A bitcoinlike virtual currency company based in San Francisco has agreed to pay federal authorities $700,000 and abide by federal laws in an agreement that ends a criminal investigation into neglecting money-laundering protections, according to the U.S. Attorney’s Office.
Ripple Labs Inc., which runs the second-largest virtual currency system in terms of market capitalization, also agreed to cooperate with other ongoing federal investigations.
The joint investigation was looking into actions by Ripple and an unregistered Ripple subsidiary that sold a virtual currency called XRP — $1.3 million in 2013 alone.
According to prosecutors, Ripple didn’t follow rules that ensure compliance with anti-money-laundering laws. The U.S. Attorney’s Office gave an example from 2013 to show how these failed protocols allowed a $250,000 transaction with a person who had been sentenced to prison and had been convicted of dealing in explosives. This lapse was a failure by Ripple, the federal authorities noted, to pay attention to its own “know your customer” rules.
“Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, including those in the virtual currency area,” said Richard Weber, an IRS criminal investigator who was part of the investigation along with the U.S. Attorney’s Office’s investigations unit.
“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.”
Ripple said in a statement the company has taken serious steps to rectify their transgressions, but argues it never intentionally broke the law.
“We have not willfully engaged in criminal activity, nor has the company been prosecuted,” a company statement said. “Ripple Labs has cooperated extensively with the government during its investigation and has taken a number of important steps over the years to build and strengthen our compliance programs.”
According to the company’s website, Ripple interconnects the world’s financial systems for secure real-time transfers of funds. Ripple and the like, Ripple CEO Chris Larsen said on the company’s website, “take out the middlemen, take out the intermediaries, and give people direct control of information.”
“The way we send money today is as out-of-date as sending telegrams instead of email,” Larsen said. “Recently we sent a wire to Canada — it took eight days and cost a fortune. So much money is chewed up on payments, currency conversions, and middlemen.”
The San Francisco-based startup is funded by Google Ventures, The Bitcoin Opportunity Fund and Vast Ventures among others. The company was founded in 2012.
Unlike bitcoin, Ripple runs a virtual ledger for financial exchanges online that trades electronic dollars and other currency, including XRP.