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Ripple Labs becomes first virtual money exchange fined by FinCEN

Image courtesy of RippleThe Treasury Department’s Financial Crimes Enforcement Network (FinCEN) fined Silicon Valley star Ripple Labs $700,000 Tuesday for selling its virtual currency without registering with FinCEN and for not having an anti-money laundering program.

Ripple’s virtual currency is called XRP. FinCEN said Ripple “willfully violated several requirements of the Bank Secrecy Act (BSA).”

“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,” said FinCEN Director Jennifer Shasky Calvery.

A copy of FinCEN’s assessment order is here (pdf).

“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,” Shasky Calvery said.

 

Ripple also resolved a criminal investigation Tuesday with the U.S. Attorney’s Office for the Northern District of California by forfeiting $450,000. The amount of the forfeiture is being credited to partly satisfy the $700,000 FinCEN penalty.

A copy of the DOJ settlement agreement is here (pdf).

Ripple is the second-biggest cryptocurrency trader by market capitalization, after Bitcoin. The San Francisco-based firm agreed to enhance future Bank Secrecy Act and AML compliance.

A South Carolina subsidiary of Ripple started operating in 2013 without having an AML program or appointing a compliance officer, FinCEN said. South Carolina is known for lax regulation of money transfer firms.

In March 2013, FinCEN released guidance that virtual currency exchangers and administrators had to register as money services businesses.

“Yet Ripple sold XRP even though it had not registered with FinCEN,” making sales of over $1.3 million in April 2013 alone, the DOJ said.

In September 2013, Ripple processed a $250,000 transaction for a customer who threatened to take his business elsewhere rather than fill out a “know your customer” form.

Investors in Ripple Labs have included Silicon Valley heavy weights Google Ventures, Andreessen Horowitz, IDG Capital Partners, FF Angel, and Lightspeed Venture Partners.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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1 Comment

  1. As I mentioned to colleagues, this is a " coming of age" fine for Ripple. It is important that readers understand that the fine for "selling its virtual currency without registering with FinCEN and for not having an anti-money laundering program" can misguide readers. It is as if I get fined at 25 for driving without a license when I was 16 and I see a headline: Hugo fined for unlicensed driving. (BTW, I am 60 now and I did drive without a license once back then!!!)
    A $700,000 FinCEN fine is more of a warning to all Blockchain-based companies that the US regulators are serious about considering then Money Transmitters and they must make sure they are getting the right advice. Yes, technology is great, we all want it, but….


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