199 F.3d 590 (2nd Cir.

1999)

United States of America, Appellant,

v.
Galo Velastegui, also known as Galo R. Velastegui, and GMJ
Travel & Shipping Corp., Defendants-Appellees.
Docket No. 99-1362
August Term, 1999

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT
Argued: Oct. 26, 1999
Decided: Dec. 13, 1999

The United States charges Galo R. Velastegui and GMJ Travel &
Shipping Corporation with engaging in an unlawful money transmitting
business. The United States District Court for the Southern District of
New York (Scheindlin, J.) dismissed counts one and two of the
indictment. The United States appeals the district court's ruling.
Reversed.
Peter B. Sobol, Assistant United States Attorney, New York, NY (Mary
Jo White, United States Attorney, Paul A. Engelmayer and Ira M.
Feinberg, Assistant United States Attorneys, of counsel), for Appellant.
Raymond J. Aab, New York, NY (Carol Kahn, of counsel), for
Defendants-Appellees.
Before: OAKES, POOLER and KATZMANN, Circuit Judges.
OAKES, Senior Circuit Judge:

The United States appeals from two orders entered by the United States District
Court for the Southern District of New York dismissing counts one and two of
the indictment charging Galo R. Velastegui and GMJ Travel & Shipping
Corporation ("GMJ") (collectively "Defendants")1 with engaging in an
unlawful money transmitting business. The second order was issued after the

Government moved for reconsideration and the district court adhered to its
earlier ruling dismissing those counts. We determine that the particular conduct
alleged in the indictment falls within the ambit of conduct that 18 U.S.C.
1960(a) makes criminal. Accordingly, we reverse.
BACKGROUND
2

This case involves the business of money transmitting. A money transmitting

business receives money from a customer and then, for a fee paid by the
customer, transmits that money to a recipient in a place that the customer
designates, usually a foreign country. After the customer gives the money
transmitter an amount to send to the designee, the transmitter notifies the
"payer" with whom it has a contractual arrangement in the recipient country.
The payer then notifies the designated recipient of the money, and pays the
money to the designee at the payer's office. The transmitter then remits to the
payer the amount paid to the designee, plus the payer's commission.

GMJ is a New York corporation that was employed as an agent of several

licensed money transmitting businesses. It did not have a New York license
authorizing it to engage in the direct transmission of money. Generally, GMJ's
agency agreements appointed GMJ for the sole purpose of collecting money for
transmission by the licensed principal. GMJ does not dispute that, in
contravention of these agreements, it often sent funds left for transmission by
its principals directly to Mexican payers. Additionally, the Government
proffered in its motion for reconsideration that the evidence at trial would show
(1) that GMJ had transmitted millions of dollars to recipients in Mexico and
elsewhere, entirely outside of its agency relationships with licensed
transmitters; (2) that it did not purport to act as an agent of any licensee when it
made those transmissions; and (3) that it did not share commissions for those
transmissions with any licensee.2 As a result of GMJ's breaches of its agency
agreements, each principal canceled its agency contract with GMJ. At all times
relevant to this indictment, however, GMJ operated as an agent of at least one
New York state licensed money transmitting business.

Defendants were indicted on September 2, 1998, on three counts. They are

charged with two counts of illegal money transmitting, in violation of 18 U.S.C.
1960(a) and 18 U.S.C. 2 (1999), and one count of money structuring, in
violation of 31 U.S.C. 5324(a)(3) and (c)(2) (1999), and 18 U.S.C. 2.

On February 22, 1999, Defendants filed a motion to dismiss the indictment and
to suppress statements made by Velastegui to agents upon his arrest.
Defendants argued that prosecution under 18 U.S.C. 1960 violates their due

process rights because the transmittal of funds directly to beneficiaries in

Mexico was not a reasonably clear violation of the statute. The district court
granted Defendants' motion to dismiss counts one and two pursuant to the rule
of lenity and denied Defendants' motion to dismiss count three and its motion to
suppress Valestegui's statements. This appeal by the government followed.
DISCUSSION
6

