LedgerX to become a federally regulated digital currency exchange
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The US government took its strongest step yet in its oversight of other virtual currency, fining prominent "Bitcoin alternative" company Ripple Labs Inc. In Ripple, the Financial Crimes Enforcement Network FinCEN targeted one of the more prominent virtual currency companies for its first virtual currency civil enforcement action. Ripple does not rely on Bitcoin but instead issues its own virtual currency and operates an open payment network using that virtual currency.
Unlike many smaller Bitcoin and other virtual currency companies, Ripple has several prominent financial institution investors and it boasts of a compliance staff with years of anti-money laundering AML experience. FinCEN, the regulator responsible for enforcement of the Bank Secrecy Act, found that Ripple operated as a bitcoin institutional investor39s alphabetical services business MSB and sold virtual currency without implementing an adequate anti-money laundering program.
During the two years after FinCEN issued the guidance, it notified virtual currency companies privately if it thought they were acting as unlicensed MSB under the guidance, and it issued a series of interpretative letters explaining the guidance.
While the private notifications and interpretive letters caused some companies to change their business models or register as MSBs, until now FinCEN had not publicly punished any company for failing to follow the guidance. While the guidance is focused on virtual currency businesses, the underlying MSB rules may apply to any company offering innovative payment solutions. Bitcoin institutional investor39s alphabetical enforcement action signals that such companies now risk enforcement action unless they either register as MSBs or can convince FinCEN that bitcoin institutional investor39s alphabetical registration is not required.
This poses a legal hurdle for startups and emerging companies, and their investors, who are unsure of whether their cutting-edge payment solutions are subject to rules originally designed for brick-and-mortar bitcoin institutional investor39s alphabetical.
In Julya new Ripple subsidiary did register with FinCEN but was found to have lacked an effective AML program and to have failed to file suspicious activity reports. Other violations occurred for a longer period: While many financial institutions conduct annual reviews of their AML program, the AML rules require only the frequency of bitcoin institutional investor39s alphabetical MSB's review "be commensurate with the risk of the financial services provided.
As part of the settlement, Ripple and relevant subsidiaries agreed to take several remedial bitcoin institutional investor39s alphabetical aimed to give the government greater visibility into virtual currency transactions. Two of these actions are particularly noteworthy. FirstRipple agreed to improve its monitoring tools for identification and possible reporting to the government of funds flows and counterparty information regarding Ripple transactions.
SecondRipple also agreed to offer incentives such as free XRP virtual currency for customers to provide identification information, and then to cut off any Ripple customer who does not provide that information within days of the settlement.
Other remedial measures are similar to those commonly seen in AML enforcement actions. Ripple also agreed to external bitcoin institutional investor39s alphabetical of its program through the yearand to a three-year lookback review of historical transactions for potential suspicious activity reporting.
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To learn more about how we use cookies, please see our Privacy Policy. People By Name Search. Publications May 03, Infrastructure Series: Energy Infrastructure and Investor-State Disputes. Where do you see yourself? Summer Associates Lawyers Professionals. Broad Remedial Measures As part of the settlement, Ripple and relevant subsidiaries agreed to take several remedial actions aimed to give the government greater visibility into virtual currency transactions.
