On May 5, 2015, the Financial Crimes Enforcement Network (FinCEN), the US federal anti-money laundering agency, announced a $700,000 civil penalty against Ripple Labs Inc. (Ripple) and its subsidiary for acting as an unregistered money services business.
FinCEN and the United States Attorney’s Office for the Northern District of California, a division of the US Department of Justice, coordinated the enforcement action against Ripple and its subsidiary XRP II LLC. Since March of 2013, virtual currency exchangers and administrators have had to register as money services businesses (MSBs) with FinCEN and comply with the anti-money laundering (AML) regulations applicable to MSBs, such as maintaining an AML compliance program and reporting suspicious transactions. Both Ripple and XRP II failed to register as an MSB, maintain an AML compliance program and report suspicious transactions. For purposes of the Bank Secrecy Act, FinCEN determined that Ripple and XRP II “willfully” violated those requirements. The Department of Justice was involved because operation of an MSB without appropriate registration also violates federal criminal law.
The virtual currency known as XRP is the second-largest cryptocurrency (by market capitalization) after Bitcoin.
Ripple and XRP II also entered into a 3-year settlement agreement with the US Attorney’s Office resolving possible criminal charges and forfeited $450,000, which will be credited towards payment of the FinCEN civil penalty but which is not tax-deductible. In addition, the two companies agreed to take steps to comply with all applicable laws, including registration as an MSB, review three years of past activity to determine if additional suspicious activity reports need to be filed and have external independent audits of their AML compliance. In addition, Ripple Labs must offer incentives, including but not limited to XRP giveaways, for existing Ripple Trade users to transfer their virtual currency “wallets” to “wallets” with customer identification information or accounts.