US-Licensed Operators Going Offshore
A US money transmitter license gives you the right to operate in the United States. It does not, by itself, give you the right to operate internationally. This is a point of confusion for many US-based MSBs that expand beyond US borders. They hold all their licenses, pass their examinations, maintain their net worth and bonding, and assume those licenses are sufficient to support international operations. They're wrong.
The reality is that the moment your customer base extends beyond US borders—the moment you're accepting customers from other countries—you enter a new regulatory landscape that has nothing to do with your US licenses. Each country has its own regulatory framework for money transmission, fund transfer, payment services, or whatever that country calls the activity. Complying with US regulations is necessary but far from sufficient.
Let me start with the clearest cases: situations where a US license is sufficient or close to sufficient. If you have a US money transmitter license and you're providing services to US customers only, you don't need additional licensing. If you're handling inbound transfers from outside the United States but the recipients are all in the United States, you may not need additional licensing because you're not regulated by the country the sender is in—you're regulated by where the recipient is, which is the United States. This is why remittance companies based in the US can accept transfers from all over the world; they're regulated in the US, not in each country where the sender is located.
The complexity arises when you're serving customers abroad. If you have a customer in Mexico who uses your platform to send money to another customer in the United States, you may be operating as a money transmitter in Mexico even though you have a US license. Mexico has its own money transmitter regulation. Mexico's financial authorities may take the position that any entity accepting funds from Mexican customers for transmission is subject to Mexican regulation, regardless of where that entity is incorporated.
The same applies to the European Union, Canada, Asia, and every other jurisdiction. Each has its own regulatory framework, and each extends that framework to entities outside its borders if those entities are providing financial services to residents of that jurisdiction.
How do you determine what additional licensing you need? The answer involves mapping your customer base against the regulatory requirements in each country where you have meaningful customer presence. "Meaningful" is subjective, but generally if you have more than a handful of customers in a country or if you're generating more than trivial revenue from that country, you should assume you need licensing there.
The first step is a regulatory audit. For each country where you have or plan to have customers, research the money transmission regulatory framework. This might involve hiring local lawyers, contacting regulators, or using international compliance research services. The goal is to understand: (1) Is money transmission a regulated activity? (2) If so, what entity needs the license? (3) What are the licensing requirements? (4) What are the ongoing compliance obligations?
Some countries have clear, well-defined frameworks. The United Kingdom regulates payment institutions and electronic money institutions through the Financial Conduct Authority. The European Union regulates payment service providers through the Payment Services Directive. Canada regulates money service businesses through FINTRAC and provincial regulators. These frameworks are detailed and available. It's time-consuming to understand them, but possible.
Other countries have vague or unclear frameworks. Some emerging markets have minimal regulation of money transmission. Some countries regulate it only if you're taking deposits. Some regulate it only if you're operating as a formal institution. In these cases, you need to make risk assessments about whether you'll operate anyway or restrict your customer base.
Limitations of a US MTL for cross-border services become clear immediately. If you want to accept customers in the UK and facilitate their payments, you need FCA authorization as a payment institution. Your US money transmitter license means nothing to the FCA. If you want to accept customers in the European Union and facilitate their payments, you need Payment Service Provider authorization in an EU member state. If you want to accept customers in Canada, you need to register with FINTRAC and comply with provincial requirements.
Some US-based MSBs have attempted to navigate this by restricting their customer base to the United States. They explicitly state in their terms of service that they cannot serve non-US customers. But this restriction is difficult to enforce. How do you verify someone's location? If someone claims to be in the United States but is actually in Mexico, are you liable? If you take no steps to verify location, regulators might argue you were negligent.
Additional licensing needed for international corridors depends on the specific corridors you're operating. A payment corridor is the flow of funds from one country to another. If you operate a US-to-Mexico corridor, you need to understand both US regulation (which applies to you as a US-based entity) and Mexican regulation (which applies if you're accepting customers in Mexico).
Let me walk through a practical example. I worked with a fintech company that wanted to operate a remittance platform connecting the US to the Philippines. Their business model was straightforward: US-based customers (primarily Filipino expatriates) would send money to Philippines-based recipients. The company had US money transmitter licenses. So far so good. But the Philippines also regulates remittance services. Money transfer operators in the Philippines are regulated by the Bangko Sentral ng Pilipinas, the Philippines' central bank.
Our analysis showed that the company needed: 1. US money transmitter licenses (which they had) 2. A Philippines money transfer operator license 3. A remittance office license from Philippine local government units 4. AML/KYC programs compliant with both US and Philippines standards 5. Rails into the Philippines banking system to actually facilitate payouts 6. Compliance with Philippines currency controls and foreign exchange regulations
The licensing process alone took eight months. The operational setup—establishing correspondent banking relationships in the Philippines, setting up local audit requirements, establishing customer complaint resolution procedures—took another four months. The total cost was roughly $800,000.
This scenario is typical for serious international expansion. Each country adds a new layer of regulatory requirement, licensing cost, and operational complexity.
Managing compliance across jurisdictions creates its own challenges. You have multiple sets of regulatory requirements that sometimes conflict. Country A requires that you transmit Travel Rule information in format X. Country B requires it in format Y. Customer data protection is one set of requirements in the US, entirely different requirements in the EU under GDPR, different requirements in various other countries.
The only way to manage this is to implement a compliance program that meets the highest standard across all your jurisdictions, document your approach thoroughly, and accept that you'll be over-compliant in some jurisdictions to be compliant in all of them. You need staff who understand the regulatory requirements in each country. You need systems that can adapt to different formats and requirements. You need regular audits in multiple jurisdictions.
One MSB I worked with operated in twelve countries. They had twelve separate compliance officers, one in each jurisdiction, who reported to a global compliance officer. They had a central policy framework that was the baseline, and each jurisdiction's team adapted it to local requirements. This structure worked but was expensive. The compliance infrastructure cost more than their customer service infrastructure.
Correspondent relationships for cross-border payments are the operational backbone of international money transmission. If you want to send money from the US to the Philippines, you need a way to actually move the money. You could wire it through the SWIFT system, but SWIFT transfers are expensive and slow. Most remittance platforms instead use correspondent banking relationships.
A correspondent banking relationship means that you have an account at a bank in the destination country. When you want to pay out to customers in the Philippines, you debit your account in the Philippines and your correspondent bank credits the recipients' accounts. This requires establishing a relationship with a bank in each country, meeting their account requirements, and maintaining minimum balances.
In the best case, this is straightforward. You approach a major bank in the destination country, explain your business, and they agree to provide correspondent banking services. They conduct KYC on your company, review your compliance program, and open an account. You maintain a reserve balance, you pay their fees, and they handle your payouts.
In increasingly many cases, especially post-2008 financial crisis and with enhanced OFAC and sanctions compliance, this process is complicated. Banks are risk-averse. Some banks have explicitly stated they won't work with payment companies or remittance services. Some banks will work with you but require extensive documentation of your compliance program. Some banks will work with you but only if you maintain very high balance requirements or pay premium fees.
This has created a secondary market of non-bank payment institutions, settlement banks, and payment service providers who provide correspondent banking services to remittance companies. These relationships often cost more than relationships with traditional banks but are sometimes the only option available.
FX compliance and reporting for international operations adds another layer. If you're accepting USD from customers and paying out PHP (Philippine Peso) to recipients, you're engaging in foreign exchange. The US regulates forex through the CFTC for speculative forex trading, but money transmitters who convert currency as part of ordinary payment services fall within a different framework.
Your forex obligations depend on whether you're holding forex risk and for how long. If you accept a USD payment and immediately convert it and pay it out in PHP, your forex exposure is minimal. If you accept payments in various currencies and hold them before converting and paying them out, your forex exposure is greater. If you're actually speculating on forex movements, the regulations become much more stringent.
Most regulated money transmitters maintain a policy of matching currency flows as quickly as possible—accepting payments in one currency and converting and paying them out in another within hours or minutes. This minimizes forex exposure and simplifies compliance. It requires sophisticated operational infrastructure to manage, but it's the standard approach.
Reporting forex transactions is required in some jurisdictions. The US requires reporting of forex transactions over certain thresholds in certain contexts, though money transmitters' ordinary currency conversion is generally exempt. Other countries have more stringent requirements.
OFAC considerations for international operations are substantial. The Office of Foreign Assets Control maintains lists of sanctioned individuals, entities, and jurisdictions. US-based MSBs are required to comply with OFAC sanctions regardless of where they're operating. This means that you cannot accept payments from, pay out to, or facilitate transactions involving sanctioned parties or jurisdictions.
For international money transmitters, this creates practical problems. Some remittance corridors are to countries or regions with elevated sanction risks. You need to screen all your customers against OFAC lists and against Treasury's SDN (Specially Designated Nationals) list. You need to screen all recipients. You need systems to identify transactions involving sanctioned parties.
This screening becomes more complex when you're operating in countries with limited financial infrastructure or high cash transaction volumes. If your recipients are all individuals in a country with limited banking, your payout mechanism might involve cash distribution. You need to ensure that the people actually receiving the cash aren't sanctioned parties.
One MSB I advised operated to Somalia, a jurisdiction with complex sanctions. While Somalia itself isn't fully sanctioned, certain entities and individuals within Somalia are. The company had to conduct incredibly detailed KYC on customers to understand where their money was ultimately going and who was receiving it. They had specific OFAC policies for Somalia transactions. They required more documentation, more scrutiny, and more reporting. Eventually they decided Somalia was too risky and exited the market.
Structuring a cross-border payment operation requires addressing all these elements in parallel. You need to identify the corridors you want to operate. For each corridor, you need to determine the licensing requirements in both the originating and destination countries. You need to establish banking relationships and correspondent banking arrangements. You need to implement AML/KYC and transaction monitoring systems that comply with both countries' requirements. You need to address forex, reporting, and OFAC obligations.
The operational structure often involves establishing local entities in destination countries. This could mean incorporating a local company, establishing a local branch, or partnering with a local operator. The decision depends on the country's regulatory framework and your business model.
Many international MSBs use agent networks. Rather than establishing their own banking relationships in every country, they partner with local agents who handle payouts in their respective countries. This reduces the company's direct operational burden but creates compliance challenges around agent supervision, KYC on agents, and ensuring agents comply with local regulations.
The complexity and cost of international operations often surprises US-based MSBs. They have US licenses and think that's most of the work. The reality is that international expansion requires completely separate licensing, separate compliance programs, separate banking relationships, and significant capital investment. I've seen MSBs spend $2-5 million building out operations in a single country and another $1-2 million for each additional country.
Practitioner's Bottom Line: A US money transmitter license provides no legal authority outside the United States; operating internationally requires separate licensing and compliance in each destination country, and each new corridor adds substantial regulatory, operational, and banking complexity. The foundational approach is to map regulatory requirements in all countries where you have customer presence, establish local entities or agent relationships, secure correspondent banking, and implement compliance programs meeting the highest standard across all jurisdictions. International expansion costs $2-5+ million per country and requires 12-24 months, making it feasible only for well-capitalized platforms.