HBA-ATS H.B. 2320 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2320 By: Cuellar Financial Institutions 3/24/1999 Introduced BACKGROUND AND PURPOSE Criminal organizations began to use financial institutions other than banks to launder money when federal and state regulators focused their efforts on stopping money laundering through banks. In response to this activity, the Texas Legislature enacted the Currency Exchange Act (Act) in 1991. The Act's primary means to detect illegal money laundering are licensing and recordkeeping requirements. Despite these safeguards, it became apparent that criminals were laundering money by transporting the money across the Texas-Mexico border. Again, the legislature responded, by amending Chapter 153 of the Texas Finance Code to require the licensing of persons engaged in currency transportation, except for persons who operated armored cars licensed under Section 6-dd, Article 9.11b, V.T.C.S. H.B. 2320 redefines "currency exchange, transportation, or transmission business" to include offering currency exchange, transportation, or transmission as a service or for profit. It also redefines "currency transportation" to mean receiving currency or an instrument payable in currency to physically transport the currency or its equivalent from one location to another by motor vehicle or other means of transportation or through the use of the mail or a shipping, courier, or other delivery service. A person who is both a registered motor carrier under Chapter 643, Transportation Code, and a licensed armored car company or courier company under the Private Investigators and Private Security Agencies Act is not required to be licensed. In addition, the following entities are not required to hold a license under the Finance Code: a federally insured financial institution; a foreign bank branch or agency in the United States established under the federal International Banking Act of 1978; a check seller; an attorney or title company that in connection with a real property transaction receives and disburses only domestic currency on behalf of a party to the transaction; a Federal Reserve bank; a clearinghouse exercising bank payment, collection, and clearing functions, and a person that the banking commissioner of Texas (commissioner) may exempt by rule. The commissioner is authorized to inspect the business records of a license holder or a principal of the license holder and to issue an order to seize the assets and records that relate to a currency exchange, transmission, or transportation business if the commissioner finds that the business has violated or refused to comply with this chapter, a rule, or any other law or regulation applicable to the business. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Finance Commission of Texas in SECTION 3 (Section 153.002, Finance Code) and to the banking commissioner of Texas in SECTION 7 (Section 153.117, Finance Code) of this bill. It is the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the banking commissioner of Texas is modified in SECTION 9 (Section 153.205, Finance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 59. 201(a), Finance Code, to provide that the authorized installation, maintenance, and operation of electronic terminals for the convenience of depository institutions' customers is subject to Chapter 153 (Currency Exchange, Transportation, or Transmission). SECTION 2. Amends Section 153.001, Finance Code, by amending Subdivisions (5), (6), (7), and (10) and by adding Subdivision (11), as follows: (5) Includes offering currency exchange, transportation, or transmission as a service or for profit in the definition of "currency exchange, transportation, or transmission business." (6) Includes receiving an instrument payable in currency in the definition of "currency transmission." (7) Redefines "currency transportation" to mean receiving currency or an instrument payable in currency to physically transport the currency or its equivalent from one location to another by motor vehicle or other means of transportation or through the use of the mail or a shipping, courier, or other delivery service. (10) Defines "instrument" as having the same meaning assigned by Section 3.104 (Negotiable Instrument), Business & Commerce Code. Redesignates Subdivision (10) to Subdivision (11). SECTION 3. Amends Section 153.002, Finance Code, as follows: Sec. 153.002. RULES. Includes desirable rules among the necessary rules the Finance Commission of Texas (commission) is required to adopt to implement this chapter. Includes exemption from the licensing requirements of this chapter among the applicable rules regarding requirements for or conditions to those which the commission is required to adopt. Makes conforming changes. SECTION 4. Amends Section 153.102(d), Finance Code, to provide that an applicant for a license to engage in a currency exchange, transportation, or transmission business (applicant) must demonstrate that the applicant has not failed, rather than recklessly failed, to file or evade the obligation to file a currency transaction report during the preceding three years. Provides that an applicant must demonstrate that the applicant has not accepted, rather than recklessly accepted, currency derived from an illegal activity, for exchange, transportation, or transmission during the preceding three years. Includes the requirement that an applicant who engages in currency exchange, transmission, or transportation transactions at multiple locations in this state must demonstrate that the applicant has and will maintain a minimum net worth of $25,000 multiplied by the number of locations. Deletes the requirement that the computation of an applicant who has a net worth of more than $1,000,000 must be done according to generally accepted accounting principles. Makes a conforming change. SECTION 5. Amends Section 153.105, Finance Code, to authorize a license holder to conduct currency exchange, transmission, or transportation business at multiple locations if each location, whether it is owned and operated directly by the licensee or by a principal appointed by the licensee, is separately licensed under an application submitted in accordance with this chapter. Deletes the provision that an applicant must submit a separate application for each location at which the business is to be operated. SECTION 6. Amends Section 153.109, Finance Code, by adding Subsection (f), as follows: (f) Authorizes the banking commissioner of Texas (commissioner), on a case-by-case basis in the exercise of discretion, to reduce the amount of the minimum $25,000 bond or letter of credit for a person conducting a currency exchange business and the minimum $300,000 bond or letter of credit for a person conducting a currency transmission or currency transportation business if the commissioner finds that the amount of the reduced bond or letter of credit is sufficient to protect the public interest and an application is filed for the reduction. Requires the