Square Slapped With Cease And Desist By Illinois State Department

As I understand it, the big deal with money transmission licenses is that they tend to require sizable bonds (they exist in part to mitigate the risk that you'll build up a client base and one day take all the float and move to Antigua --- or, for that matter, that you'll go out of business while holding the bag on millions of dollars of client payables.<p>The requirements to get a license in Illinois are straightforward: you need to meet a (low-seeming) net worth requirement, you can't have outstanding regulatory problems with the state, your management can't be felons. You also have to post a surety bond equivalent to max(100k, daily average volume).<p>If Square isn't already required to be a money transmitter in (say) CA or NY, it'd be surprising if they had to be one in IL, but either way this seems like a speed bump for Square.

Ah, the great corrupt state of Illinois!<p>I wonder who and how much money got passed under the table to investigate and pursue this.<p>Yes, I realize that no money may have been passed and that someone might have just been doing "their job" (as they see it).

Is Square even in Illinois?<p>If not, then can someone explain to me how Illinois has the power to enforce this statute? I am not a lawyer, but it would seem to me to be a pretty clear case of interstate commerce, which is under federal jurisdiction.

Money transmission laws are complex. (See <a href="http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf" rel="nofollow">http://www.thinkcomputer.com/corporate/whitepapers/heldhosta...</a> .) They're designed to be complex. Most of the laws passed in the past twenty years have been designed by one man, Ezra Levine (<a href="http://www.mofo.com/ezra-c-levine/" rel="nofollow">http://www.mofo.com/ezra-c-levine/</a>), who is now a lawyer at Morrison &#38; Foerster. His client is The Money Services Round Table (TMSRT), and its membership comprises some of the largest money transmitters in the country.<p>Square has a money transmission license in California but it is not part of TMSRT. What's surprising about this situation is the following:<p>1) Square has a lot of lawyers. It has enough money and clout that they are probably very good lawyers. Yet even all of that money, clout (Jack Dorsey) and lawyering could not protect Square from this insane regulatory regime.<p>2) It is not clear to me, having studied this topic for two years basically full-time, that Square actually is a money transmitter. They might be, but they might not be. Per federal regulations (I think 31 CFR § 1010 point something), they aren't; they are a payment processor, but states ignore these regulations. Even though the definition varies from state to state, it's hard for me to figure out what Square does with money that is not done on behalf of a bank, and banks are exempt from every state money transmission statute to the best of my knowledge. Usually it's just assumed that their agents are also exempt (hence the federal "payment processor" term--suddenly you're not a "money transmitter").<p>3) State regulators talk to one another but these laws are rarely, if ever, enforced. Virtually every payment startup I know of that isn't Square is violating them, including several YC startups, and even non-payment startups. It's not clear to me what happened in Illinois that their department of banking decided to take the lead on this. I wonder who has a major presence in Illinois that was upset enough that it happened. (Obviously not Visa--they're an investor.)<p>Square might want to consider filing an amicus brief in my company's case against the California Money Transmission Act (<a href="http://www.plainsite.org/flashlight/case.html?id=716056" rel="nofollow">http://www.plainsite.org/flashlight/case.html?id=716056</a>) and/or joining the coalition of entrepreneurs and investors I have helped to assemble in opposition to the insanity that is the money transmission regulatory regime in the United States, especially given AB 786 in the California legislature (<a href="http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_786&#38;sess=CUR&#38;house=B&#38;author=dickinson" rel="nofollow">http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_7...</a>) and the hearing about it on March 11 (<a href="http://abnk.assembly.ca.gov/hearings" rel="nofollow">http://abnk.assembly.ca.gov/hearings</a>). E-mail me at aarong@thinkcomputer.com. This issue will not go away unless we make some noise about it.

From the C&#38;D: "Consumers obtain said devices, free of charge, either through U.S. postal mail or by picking them up at multiple retail locations throughout the State of Illinois." Seems like the real issue may be the "free of charge" part. No charge, no sales tax revenue for the State of Illinois. Maybe I'm too cynical, but I can see this as a bureaucratic rationale.