Because a motion to dismiss on grounds that a criminal statute provides

insufficient notice raises a question of law, we review the dismissal of the
indictment by the district court de novo. See Alfonso, 143 F.3d at 775. Due
process requires that a criminal statute "give fair warning of the conduct that it
makes a crime." Bouie v. City of Columbia, 378 U.S. 347, 350-1 (1964). The
rule of lenity, a manifestation of the fair warning requirement, "ensures fair
warning by so resolving ambiguity in a criminal statute as to apply it only to
conduct clearly covered." United States v. Lanier, 520 U.S. 259, 266 (1997).
The touchstone inquiry is "whether the statute, either standing alone or as
construed, made it reasonably clear at the relevant time that the defendant's
conduct was criminal." Id. at 267. The rule "applies only when, after consulting
traditional canons of statutory construction, we are left with an ambiguous
statute." United States v. Shabani, 513 U.S. 10, 17 (1994). If we find that the
ambit of the criminal statute is ambiguous, the ambiguity should be resolved in
favor of lenity. See Rewis v. United States, 401 U.S. 808, 812 (1971).
Therefore, we must decide whether Defendants' conduct -- the direct
transmission of money to Mexico by an unlicensed agent of a state-licensed
money transmitting business -- falls clearly within the range of criminal
liability under section 1960.

Title 18 U.S.C. 1960 was enacted in order to combat the growing use of money
transmitting businesses to transfer large amounts of the monetary proceeds of
unlawful enterprises. See S. Rep. No. 101-460, at 14 (1990), reprinted in 1990
U.S.C.C.A.N. 6645, 6658-59. The statute provides, in pertinent part:

(a) Whoever conducts, controls, manages, supervises, directs, or owns all or

part of a business, knowing the business is an illegal money transmitting
business, shall be fined in accordance with this title or imprisoned not more
than 5 years, or both.

(b) As used in this section -

10

(1) the term "illegal money transmitting business" means a money transmitting

business which affects interstate or foreign commerce in any manner or degree

and 11

(A) is intentionally operated without an appropriate money transmitting license

in a State where such operation is punishable as a misdemeanor or a felony
under State law; or

12

(B) fails to comply with the money transmitting business registration

requirements under section 5330 of title 31, United States Code, or regulations
prescribed under such section . . . .

13

18 U.S.C. 1960. The statute makes it a federal crime to knowingly operate a

money transmitting business in violation of state law where the state requires a
license and makes unlicensed money transmitting punishable as a misdemeanor
or felony. Therefore, we must look to New York law to determine whether
Defendants were operating an illegal money transmitting business.

14

New York state law provides that it is illegal to receive money for transmission,
or to transmit money, without a license issued by the Superintendent of Banks
(the "Superintendent").3 See N.Y. Banking Law 641 (McKinney 1999) ("[N]o
person shall engage in the business of . . . receiving money for transmission or
transmitting the same, without a license therefor obtained from the
superintendent as provided in this article . . . ."). The law imposes a
misdemeanor penalty on whoever "violates or participates in the violation of
any provisions of this article." Id. 650(1) (McKinney 1971). A violation is
elevated to a felony if the business knowingly received or transmitted a total of
$10,000 or more in a single transaction, a total of $25,000 or more in a period of
30 days or less, or a total of $250,000 in a period of one year or less. See id.
650(2)(b)(1) (McKinney 1999). A violation is a misdemeanor if the business
knowingly received or transmitted lesser amounts. See id. 650(2)(a).

15

Under New York law, a licensed money transmitting business may conduct
limited aspects of its business through agents or subagents that it designates, see
id. 648(a) (McKinney 1971), who are not themselves required to be licensed,
except in certain limited circumstances not applicable here, see id. 648(b), (c).
Although agents are not required to be licensed, section 651-a narrowly
circumscribes the activities which an unlicensed agent may lawfully perform.
This section provides that an agent must remit all money it receives on behalf
of a licensed transmitter to that licensed transmitter, either directly or by
depositing it into a bank account established for such remittances in the name
of the licensed transmitter. See id. 651-a (McKinney 1999). The

Superintendent's regulations enacted pursuant to New York banking law

underscore the limited money transmitting activities of an agent. Rule 406.3(e)
requires "[e]very licensee which has appointed or designated agents . . . [to]
require each agent under its written agency contract to conduct the authorized
money transmission activities through the licensee." N.Y. Comp. Codes R. &
Regs. tit. 3, 406.3(e) (1995). Rule 406.5(a)(6) mandates that all agency
contracts provide:
16

that agents and subagents . . . are under a duty to act only as authorized under
the agency contract and that an agent and subagent who exceeds its authority is
subject to cancellation of the agency contract and may result in further
disciplinary action against the licensee by the superintendent.

