Feds slap virtual currency company with first penalty

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Federal regulators this week levied a first-of-its-kind penalty against a virtual currency company.

The company, Ripple Labs, allows users to move both real and digital money but failed to register as a money service business. The company — which manages its own cryptocurrency, called XRP — also failed to institute an adequate anti-money laundering program, government officials said.

{mosads}As punishment, the Financial Crimes Enforcement Network (FinCEN) slapped Ripple with a $700,000 penalty.

“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,” said FinCEN Director Jennifer Shasky Calvery in a statement.

Federal watchdogs have stepped up digital currency oversight in recent years, as cyber crooks gravitate toward largely untraceable cryptocurrencies like bitcoin.

These virtual currencies can be exchanged for money or used to directly purchase goods and services. Bitcoin has become the cryptocurrency of choice.

Advocates say it’s beneficial to have alternatives to a government-backed monetary system.

But detractors counter that digital currencies have enabled cyber crooks to anonymously conduct business. Digital thieves can also store digital money in encrypted vaults, away from law enforcement officials.

These concerns caught FinCEN’s attention. Last fall, the agency issued guidelines warning bitcoin exchanges and digital payment processors that they could be considered money services, and thus subject to existing regulations.

Tuesday’s action was the first enforcement made since the new guidelines dropped. FinCEN used the 1970 Bank Secrecy Act to justify its penalty. The law requires financial institutions to maintain transaction records and report suspicious activity.

“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,” Calvery said.

— Updated 3:24 p.m.


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