commissioner to consider the following when making a determination under this subsection: _the nature and type of business the license holder conducts; _the nature and degree of liquidity in assets held by the license holder in a corporate capacity; _the competence, character, general fitness, and experience of management; _the extent and adequacy of internal controls maintained by the license holder; _the presence or absence of annual unqualified audits by an independent certified public accountant; and _the existence and adequacy of other insurance obtained or held by the license holder to protect its customers. SECTION 7. Amends Sections 153.117(a) and (e), Finance Code, as follows: (a) Provides that a federally insured financial institution, as that term is defined by state law governing bank holding companies and interstate bank operations, rather than a bank, foreign bank agency, credit union, savings bank, or savings and loan association, that is organized under the laws of this state, another state, or the United States is not required to be licensed under this chapter. Includes a foreign bank branch or agency in the United States established under the federal International Banking Act of 1978 (12 U.S.C. Section 3101 et seq.) among the persons who are not required to be licensed under this chapter. Provides that a license holder under Chapter 152 (Check Sellers) who engages in currency exchange, transportation, or transmission is not required to be licensed under this chapter, except that the license holder is expected to comply with the other provisions of this chapter. Includes an attorney or title company that in connection with a real property transaction receives and disburses only domestic currency on behalf of a party to the transaction among the persons who are not required to be licensed under this chapter. Includes a Federal Reserve bank among the persons who are not required to be licensed under this chapter. Includes a clearinghouse exercising bank payment, collection, and clearing functions among the persons who are not required to be licensed under this chapter. Includes another person that the commissioner may exempt, by rule, if the commissioner finds that the licensing of the person is not necessary or appropriate to achieve the objectives of this chapter among the persons who are not required to be licensed under this chapter. Makes conforming changes. (e) Provides that a person who is both a registered motor carrier under Chapter 643 (Motor Carrier Registration), Transportation Code, and a licensed armed car company or courier company under the Private Investigators and Private Security Agencies Act (Article 4413(29bb), V.T.C.S.), rather than a registered motor carrier, is not required to be licensed under this chapter. Makes conforming changes. SECTION 8. Amends Section 153.204, Finance Code, as follows: Sec. 153.204. New title: PROHIBITED ACTIONS. Authorizes the commissioner to take an action authorized under Section 153.407 (Cease and Desist Orders), rather than requires the commissioner to give written notice and to call a meeting with a license holder, if the commissioner finds that a person, rather than a principal or a license holder acting through an authorized person, violated certain laws and regulations. Deletes a provision which states that the notice must include a statement of the alleged misconduct of the license holder or principal. Deletes the requirement that the commissioner, at the meeting, state the commissioner's findings and require the discontinuation of the misconduct. SECTION 9. Amends Section 153.205(b), Finance Code, to include requirements regarding content among the requirements regarding the size and type of lettering used in an advertisement for prices or rates authorized to be established, by rule, by the commissioner. SECTION 10. Amends Section 153.301(a), Finance Code, to include any principal of a license holder among the persons whose business records the commissioner is authorized to examine periodically. Includes a provision authorizing the commissioner to require a license holder with multiple locations in this state licensed under Section 153.105 (Operating in More Than One Location) to make business records for all licensed locations available for examination at a specified license location. SECTION 11. Amends Section 153.305(c), Finance Code, to include a foreign country or a law enforcement agency of a municipality or political subdivision of this state or another state among the entities to whom information may only be released if the commissioner finds that the release of that information is reasonably necessary to protect the public and is in the interest of justice. SECTION 12. Amends Section 153.401, Finance Code, by adding Subsection (c), as follows: (c) Provides that it is a defense to prosecution under this section if the alleged violation was committed by a peace officer, as defined by Article 2.12 (Who Are Peace Officers), Code of Criminal Procedure, or a person acting on request of a police officer with the intent to facilitate a legitimate law enforcement investigation conducted under the laws of this state. SECTION 13. Amends Section 153.407, Finance Code, as follows: Sec. 153.407. New title: CEASE AND DESIST ORDERS; SEIZURE ORDER. (a) Deletes the reference to a meeting conducted under Section 153.204 (Prohibited Actions; Notice and Meeting). Includes the provision that if a person is a license holder or a principal of a license holder the commissioner is required to serve the order on the license holder, the board of directors of the license holder, and any offending principal. Makes nonsubstantive changes. (d) Adds this subsection to authorize the commissioner to issue an order to seize the assets and records that relate to a currency exchange, transmission, or transportation business if the commissioner finds, by examination or other credible evidence, that the currency exchange, transmission, or transportation business has violated or refused to comply with this chapter, a rule adopted under this chapter, or any other law or regulation applicable to a currency exchange, transportation, or transmission business. (e) Adds this subsection to provide that the actions authorized by this section are in addition to and not in lieu of other actions the commissioner considers appropriate under applicable law, including action under Subchapter C (Unauthorized Activity: Investigation and Enforcement), Chapter 35 (Enforcement Actions). SECTION 13. Repealers: Sections 153.003 (exempting an attorney or title company that in connection with a real property transaction receives and disburses only domestic currency on behalf of a party to the transaction) and 153.108(c) (authorizing the commissioner to issue a single license to a person who operates 10 or more currency exchange, transportation, or transmission businesses that allows the person to operate all locations), Finance Code. SECTION 14. Emergency clause. Effective date: upon passage.