willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB) and selling its virtual currency, known as XRP, 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. XRP II later assumed Ripple Labs’ functions of selling virtual currency and acting as an MSB; however, like its parent company, XRP II willfully violated the BSA by failing to implement an effective AML program, and by failing to report suspicious activity related to several financial transactions.FinCEN stated
Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws.
Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products. ...
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.
Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, including those in the virtual currency arena.
Unregulated, virtual currency opens the door for criminals to anonymously conduct illegal activities online, eroding our financial systems and creating a Wild West environment where following the law is a choice rather than a requirement.Compliance involves the two enterprises agreeing to
- only transact XRP and “Ripple Trade” activity through a registered MSB;
- implement and maintain an effective AML program;
- comply with the Funds Transfer and Funds Travel Rules;
- conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions; and
- retain external independent auditors to review compliance with the BSA every two years up to and including 2020.
'Disruptive Technology and Securities Regulation' by Chris Brummer in Fordham Law Review (Forthcoming) comments
Nowhere has disruptive technology had a more profound impact than in financial services — and yet nowhere more do academics and policymakers lack a coherent theory of the phenomenon, much less a coherent set of regulatory prescriptions. Part of the challenge lies in the varied channels through which innovation upends market practices. Problems also lurk in the popular assumption that securities regulation operates against the backdrop of stable market gatekeepers like exchanges, broker-dealers and clearing systems — a fact scenario increasingly out of sync in 21st century capital markets.
This Article explains how technological innovation not only “disrupts” capital markets — but also the exercise of regulatory supervision and oversight. It provides the first theoretical account tracking the migration of technology across multiple domains of today’s securities infrastructure and argues that an array of technological innovations are facilitating what can be understood as the disintermediation of the traditional gatekeepers that regulatory authorities have relied on (and regulated) since the 1930s for investor protection and market integrity. Effective securities regulation will thus have to be upgraded to account for a computerized (and often virtual) market microstructure that is subject to accelerating change. To provide context, the paper examines two key sources of disruptive innovation: 1) the automated financial services that are transforming the meaning and operation of market liquidity and 2) the private markets — specifically, the dark pools, ECNs, 144A trading platforms, and crowdfunding websites — that are creating an ever-expanding array of alternatives for both securities issuances and trading.