Chamber of Digital Commerce: More Action from FinCEN is Inevitable

The FinCEN action against XRP II LLC (Ripple) took many by surprise early last month, although many in the Bitcoin community were not shocked to see an organization with such close ties to a digital token face backlash for “willful violations” of the Bank Secrecy Act (BSA) and failure to implement appropriate anti-money laundering (AML) procedures.

The Chamber of Digital Commerce has been quick to gain an in-depth understanding of the action taken against Ripple Labs, and the Washington, D.C.-based trade association plans to discuss the implications of the regulatory action in a public briefing June 4th at 1 p.m. EDT.

Before their briefing, the Chamber of Digital Commerce was willing to answer a few questions related to the Ripple case via email. Chamber of Digital Commerce President Perianne Boring provided input on the Ripple case with added assistance from Carol Van Cleef of the trade association’s advisory board.

Changes to the Ripple Protocol?

In the minds of many digital currency advocates, the most troubling aspect of the Ripple action was the agreement to make regulatory compliant changes to the Ripple protocol. Of course, as Boring pointed out, Ripple Labs seemed to disagree with this assessment of the deal with FinCEN via a piece in the Wall Street Journal. The WSJ article contained statements from Ripple Labs Bank Secrecy Act Officer Antoinette O’Gorman:

“All that Ripple had agreed to, she said, was to build enhanced ‘analytical transaction monitoring tools for monitoring transactions across the protocol’ and to furnish information drawn from that monitoring to U.S. authorities upon request. The changes had ‘nothing to do with the protocol itself,’ she said.”

Boring added that this would be a key point of discussion during the Thursday briefing. When speaking specifically about what changes Ripple Labs would have to make due to their agreement with FinCEN, Boring stated:

“This is consistent with FinCEN’s minimum standards for money service businesses, which states that ‘money services businesses that have automated data processing systems should integrate into their systems compliance procedures such as recordkeeping and monitoring transactions subject to reporting requirements.’ Given these expectations, as a practical matter, the analytical tools must either be incorporated into the protocol or be built on top of the protocol to enable the company to monitor transactions.”

More Action to Come from FinCEN

Due to the swift action from FinCEN and their partner agencies on the Ripple situation, it should come as no surprise to find that the Digital Chamber of Commerce also finds more action from FinCEN against various businesses involved with token issuances and crowd sales to be “inevitable.” Boring pointed to a May 6th keynote speech by FinCEN Director Jennifer Shasky Cavalry at the West Coast AML Forum in which the director indicated that a series of supervisory examinations of virtual currency businesses has recently been launched by the IRS.

Boring added:

“Please note that it is the IRS that conducts such examinations for FinCEN. Any deficiencies detected in these examinations are then reported to FinCEN. FinCEN then may decide to take enforcement action. With the laser focus right now on these businesses, we expect more actions are inevitable.”

The president of the Digital Chamber of Commerce also noted, “IRS examinations are not the only way that virtual currency businesses may find themselves vulnerable to enforcement actions by FinCEN.” She pointed to ongoing criminal investigations and even press coverage as two other activities that could trigger an investigation by another regulatory body such as the SEC.

Public Briefing on the Ripple Action

In an effort to bring more clarity to the current regulatory environment in terms of token issuances, crowd sales, and other activities surrounding digital currencies, the Chamber of Digital Commerce is holding an industry briefing on Thursday, June 4 at 1 p.m. EDT (10 a.m. PDT). The key points of the briefing will be to:

• Discuss the implications of the first civil money penalty action against a digital currency company;
• Gain a more in-depth understanding of what it means for companies in the ecosystem;
• Evaluate what steps need to be taken immediately to minimize or eliminate potential violations;
• Assess how to prepare for upcoming Bank Secrecy Act (BSA) examinations by the IRS.

The briefing will be held via telephone, and participants can register before the start of the event to receive the dial-in information.

As part of her final comments, Boring added a few notes about the importance of regulatory clarity in the digital currency ecosystem:

“Investors don’t fear regulation; they fear uncertainly. Gaining regulatory clarity is an important part of the development and growth of this industry.”

In order to help with the ever-changing regulatory landscape in the digital currency industry, the Chamber of Digital Commerce has put together the first AML compliance course specifically designed for businesses involved with bitcoin and other digital assets. Boring noted, “The Chamber will continue to take a leadership role by advancing the public-private sector dialogue, offering educational webinars and training sessions, and serving as a clearinghouse for information sharing within the industry.”