XIII-B. More to the point, the Department finds that simply because [—]'s correspondent bank customers located outside of the State have bank accounts in the State at [—], the presence of such accounts at [—] does not constitute a physical presence in the State by these correspondent bank customers when deciding whether a money transmission license is needed under Article XIII-B.
I trust that this is responsive to your licensing inquiry with respect to the correspondent banks participating in the [—] Program. However, please be mindful that this opinion does not address the adequacy of [—]’s compliance with anti-money laundering laws and regulations and OFAC regulations with respect to the [—] Program [—]. Therefore, in issuing this licensing opinion, the Department has also not concluded, in any way, that [—]'s review of the KYC and AML policies of its correspondent bank customers is satisfactory for purposes of the [—] Program.
If you have any questions, I can be reached at (212) 709-1650.
Christine R. Cardi
First Deputy Superintendent Patricia Meadow
Deputy Superintendent Regina Stone
Deputy Superintendent David Fredsall