Internal Revenue Service examiners are conducting bank-like exams of virtual currency firms for possible anti-money laundering violations, Financial Crime Enforcement Network Director Jennifer Shasky Calvery said May 6.

“These exams will help Fincen determine whether virtual currency exchangers and administrators are meeting their compliance obligations under the applicable rules,” Calvery said in prepared remarks to a group of anti-money laundering professionals in San Francisco.

Her speech came just after the government levied a $700,000 fine against prominent virtual currency company Ripple Labs for violations of the Bank Secrecy Act, including failing to report suspicious activity. Fincen said early in its history, Ripple Labs functioned as an unregistered money service business and neglected to comply with anti-money laundering regulations. The civil money penalty against Ripple Labs and its subsidiary, XRP Fund II, was jointly issued by Fincen and the U.S. Attorney's Office for the Northern District of California. Ripple Labs said it has hired staff and is continuing to expand its AML program.

Calvery first mentioned the exams earlier this year while speaking on a panel at a Council on Foreign Relations event on cryptocurrency policy, but the remarks were not widely known.

“We went through and did training for them late last year and they have now begun their examination so that now get us to the next step to give businesses out there an idea of what expectations are and what is going to work and what isn’t and further develop the industry,” Calvery said during the February panel.

During the speech this week at the West Coast Anti-Money Laundering Forum, Calvery said virtual currency exchangers – like all members of regulated industry – must bring products to market that comply with the government's anti-money laundering laws.

“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,” she said.

Fincen issued guidance in 2013 which said that it classified virtual currency companies as money transmitters and therefore they must abide by all BSA and anti-money laundering requirements.

“When individuals create a new company in an existing regulatory framework they have an obligation to make their products, their services to comply with that preexisting regulatory framework,” Calvery said on the earlier panel at the Council for Foreign Affairs.

 

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