95-10

July 14, 1995

Re: Transmissions of Money to Foreign Countries

Dear _______

This is in response to your letter of June 10, 1995 and follows our telephone conversation of June 29, 1995.

In your letter, you asked whether a proposed subsidiary of one of your clients would be required to obtain a license pursuant to Chapter 14 (commencing with Section 1800), Division 1 of the Financial Code (the “Transmitters Law”) in order to engage in the activities described below. In our view, no such licensee would be required.

FACTS

As we understand them, the circumstances are as follows:

Your client (“Parent”) is a Russian company located in Moscow which engages in the business of purchasing goods in other countries and importing them to Russia for sale there. Parent proposes to establish a wholly owned California subsidiary (“California Subsidiary”) for the sole purpose of establishing an account (the California Account”) in a California bank to serve as a conduit for Parent’s revenues. Payments to Parent for the purchase price of goods it sells would be deposited in the California Account. Parent would then direct California Subsidiary to pay from the California Account to Parent’s suppliers in various countries outside the United States, the amounts Parent owes for the goods it has purchased from them.

DISCUSSION

For the reasons discussed below, it is our view that the Transmitters Law does not require licensing in the case where a wholly owned subsidiary is established exclusively to receive money for the purpose of transmitting it to foreign countries for its parent, provided the objective of the transaction is not to furnish or facilitate a money transmission service for unrelated parties.

Subdivision (a) of Section 1800.3 of the Transmitters Law provides that, “[N]o person shall engage in the business of receiving money for the purpose of transmitting the same or its equivalent to foreign countries without first obtaining a license from the Superintendent.” California Subsidiary proposes to receive money in California for the purpose of transmitting that money or its foreign currency equivalent to foreign countries. However, we view the licensing requirements of the Transmitters Law as intended to apply only when transmission service is provided for the public.

The intent of the Legislature in enacting the Transmitters Law is expressed in Financial Code Section 1800(a), as follows:

“(a) It is the intent of the Legislature in enacting this chapter – to protect the people of this state from being victimized by unscrupulous practices by persons receiving money for transmission to foreign countries and to establish a minimum level of fiscal responsibility and corporate integrity for all entities engaging in the business of receiving money for transmission to foreign countries without regard to the method of transmission.

(b) The Legislature finds and declares that California has a large and diverse population many of whom are concerned with the financial plight of people remaining in the countries which they left. Many of these people are not familiar with the varied and intricate financial systems of this state and due to language barriers and other obstacles do not have access to entities offering legitimate money transmission services. In an effort to transmit money to their friends and relatives, these persons give their money to persons under the precept that the money or its equivalent will be immediately transmitted to the designated foreign country. The money is frequently misappropriated or never transmitted. The victims of these practices are generally not aware of the law enforcement services available to help them, thus this unlawful conduct goes unreported.”

Based on these findings and statement of intent, it appears that the Legislature enacted the Transmitters Law for the purpose of protecting persons from victimization by those to whom they entrust money for transmission.

To that end, the Transmitters Law provides certain safeguards for customers of transmitters and empowers the Superintendent of Banks (the “Superintendent”) to supervise the business activities of transmitter licensees. For example, receipt forms licensees issue to customers must meet certain standards and must be approved by the Superintendent (§ 1809), a maximum time is allowed for licensees to forward transmission money (§ 1810.5), and licensees are required to post security for proper deliver of transmission money (§§ 1811-1813). In addition, the Superintendent is authorized to examine the business of (§ 1808) and to require periodic reports from (§ 1807) licensees, and a licensee may not establish a branch (§ 1805) or appointment of an agent (§ 1803.5) nor may any person acquire control of (§ 1804) a licensee without the Superintendent’s approval.

The Legislature clearly did not intend that such protections apply nor would they be appropriate or necessary respecting transmission of the money of a parent by a subsidiary over which the parent has complete ownership and control. The parent is clearly in a position to protect its own interests in such situations and has no motivation to cause the subsidiary to deal unfairly with the parent.

CONCLUSION

For the reasons stated above, its our view that California Subsidiary does not need a license under the Transmitters Law to engage in the proposed operations. However, if California Subsidiary were not subject to Parent’s complete ownership and control or if Parent used California Subsidiary to perform or facilitate transmission services for persons other than Parent, a license would be required.

Very truly yours,

CONRAD W. HEWITT
Superintendent of Banks

By

THOMAS M. LOUGHRAN
Senior Counsel

TML:lca