The Financial Crimes Enforcement Network this week fined Ripple Labs and its wholly-owned subsidiary, XRP II, $700,000 for violations of the Bank Secrecy Act while engaging in the exchange of virtual currency, and for failing to establish and maintain an appropriate anti-money laundering program. The settlement marks the first civil enforcement action against a virtual currency exchanger.
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. It also failed 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. Like Ripple Labs, however, 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 stated.
In addition to the FinCEN penalty, Ripple Labs and XRP II also reached a settlement with the U.S. Attorney’s Office for the Northern District of California to resolve a criminal investigation and forfeited $450,000, which will be credited to partially satisfy FinCEN's $700,000 civil penalty.
Both actions were accompanied by an agreement by Ripple and XRP II to engage in remedial steps to ensure future compliance with AML obligations, as well as enhanced remedial measures. Specifically, both companies have agreed to:
Only transact XRP and “Ripple Trade” activity through a registered MSB;
Implement and maintain an effective AML program;
Comply with the Funds Transfer and Funds Travel Rules;
Conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions;
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.
“Ripple Labs 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,” said U.S. Attorney Melinda Haag. “We hope that this sets an industry standard in the important new space of digital currency.”
As of 2015, XRP is the second-largest digital currency by market capitalization.