Ripple Revamps Compliance Efforts, Post FinCEN Fine

Violations of the Bank Secrecy Act and anti-money laundering regulation by Ripple Labs subsidiary,  XRP II, occurred when it sold large amounts of the native currency for the Ripple network, XRP, without obtaining the proper identification of buyers. Fines from The Financial Crimes Enforcement Network (FinCEN) and the Department of Justice (DOJ) totalled over $1 million. Money paid to the DOJ was also credited to the FinCEN fines, resulting in the digital currency firm only having to pay $750,000.

“Ripple Labs 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.”
— – FinCEN

Besides the fines, the settlement that Ripple Labs agreed to with the governmental agencies required heavier oversight of the company’s operations, as well extra Know Your Customer (KYC) processes for Ripple Trade, a ripple exchange for trading the native digital currency between gold, fiat currencies, and other digital currencies.

The platform is a small part of the firm’s businesses efforts, as the native currency isn’t required for the protocol to operate, and the firm’s focus is bringing Ripple technology to financial institution. The startup has, however,  implemented entirely new “identity verification procedures,” which require new and existing users to submit extensive documents as part of the KYC compliance.

“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,”said FinCEN Director Jennifer Shasky Calvery at the time the fine was announced.

“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.”
— – Shasky Calvery, FinCEN Director

Besides procedural improvements the digital currency firm was also required to expand its compliance staff and to make new executive hires in the field. In February, Ripple Labs hired Antoinette O’Gorman as its Chief Compliance Officer and Bank Secrecy Officer. Previously, O’Gorman worked for HSBC and Union Bank in management positions, and has over 15 years of experience in the field.

“As a company operating at the intersection of technology and finance, it’s imperative that we intimately understand our role as an innovator in a developing space,” said Antoinette O’Gorman, Chief Compliance Officer at Ripple Labs.

“Not only do we have the responsibility to uphold the rules and regulations of an industry, we have a responsibility to set the right example.”
— – Antoinette O’Gorman, Chief Compliance Officer at Ripple Labs

Karen Gifford, who served as Head of Compliance at Ripple Labs from early 2014 until August, switched roles to Special Advisor for Global Regulatory Affairs. Creating a global network of banks settling payments with each other through Ripple is one of the grand ambitions of the startup, and complying with local regulations will be an important part of reaching that goal.

The firm has also hired numerous more  people in the positions of bank secrecy officers, compliance specialists, anti-money laundering agents, and regulatory relations managers.

“It’s important to consider the government’s role when it comes to the Internet of Value,” added Gifford. “The world that my children grew up in wouldn’t exist if there hadn’t been significant government engagement in building the Internet. So if we’re going to see the productive development of the Internet of Value, we’re going to need a genuine collaboration between government and industry.”