17

Id. 406.5(a)(6). Accordingly, although agents of licensed money transmitting

businesses need not be licensed in and of themselves, unlicensed agents are
explicitly prohibited by state law from transmitting money directly.

18

New York law, therefore, makes the operation of an unlicensed money

transmitting business either a misdemeanor or a felony, which in turn subjects
the offender to federal criminal penalties under 18 U.S.C. 1960. It is
Defendants' contention, however, that their conduct amounts to a failure to
remit money and, although admittedly a violation of their agency agreements
and a misdemeanor under state law, this failure to remit does not reasonably
constitute the operation of an "illegal money transmitting business" as
contemplated by section 1960. We disagree with that conclusion.

19

Our analysis begins with the language of the statute. See Hughes Aircraft Co.
v. Jacobson, 525 U.S. 432, ___, 119 S.Ct. 755, 760, 142 L.Ed.2d 881 (1999)
("in any case of statutory construction, our analysis begins with the 'language of
the statute'" (quoting Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469,
475 (1992))). Section 1960 applies categorically to "[w]hoever" knowingly
conducts an illegal money transmitting business. 18 U.S.C. 1960(a) (emphasis
added). An "illegal money transmitting business" is defined, without exception,
as a money transmitting business that is not licensed under state law in a state
where a license is required. See id. 1960(b)(1)(A). There is nothing on the face
of section 1960 that permits any exception for an unlicensed money
transmitting business that is also an agent of a state licensee. By its plain
language, section 1960 applies to Defendants because GMJ was transmitting
money directly without a license.

20

In fashioning an exception under section 1960 for agents of licensed

transmitters, the district court reasoned that because the direct transmission of
funds led to the suspension of GMJ's agency agreements, the direct
transmission of funds could not have amounted to operating a money
transmitting business without an appropriate license. In so doing, the district
court assumed that under New York law an agency agreement is the "functional
equivalent" of a state license and therefore permits an agent to lawfully engage
in money transmitting transactions. This reasoning does not comport with New
York's statutory framework.
21

Section 641 provides that "no person shall engage in the business . . . of
receiving money for transmission or transmitting the same, without a license . .
. nor shall any person engage in such business as an agent, except as an agent of
a licensee . . . ." N.Y. Banking Law 641(1). Furthermore, although state
licensees may utilize unlicensed agents in limited aspects of their business,
agents are explicitly not permitted to transmit money directly under New York
law. See id. 651-a. Hence, an agency agreement with a licensed money
transmitting business is not the functional equivalent of a state-issued license.
Because an agency agreement with a licensed principal is not the same as a
money transmitting license, Defendants were operating a money transmitting
business without a license.

22

It is inconsequential that Defendants' direct transmission of money was also a

breach of its agency agreements. Defendants' conduct should not be viewed
through a myopic lens and characterized solely as a failure to remit money to its
principals. There is no reason why Defendants' conduct cannot be viewed both
as a failure to remit money to its licensees and as direct money transmitting.
Therefore, we conclude that a New York agent of a licensee who transmits
money directly to a foreign country in contravention of New York state law and
its agency agreement is operating a money transmitting business without a
license as prohibited by section 1960.4 Accordingly, section 1960 applies with
sufficient clarity to comport with the constitutional fair notice requirement.

23

Defendants seek support for their agency argument in the Superintendent's

regulations that provide that an agent acting outside of the scope of its
agreement subjects itself to the cancellation of its agency contract and its
principal to further action by the Superintendent. See N.Y. Comp. Codes R. &
Regs. tit. 3, 406.5(a)(6) (1995). They also point to a letter issued by the
Superintendent in September of 1998 warning that the direct transmission of
money by agents may result in the revocation of the principal's license, the
imposition of fines, and a referral to the appropriate prosecutorial agency for
criminal investigation. Defendants contend that one must infer from the
regulation and letter that only the licensee is subject to prosecution when its

unlicensed agent transmits money directly. This argument is unavailing.

