united-states finance payment
Is it legal to promise to pay out money to uninformed third parties?
<p>I'd like to set up a system that will allow me to accept a payment from a customer, say $10, and distribute a portion of that $10 evenly to a variable number of third parties. The problem is I'd like to start accepting customer payments before the third parties know that I'll be paying them.</p>

<p>The process (fully explained to the customer):</p>

<ol>
<li>Customer pays my business $10</li>
<li>I inform the third parties via email that they have $X waiting for them.</li>
<li>If the third party sends me bank information, I send the payment.</li>
<li>If the third party does not sign up within X months, I give the money to charity.</li>
</ol>

<p>Is this legal according to the law of Minnesota, US? Any advice is greatly appreciated!</p>

<p>One way to look at this arrangement is that it would be an enforceable contract. 
As a contractual matter, there is an agreement between you and the customer, and a separate agreement between you and the artist. In the first agreement, you have to give something of value, and the customer has to give something of value (money). You would be offering self-generated good feelings and encouraging something that the customer finds valuable. You would need to be clear about what they must do and what you must do, and assuming that, it would be a valid thus legal contract. (I set aside the question of whether the Spotify TOS might prohibit you from doing this: my answer is not Spotify-specific).</p>

<p>To be a real contract, you ought to be able to say what would be a breach of contract by you or the customer (you don't define breach in the contract, but conceptualizing the matter this way will help clarify the terms). You could breach if you simply refused to pass on the promised percentage, or unilaterally changed the percentage, or surprise customers by refusing to support Björk or Enya. The customer might breach by e.g. inflating hit-rates by some software means, or by paying with fake money (rubber checks, invalid cards, whatever). One thing you cannot reasonably do is promise that the artist will be cooperative, so your promise would have to be clear about the non-cooperative artist option. (Suppose a customer listens to Björk, Enya and Smith in that order, but Björk declines to cooperate: is the money automatically re-distributed to Enya and Smith, or does Björk's share go to the customer's charity? What is both the charity and artist are uncooperative – unlikely but not impossible?)</p>

<p>Theoretically you can also form a contract with the artist, where you give something of value (money) in exchange for... and that part is not clear. "Providing bank details" might be the thing of value (valuable because it enables your contract with the customer). But there is no obvious reason for you to actually form a contract with the artist, and it is legal to give someone money with no strings attached (though you may have to mind income-reporting laws, if you hand over a lot of money). The tax consequences of this scheme should not be overlooked.</p>

<p>Another way to approach this is that you are running a charity, serving as a clearinghouse. Charities are highly regulated: the Minnesota AG provides <a href="http://www.ag.state.mn.us/Consumer/Publications/GuideCharityLaws.asp" rel="nofollow noreferrer">this guidance</a> on some of the law. If one opts to create a charity, one should hire an attorney. If one opts to not officially create a charity but does something that looks like it is a charity, one should hire an attorney to figure out how to do this so as to avoid prosecution for operating an unregistered charity.</p>

<p>There is also the potential that this could become a money-laundering operation. The federal <a href="https://en.wikipedia.org/wiki/Money_Laundering_Control_Act" rel="nofollow noreferrer">Money Laundering Control Act</a> might be relevant. The entire thing as enacted originally is <a href="https://www.gpo.gov/fdsys/pkg/STATUTE-100/pdf/STATUTE-100-Pg3207.pdf" rel="nofollow noreferrer">here</a> (193 pages), the laundering part is Subtitle H. Fortunately, what is outlawed is willful acts, e.g. "knowing that  the  property  involved  in  a   financial  transaction  represents  the  proceeds  of  some  form  of  unlawful  activity", "with  the  intent  to  promote  the  carrying  on  of  specified  unlawful  activity". Thus one should hire an attorney to make sure that whatever you do, you are insulated against money laundering charges.</p>

<blockquote>
  <p><em>I want to create a product that syncs with a user's Spotify account
  and dynamically pays direct to the pockets of the artists they listen
  to most. So the only thing the user must do is subscribe for $X a
  month, and then let the software automate their contributions to the
  artists they love.</em></p>
</blockquote>

<p>As per the comments, many types of legitimate, multi-step financial transactions can be used for money laundering, from buying/selling candy bars on the street corner to billion dollar international real estate transactions.</p>

<p>If you intend to set up such a service using Spotify, you need to determine if what you want to do is even within Spotify's TOS, regarding user account access, account syncing, etc. You need to read the <a href="https://www.spotify.com/us/legal/end-user-agreement/" rel="nofollow noreferrer">Spotify Terms and Conditions of Use</a>.</p>

<p>Further, many financial and accounting laws come into play with something like this idea, both on the state and federal level. You need to talk to a lawyer who specializes in financial laws to determine how to make such a service legally transparent, minimize potential for abuse, and protect your business and yourself from liability.</p>

<p>We're getting into the gray area of you asking for specific legal advice, which is off topic for many reasons on Law SE. </p>
