Ripple Labs has been fined $700,000 by the US Financial Crimes Enforcement Network (FinCEN) in the first successful civil enforcement action against a virtual currency exchange.
According to the charge sheet brought by US authorities, Ripple Labs, and its subsidiary XRP II, "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".
“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,”says FinCEN director Jennifer Shasky Calvery. “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 investigation runs concurrent with a probe by the Californian US Attorney General's office, which slapped a $450,000 fine on Ripple Labs, and ordered a migration of a portion of the company's business to a separate entity in order to bring its virtual currency operation within the existing regulatory framework for money services businesses.
“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,” says Richard Weber, chief, IRS Criminal Investigation. “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.”
The enforcement action, and the harsh comments by US regulators, are a substantial blow to Ripple Labs' reputation as it seeks to work with international banks to rewire the international money transfer business through the fast and frictionless exchange of its digital currency tokens in exchange for fiat currency.
In a statement, the company insists that it has not "willfully engaged in criminal activity" and points out that it has not been prosecuted for its failings.
"We couldn’t agree more with Chief Weber’s observation that a ‘Wild West environment’ is untenable in financial services," the statetment continues. "To that end, and as the government has recognised in today’s agreement, Ripple Labs has cooperated extensively with the government during its investigation and has taken a number of important steps over the years to build and strengthen our compliance programs.
"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.”