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Connecting disparate payment platforms is the Holy Grail of cryptocurrencies. The path to building such a system is not always clear, but must start at the core of the protocol.
July 23 -
The digital currency world is readying itself for more regulatory penalties over the failure to meet Bank Secrecy Act and anti-money-laundering requirements following federal agencies' action against Ripple Labs last month.
June 10 -
While the penalty is a blow to Ripple Labs, it could have significant implications for the industry at large and its efforts to legitimize itself in the eyes of regulators and banks. Here's how:
May 6 -
Though lukewarm about Bitcoin itself, bankers see promise in the technology it runs on, specifically the distributed ledger, for efficiency and security improvements in areas like payments and securities handling.
June 1
The British Navy took on piracy in the Caribbean around 1715. Through a number of sharp engagements, the navy cleared the seas for honest shipping. It now appears that the federal government's Financial Crimes Enforcement Network intends to do the same thing with virtual currency — minus the creation of a swashbuckling literary genre. Fincen's efforts are good news for banks and other regulated financial businesses, many of which are exploring a wide range of new uses for cryptocurrencies and related technology.
Bitcoin and other virtual currencies have struggled for mainstream acceptance. The collapse of the Bitcoin exchange Mt. Gox in 2014 caused significant reputational damage to cryptocurrencies, as did Bitcoin's ties to the online black market Silk Road — operated by a mastermind known as "Dread Pirate Roberts." At the same time, cryptocurrencies' underlying blockchain technology has attracted the
But real risks remain for banks that choose to get involved with cryptocurrency firms, as illustrated by Fincen's enforcement action against Ripple Labs in May. Ripple Labs is an active, early and highly visible provider of blockchain-based systems to financial institutions. The company has positioned itself as heavily focused on regulatory compliance by registering with Fincen as a money-services business, instituting an anti-money-laundering program and hiring a compliance officer. But it didn't take these steps quickly enough, according federal regulators.
Fincen took action against the company for failing to implement and maintain an adequate AML program, which was quickly followed by a settlement agreement including an agreed-upon
It's possible to see confirmation of this theory in a June speech by Assistant Attorney General Leslie R. Caldwell, head of the Justice Department's Criminal Division, at an American Bankers Association conference. Mr. Caldwell's speech highlights Ripple's delay in complying with regulatory standards as the company's central deficiency. Ripple Labs “failed for a time to register with Fincen as a money-services business and failed to establish and maintain appropriate anti-money-laundering protections,” he said. The message appears to be that regulators will not allow any gap in the time between a company's commencement of operations and its full deployment of a complete AML program.
The gist of Fincen's agreement with Ripple Labs also indicates that obtaining or using virtual currency for one's own account and purposes will ordinarily not require registration. But registration will be required for most transactional activities performed as a business for third parties. Service providers offering blockchain or virtual currency payment services to a bank or other financial institution can safely assume that they will be obligated to register as an MSB and to comply with all AML requirements under the Bank Secrecy Act.
In the months since the unexpected warning shot across the bow from Fincen, Ripple Labs has added a former high-ranking Treasury official to its advisory board and the company has been elected to the steering committee for the Federal Reserve's Faster Payment Task Force. These developments suggest that the government is effectively clearing the route by which financial institutions and service providers can move ahead and explore new applications of virtual currency and blockchain technology.
David Sofge is an attorney in Holland & Knight's Fort Lauderdale, Fla., office.
