Federal authorities announced this week a settlement with Ripple Labs Inc. and its subsidiary, XRP Fund II, resolving an investigation by FinCEN and the Department of Justice into violations of the Bank Secrecy Act. The settlement generally calls for the company to pay $700,000 in fines and forfeitures, to move Ripple Trade (a version of the open source wallet software operated by Ripple Labs) to a registered Money Services Business, and to make changes to the AML compliance programs at Ripple Labs and its subsidiaries.
In the statement of facts accompanying the settlement agreement, the Government relied on, and specifically referenced statements made by the company in an unrelated trademark litigation. This reliance is a stark reminder to companies in the virtual currency sector of the importance of being consistent and accurate, at all times, in all contexts, and across all platforms, when describing products and services offered in the fast-evolving virtual currency space. Furthermore, the Government’s action is a reminder about, and reinforcement of, the Government’s continued, intense, nationwide scrutiny not only of criminal activity incidentally involving virtual currency, but also of virtual currency businesses themselves.
The settlement documents provide the most detailed description to date of the Government’s view of the legal and regulatory landscape applicable to decentralized virtual currencies. Specifically, virtual currency businesses and investors should take note of the Government’s discussion of, and reliance upon, the virtual currency guidance. The settlement documents and Government statements on the settlement do not discuss other FinCEN pronouncements, such as exemptions for software companies and sales of virtual currency on one’s own account, both of which were described in prior letter rulings.