Federal criminal charges relating to illegal money exchanges.
What Is an “Illegal” Currency Exchange Under Federal Law?
Under U.S. law, many businesses that exchange money are classified as Money Services Businesses (MSBs), which include:
- Currency exchangers (e.g., converting U.S. dollars to euros)
- Check cashers
- Issuers of traveler’s checks or money orders
- Money transmitters (including cryptocurrency exchangers)
These businesses are regulated by the Bank Secrecy Act (BSA) and must register with the Financial Crimes Enforcement Network (FinCEN), implement Anti-Money Laundering (AML) programs, and comply with record-keeping and reporting obligations (such as filing Suspicious Activity Reports and Currency Transaction Reports).
Failure to register or comply can lead to criminal charges under 18 U.S.C. § 1960.
The Main Federal Statute: 18 U.S.C. § 1960
The primary federal law targeting illegal currency exchange operations is 18 U.S.C. § 1960 – Prohibition of Unlicensed Money Transmitting Businesses. It makes it a crime to:
- Operate without a state license (if one is required under state law),
- Fail to register as an MSB with FinCEN under the Bank Secrecy Act, or
- Knowingly transfer funds derived from illegal activity or intended for unlawful use (even if the business is otherwise licensed).
Penalties under § 1960
- Imprisonment: Up to 5 years per count
- Fines: Up to $250,000 for individuals or $500,000 for organizations
- Forfeiture: Seizure of funds and assets involved in the business
This statute applies broadly to cash businesses, foreign currency exchanges, and cryptocurrency exchangers operating without registration or licenses. The attorneys at the Law Office of Matthew Galluzzo have represented and counseled many individuals on American soil charged with using bank accounts or other financial instruments to receive foreign currency and export American dollars to business associates abroad. Oftentimes, law enforcement pursues these sorts of business operations where they suspect that the proceeds of illegal transactions – i.e. fraud, medical device fraud, narcotics, etc. – are being laundered through the American exchanged.
Other Relevant Federal Charges
In addition to § 1960, prosecutors often add related charges depending on the conduct:
1. 18 U.S.C. § 1956 – Money Laundering
If the illegal exchange knowingly conducted transactions involving the proceeds of unlawful activity or designed transactions to conceal ownership or source of funds, that can trigger money laundering charges.
- Penalty: Up to 20 years in prison and fines of $500,000 or twice the value of the property involved.
2. 18 U.S.C. § 1957 – Monetary Transactions in Criminally Derived Property
Making a financial transaction with criminally derived property valued at more than $10,000 can lead to § 1957 charges.
- Penalty: Up to 10 years in prison.
3. Bank Secrecy Act Violations (31 U.S.C. §§ 5318, 5322)
Failure to maintain an AML program or file required reports can result in felony charges.
- Penalty: Willful violations can carry up to 5 years in prison (or 10 years if connected to another crime or pattern of illegal activity involving more than $100,000 in a 12-month period).
4. Wire Fraud (18 U.S.C. § 1343)
If the exchange scheme involved fraud or false representations, wire fraud may be added.
- Penalty: Up to 20 years in prison (30 years if affecting a financial institution).
Common Scenarios Leading to Prosecution
- Unlicensed Currency Exchange Shops: Individuals converting dollars into foreign currency without the required state license or federal MSB registration.
- Underground Hawala or Informal Value Transfer Systems: Common in some communities for remittances, but illegal without registration.
- Crypto Exchangers/OTC Brokers: People who exchange Bitcoin or other digital assets for cash without registering with FinCEN and implementing AML controls.
- Businesses Serving Criminal Enterprises: Even if registered, an exchange can face charges for knowingly facilitating drug trafficking, sanctions evasion, or fraud.
Why These Laws Are Aggressively Enforced
The U.S. government views unlicensed money services as a major anti-money laundering risk because they can enable:
- Drug trafficking
- Fraud and cybercrime
- Terrorist financing
- Sanctions evasion
For that reason, HSI (Homeland Security Investigations), IRS Criminal Investigation, and FBI routinely run undercover stings targeting illegal exchangers in major metro areas like New York City.
Defenses and Key Issues in These Cases
- Knowledge and Intent: Did the defendant know registration was required? § 1960 imposes liability for failing to register even without bad intent, but money-laundering statutes require proof of knowledge of criminal proceeds.
- State vs. Federal License: Sometimes defendants comply with one but not both; the law requires compliance with both.
- Entrapment / Government Sting: Undercover operations often lead to defenses based on inducement.
- Constitutional Issues: Search warrants for phones, bank accounts, and crypto wallets are often challenged under the Fourth Amendment.
Bottom Line
Operating an unlicensed currency exchange—whether dealing in cash, foreign currency, or cryptocurrency—can lead to serious federal charges under 18 U.S.C. § 1960 and related statutes, carrying up to 5 years in prison per count, plus asset forfeiture, massive fines, and collateral consequences. Add in money laundering or fraud, and exposure can escalate to 20 years or more.
Because these cases often involve complex financial records, undercover operations, and FinCEN compliance rules, early representation by a federal criminal defense lawyer is essential for anyone under investigation. Matthew Galluzzo is a former Manhattan prosecutor and experienced criminal defense lawyer who has successfully represented many individuals investigated and accused of operating unlicensed currency exchanges. If you or a loved one have been arrested or approached by federal investigators concerning these sorts of allegations, you should strongly consider contacting Mr. Galluzzo to discuss his potential engagement.