24

25

The regulation does not address or purport to address the question of whether
an unlicensed agent commits a crime. Indeed, the language of the regulation
simply underscores that agents lack authority under state law to transmit money
directly because it provides that an agent "who exceeds its authority is subject
to cancellation of the agency contract and may result in further disciplinary
action against the licensee by the superintendent." N.Y. Comp. Codes R. &
Regs. tit. 3, 406.5(a)(6) (1995). We reject the reasoning that simply because a
regulation issued by the Superintendent, who is not responsible for criminal
investigations or prosecution, warns only against disciplinary action for the
licensee, criminal prosecution of the agent is foreclosed. Furthermore, in
support of the Government's motion for reconsideration, the Secretary
submitted a letter in which the Secretary opined that an agent who transmits
money directly without a state license violates New York Banking law. Thus,
the regulation and the September 1998 letter do not override the plain language
of section 651-a that makes transmitting money directly by an unlicensed agent
of a licensed principal unlawful.
The conclusion that Defendants were transmitting money without an
appropriate money transmitting license as required for a conviction under
section 1960 is especially appropriate on these facts. In support of its motion
for reconsideration, the Government proffered that the evidence would show at
trial that Defendants were not transmitting money on behalf of any entity with
whom they had an agency agreement and did not share any of the commissions
from these transactions with the principals. Instead, Defendants were operating
a money transmitting business quite separate and apart from the licensed
principals with whom they had agency agreements. To hold that section 1960
does not apply to Defendants' conduct in this case would create a loophole in
section 1960 whereby a business, simply by having a single agency agreement
with a licensed money transmitter, could transmit money on its own without a
state license and avoid prosecution under federal law.

CONCLUSION
26

The direct transmission of funds in violation of New York state law by an agent
of a licensed money transmitter falls within the ambit of conduct forbidden by
section 1960. Because section 1960 therefore applies with sufficient clarity to
Defendants' conduct, we reverse the district court and reinstate counts one and
two of the indictment.

Notes:
Velastegui is president of GMJ and its sole shareholder.
1
2

There was no basis for the District Court to assume that GMJ, in transmitting
money without a license, had done so only on behalf of an entity with which it
had an agency agreement. On the government's appeal from an order
dismissing an indictment, the facts alleged by the government must be taken as
true. See United States v. Rosengarten, 857 F.2d 76, 78 (2d Cir. 1988). An
indictment is sufficient if it contains the elements of the offense charged and
fairly informs a defendant of the charge against him or her. See United States v.
Alfonso, 143 F.3d 772, 776 (2d Cir. 1998). Here, the indictment charges
Defendants with operating a money transmitting business in violation of section
1960. Thus, Defendants are fairly informed that any money transmitting,
including that done on behalf of licensees and that done for its own clients, that
occurred in the specified time periods is covered by the indictment.

The Superintendent heads the New York State Banking Department, which is
charged with implementation of all banking laws in the state. See N.Y. Banking
Law 11-12 (McKinney 1990).

Our holding does not mean that an agent could face federal criminal
prosecution for innocent conduct in mistakenly transmitting money that it had
received on behalf of a licensed principal, or for an isolated instance of
improper transmittal of money. First, section 1960(a) requires that the
unlicensed entity be "an illegal money transmitting business" (emphasis added)
which insures that persons or entities cannot be prosecuted for a single, isolated
transmission of money. Second, section 1960 defines an "illegal money
transmitting business" as one "intentionally operated without an appropriate
money transmitting license" (emphasis added), and requires that the defendant
know the business is an "illegal money transmitting business." Whether or not
this defense is available to Defendants here must be determined after factual
development at trial and is not properly considered on an appeal of an order
dismissing an indictment. See Alfonso, 143 F.3d at 777 (holding that "the
sufficiency of the evidence is not appropriately addressed on a pretrial motion
to dismiss an indictment.")