Post FinCEN Penalties, Ripple Labs Adapts and Moves On

By May 8, 2015Bitcoin Business
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The digital currency company Ripple Labs has adapted in response to recent penalties and fines by FinCEN for reportedly “willful violations” of the Bank Secrecy Act. As industry analysts have pointed out, since the violations, the company has drastically increased its anti-money laundering (AML) efforts. But this might just be the beginning of more strict regulatory actions against digital currency companies.

Regulators shut down previous digital currency businesses that violated financial regulations such as Bitinstant, but Ripple Labs has escaped this fate. Many have attributed this to the company’s proactive and aggressive measures to comply with regulations since the 2013 guidelines for digital currency companies published by FinCEN and its willingness to work with regulatory agencies.

“[A]s the government has recognized 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,” reads a statement by Ripple Labs spokeswoman, Monica Long. “These measures include: registering a subsidiary, XRP II, LLC, as a money service business to handle XRP sales for the company in 2013, in response to and in an attempt to comply with the March 2013 Guidance by FinCEN; hiring a chief compliance officer in January 2014, a general counsel, and a BSA officer in February 2015; and continuously enhancing an anti-money laundering program,”

Banking Partners Are Committed

“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,” said Ripple Labs in a public statement.

Bitcoin Magazine reached out to several banks and financial institutions that are in discussions or partnerships with Ripple Labs to see if the recent penalties have affected their relationship with the digital currency company. Though none were very forthcoming, no one said they are ending their partnership the digital currency company based on the settlement.

Matthias Kröner, co-founder and CEO of Fidor Community Bank, an innovative European Bank which ha partnered with Ripple for international transfers, suggested the bank’s relationship with Ripple hasn’t changed since the FinCEN penalties but wasn’t willing to discuss the matter in detail.

“If we would see a problem with one of our partners, we for sure would discuss such a question confidentially with those partners,” Kröner said.

A similar answer was given by Kristin Kelly, director of global corporate communications at Western Union, who said the global remittance company still stands by their comments made earlier this month. According to those comments, Western Union is in preliminary discussions with Ripple Labs to launch a pilot settlement program.

“Now it looks like Ripple addressed the issues and paid the fine and are moving forward, and that is how it usually works when a bank or a casino or another money-service business is involved,” said vice president for payments and cybersecurity at the American Bankers Association, Steve Kenneally, in interview with American Banker. The fact that the process is working like it would with any other company could work in Ripple’s favor, he said.

Ripple May Be Clear, but Other Bitcoin Companies Could Be Next

For a long time, just like Ripple Labs, Bitcoin companies operated in a sort of financial ‘Wild West’. It was uncertain where these new category of companies fit within the law and current financial regulations. Only recently have digital currency companies received guidance from regulatory agencies on the matter, although some uncertainty still exists.

Carol Van Cleef, co-chair of the global payments practice group at the law firm Manatt, Phelps & Phillips, told American Banker that early Bitcoin companies might face similar penalties for prior regulatory sins.

“FinCEN clearly has the intention to hold entities responsible from the time they flip the switch to turn on their business model. Compliance is expected from the beginning; they make a big point of the fact that [Ripple Labs] was operating for a period of time without being properly registered as an MSB,” she said. “FinCEN is only beginning its enforcement examination process of MSBs in the digital currency space; as with any industry in the first round of compliance examinations, we’re likely to see a number of companies being cited for compliance shortcomings.”

Regulators shut down previous digital currency businesses that violated financial regulations such as Bitinstant, […]

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