The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California (USAO-NDCA), assessed a $700,000 civil money penalty recently against Ripple Labs Inc. and its whollyowned subsidiary, XRP II, LLC (formerly known as XRP Fund II, LLC).
According to FinCEN, Ripple Labs willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN, and by failing to implement and maintain an adequate anti-money laundering (AML) program designed to protect its products from use by money launderers or terrorist financiers.
XRP II later assumed Ripple Labs’ functions of selling virtual currency and acting as an MSB. According to government authorities, like its parent company, XRP II willfully violated the BSA by failing to implement an effective AML program, and by failing to report suspicious activity related to several financial transactions.
FinCEN Director Jennifer Shasky Calvery said:
Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws. Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.
FinCEN’s assessment is concurrent with the USAO-NDCA’s announcement of a settlement agreement with Ripple Labs and XRP II. In that settlement, the companies resolved possible criminal charges and forfeited $450,000. The $450,000 forfeiture in that action will be credited to partially satisfy FinCEN’s $700,000 civil money penalty. A Statement of Facts and Violations, describing the underlying activity and details of the BSA violations, is incorporated
into FinCEN’s assessment as well as the USAO-NDCA’s settlement.
Both actions were accompanied by an agreement by Ripple and XRP II to engage in remedial steps to ensure future compliance with AML/CFT obligations, as well as enhanced remedial measures. Among these steps are these agreements:
- to only transact XRP and “Ripple Trade” activity through a registered MSB
- to implement and maintain an effective AML program
- to comply with the Funds Transfer and Funds Travel Rules
- to conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions
- a requirement for the companies to retain external independent auditors to review their compliance with the BSA
every two years up to and including 2020.
Pursuant to the agreement, Ripple Labs will also undertake certain enhancements to the Ripple Protocol to appropriately monitor all future transactions.
U.S. Attorney Melinda Haag commented:
By these agreements, we demonstrate again that we will remain vigilant to ensure the security of, and prevent the misuse of, the financial markets. Ripple Labs Inc. and its wholly-owned subsidiary both have acknowledged that digital currency providers have an obligation not only to refrain from illegal activity, but also to ensure they are not profiting by creating products that allow would-be criminals to avoid detection. We hope that this sets an industry standard in the important new space of digital currency.
Richard Weber, Chief, IRS Criminal Investigation, said:
Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, including those in the virtual currency arena. Unregulated, virtual currency opens the door for criminals to anonymously conduct illegal activities online, eroding our financial systems and creating a Wild West environment where following the law is a choice rather than a requirement.
As of 2015, Ripple is the second-largest cryptocurrency by market capitalization, after Bitcoin.
On March 18, 2013, FinCEN released guidance clarifying the applicability of regulations implementing the BSA, and
the requirement for certain participants in the virtual currency arena—namely, virtual currency exchangers and dministrators—to register as MSBs with FinCEN pursuant to federal law.