FinCEN (The Financial Crimes Enforcement Network), a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions in order to withstand domestic and international money laundering, terrorist financing, and other financial crimes, imposed a $700,000 civil money penalty on May 5th against Ripple Labs Inc. and its wholly-owned subsidiary, XRP II, LLC.
The case is that Ripple Labs willfully violated the requirements of the Bank Secrecy Act (BSA): the company was acting as a money services business (MSB) and was selling its digital currency, known as XRP, without registering with FinCEN, besides it failed to implement and maintain an admissible anti-money laundering program to protect its products from use by money launderers or terrorist financiers.
“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,” explained FinCEN Director Jennifer Shasky Calvery.
XRP II later considered Ripple Labs’ functions of selling digital currency and acting as an MSB; however, like its parent company, XRP II deliberately violated the BSA by failing to enable an effective anti-money laundering program, and by failing to report suspicious activity related to financial transactions.
FinCEN is working in coordination with the U.S. Attorney’s Office for the Northern District of California (USAO-NDCA). The bureau’s assessment coincides with the USAO-NDCA’s announcement of a settlement agreement with Ripple Labs and XRP II. According to the settlement, the companies determined possible criminal charges and forfeited $450,000.
The $450,000 forfeiture in that action will be credited to partially liquidate FinCEN’s $700,000 civil money penalty. A Statement of Facts and Violations that describes the details of the BSA violations, is incorporated into FinCEN’s assessment as well as the USAO-NDCA’s settlement.
However, the actions were accompanied by an agreement by Ripple and XRP II to engage in remedial steps to ensure future compliance with anti-money laundering and combating the financing of terrorism obligations.
The agreements include to only transact XRP and “Ripple Trade” activity through a registered MSB, to enable and maintain an effective anti-money laundering 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 and 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.
Furthermore, according to the agreement, the company will launch certain enhancements to the Ripple Protocol to appropriately monitor all future transactions.
“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,” said U.S. Attorney Melinda Haag.
FinCEN’s aim is to protect the U.S. financial system from being exploited by illicit activity. The bureau’s efforts are focused on compromised financial institutions and their employees; significant fraud; third-party money launderers; transnational organized crime and security threats; and cyber threats.