Last month South Carolina joined 48 other states in regulating money transmission with unanimous passage of House Bill 4554.
The bill, enacting the South Carolina Anti-Money Laundering Act, provides the framework for money transmission and currency exchange regulation in the state and is based on the Uniform Money Services Act. While the Anti-Money Laundering Act closely adopts the uniform law sections for money transmission and currency exchange, because South Carolina law already regulates check cashers, this section in the Uniform Money Services Act is omitted from the state’s Act.
Some key Uniform Money Services Act definitions adopted under the Anti-Money Laundering Act related to money transmitter licensing include those for money transmission, payment instruments and stored value. “Money transmission” is defined as “selling or issuing payment instruments, stored value or receiving money or monetary value for transmission.” The definition explicitly excludes solely providing delivery, online or telecommunications services or network access. A “payment instrument” is “a check, draft, money order, traveler’s check or other instrument for the transmission or payment of money or monetary value, whether or not negotiable.” The “payment instrument” definition excludes credit card vouchers, letters of credit and instruments redeemable by the issuer in goods or services (i.e., closed-loop products). “Stored value” is defined as “monetary value that is evidenced by an electronic record.”
The law provides requirements for applying for and maintaining a money transmitter license. Among the initial requirements are audited financial statements, a surety bond and permissible investments. Notably, a surety bond, letter of credit and other similar security of $50,000 plus $10,000 for each location, up to $250,000, is required for an initial application. A $1,000 application fee and a refundable $750 license fee also is prescribed. Further, the Act covers requirements for annual license renewal, such as proof of a net worth of at least $250,000 and maintenance of adequate security and permissible investments.
The Act also provides that licensed money transmitters in another state can seek a waiver from licensing requirements in South Carolina if the state has either enacted the Uniform Money Services Act or it is determined that the other state’s law is substantially similar to South Carolina’s Act. A licensee in another state that is seeking the waiver also must provide a non-refundable fee of $1,000, complete an application and certify license history in the other qualifying state.
The Act will not be effective for at least one year, and under it the commissioner – the South Carolina Attorney General – is responsible for creating regulations for implementing it. Interestingly enough, the law does not explicitly provide for use of the Nationwide Mortgage Licensing System & Registry (NMLS) for money transmitter licensing application and renewal, bucking a trend among a number of states with new or revised money transmitter licensing laws such as Utah, New Mexico and North Carolina.
Passage of South Carolina’s Anti-Money Laundering Act is further indication of a very significant year in money transmitter licensing regulation, as this is the second state to adopt a comprehensive law for the first time. New Mexico preceded South Carolina in March. Now only Montana lacks a money transmission law.
In South Carolina bills providing for money transmitter licensing regulation had been introduced in the legislature for several years but failed to pass. It has been noted that a recent impetus for passage of the bill enacting the Anti-Money Laundering Act, first introduced in the House in December 2015, was local South Carolina news reports that hundreds of millions of dollars were being laundered internationally through South Carolina as a result of the state lacking an anti-money laundering law. At least one local news report quoted an annual money-laundering figure of close to $700 million as of 2010.
The newly enacted bill is available here.