Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
The federal government sent a message Tuesday that the new virtual-currency providers are subject to the same regulations as long-established money-transfer firms when it announced that Ripple Labs Inc. would pay a $700,000 civil penalty and take remedial actions in lieu of criminal prosecution.
The announcements came from the U.S. Attorney’s office in San Francisco and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen). FinCen assessed the fine against San Francisco-based Ripple and a subsidiary, XRP II LLC. The government claimed Ripple Labs willfully violated the Bank Secrecy Act by acting as a money-services business and selling its virtual currency known as XRP without registering as an MSB, and by failing to implement an adequate anti-money-laundering program as required by the law. XRP II later assumed Ripple Labs’ MSB functions and engaged in the same types of violations, FinCen said.
“Virtual-currency exchangers must bring products to market that comply with our anti-money-laundering laws,” FinCen Director Jennifer Shasky Calvery said in a news release. “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.”
Ripple is the second-largest cryptocurrency by market capitalization after Bitcoin, the feds said. Ripple Labs also operates a platform for the electronic exchange of fiat currencies.
Ripple Labs spokesperson Monica Long said the government acknowledged that the company has cooperated with its investigation and that it has taken steps to comply with FinCen’s March 2013 guidance for virtual-currency providers and maintain an anti-money-laundering program. Those steps include registering XRP II as an MSB in 2013, hiring a chief compliance officer in January 2014 and a Bank Secrecy Act officer in February of this year.
“While we are pleased to have resolved this matter and to move forward with our business, we would like to address the nature and outcome of the investigation, and our company’s historical and present-day conduct with regards to compliance,” Long said in an e-mailed statement. “An early company in an emerging, undefined fin-tech category, Ripple Labs was one of the first to proactively build out a compliance and risk program. We’ve been consistent in our message of supporting a compliant and healthy Ripple ecosystem. We have not willfully engaged in criminal activity, nor has the company been prosecuted.”
Long added that, “Ripple is infrastructure technology for banks to build compliant payment networks. The settlement announced today does not impede our ability to execute on those bank integrations. We’re continuing to focus on working towards an Internet of Value.”
The settlement with the U.S. Attorney’s office includes a $450,000 forfeiture that will be credited as partial payment of FinCen’s $700,000 civil fine.
Ripple and XRP II agreed to take a number of what the government called remedial steps. In addition to maintaining and enhancing an anti-money-laundering program, they include conducting XRP transactions and so-called “Ripple Trade” activity only through a registered MSB. The agreement also calls for external audits through 2020, enhancements to Ripple’s protocol, more transaction monitoring, and a review of three years’ of historical activity for suspect transactions, the U.S. Department of Justice and FinCen said.
As examples of alleged violations, the DoJ said Ripple sold XRP before it had registered with FinCen as an MSB, including $1.3 million in sales in April 2013 alone. Later that year, XRP II arranged a $250,000 transaction for a Ripple Labs investor who had a felony record without requiring the investor to complete a required “know-your-customer” form.
