United States: Ripple Labs Fined $700,000 Over Bank Secrecy Act Violations: Lessons Learned From FinCEN's First Civil Enforcement Action Against A Virtual Currency Exchange

On May 5, 2015, the Financial Crimes Enforcement Network ("FinCEN") fined Ripple Labs Inc. ("Ripple Labs") and its wholly owned subsidiary XRP Fund II LLC ("XRP II") $700,000 for violations of the Bank Secrecy Act ("BSA"). Specifically, FinCEN charged that Ripple Labs, which sold a virtual currency known as XRP, willfully violated the BSA by acting as a money services business ("MSB") 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. FinCEN also named XRP II, the subsidiary, as a willful violator for failing to implement an effective AML program, and for failing to report suspicious activities related to several financial transactions that occurred after XRP II had assumed Ripple Labs' functions of selling virtual currency and acting as an MSB.

FinCEN imposed the fine in coordination with the U.S. Attorney's Office for the Northern District of California, which had sought a $450,000 forfeiture from Ripple Labs in its parallel settlement agreement for the criminal investigation. According to the DOJ's press release, Ripple Labs and XRP II agreed to the settlement agreement in exchange for resolving the criminal investigation and a promise. The terms of the settlement agreement incorporate the same Remedial Framework and Statement of Facts and Violations imposed by FinCEN. The $450,000 forfeiture will be credited toward the $700,000 fine. As many headlines reported, Ripple Labs became the first Virtual Currency Provider to face a civil enforcement action. The Statement of Facts and Violations, and Remedial Framework, provide an important reminder for Virtual Currency Providers and MSBs generally of the regulations with which they must comply.

First, Virtual Currency Providers are subject to the BSA and must comply with the registration and AML requirements

The BSA and its implementing regulations require MSBs to register with FinCEN by filing a Registration of Money Services Business and renewing the registration every two years. On March 18, 2013, FinCEN released guidance clarifying that exchangers and administrators of virtual currencies are money transmitters subject to FinCEN's rules governing MSBs.

Because Virtual Currency Providers constitute MSBs, they must develop, implement, and maintain an effective written AML program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities.

The AML program at a minimum, must:

  • Incorporate policies, procedures and internal controls reasonably designed to assure ongoing compliance
  • Designate an individual responsible for assuring day-to-day compliance with the program and BSA requirements
  • Provide training for appropriate personnel, including training in the detection of suspicious transactions
  • Provide for independent review to monitor and maintain an adequate program

MSBs must report transactions that the MSB "knows, suspects, or has reason to suspect" are suspicious, if the transaction is conducted, or attempted by, at, or through the MSB, and the transaction involves or aggregates to at least $2,000 in funds or other assets.

Further, MSBs are required to implement Know-Your-Customer/Know-Your-Counterparty procedures in order to assess the risk involved in providing account-based or transactional services to customers based on their identity and profile, and to comply with their AML program requirements regarding foreign agents or foreign counterparties. MSBs are also subject to the Funds Transfer Rule and Funds Travel Rule, which provide that (subject to certain exceptions), for individual transactions of $3,000 or above, the transmitting financial institution must obtain, verify, and keep key information from the transmitting party, and that party's financial institution must pass on key information from the party or regarding the transaction to any intermediary financial institution.

Second, mere registration does not mean compliance with BSA

FinCEN makes clear that the registration and AML requirements are separate and independent. In other words, registration or lack thereof does not relieve an MSB of AML program requirements. This is also true in the reverse – compliance with AML program requirements does not affect the FinCEN registration requirement.

Third, for companies looking to shore up their AML programs, the remedial measures imposed by FinCEN provide examples of the type of tools that may help ensure compliance

FinCEN's enforcement action demonstrates its ongoing commitment to ensuring that Virtual Currency Provider and MSB systems are not at risk for exploitation. Indeed, U.S. Attorney Melinda Haag emphasized this point, stating that "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."

A review of the remedial measures imposed upon Ripple Labs may help other Virtual Currency Providers avoid noncompliance pitfalls. Those measures included, in relevant part:

  • Migration of services to a registered MSB. FinCEN directed Ripple Labs and XRP II to move its virtual currency to an MSB that is registered with FinCEN.
  • Maintenance of registration
  • Development of effective AML program, risk assessment, and other compliance measures as required by applicable law, including the BSA and its implementing regulations
  • Designation and maintenance of an AML compliance officer to ensure day-to-day compliance with obligations under the BSA and its implementing regulations
  • Creation of an AML training program for BSA/AML compliance and maintenance, and written evidence of such training, including a certification of such training, the name of each employee who attended such training, and the dates of such training
  • Performance of an external audit through an independent, qualified, and outside party of BSA compliance programs to evaluate whether the programs are reasonably designed to ensure and monitor compliance with the requirements of the BSA and the FinCEN rules applicable to MSBs
  • Performance of a look-back for suspicious activity, including a review of all prior transactions and attempted transactions to which the company was a party or served as an exchanger, within the past three years, involving or aggregating to at least $2,000 in funds or other assets
  • Implementation of AML programmatic transaction monitoring. For example, the Remedial Framework stated that the monitoring and reporting must include, at a minimum: (a) risk rating of accounts based on the particular gateway used; (b) dynamic risk tools to facilitate investigation of suspicious activity, including counterparty reporting, flow of funds reporting, account flagging of suspicious accounts, and degrees of separation reporting; and (c) other reports of protocol-wide activity regarding any unlawful activity.

Though Ripple Labs and its subsidiary XRP II made history as the first Virtual Currency Providers to face a civil enforcement action, they likely will not be the last. FinCEN has now demonstrated a willingness to impose fines and remedial measures on these MSBs, particularly those in innovative and newly established parts of the industry that are at risk for exploitation through criminal activity. Further, these remedial measures underscore the government's interest in having companies develop robust compliance programs to protect against security threats. Accordingly, companies seeking to reduce their noncompliance risk are well advised to consider implementing the measures outlined above.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions