The United States' Financial Crimes Enforcement Network (FinCEN) has announced it is working to investigate a string of digital currency businesses, assessing whether they meet financial regulations for the sector.

Announcing the bureau's latest activity was director Jennifer Calvery, speaking at the West Coast AML (Anti Money Laundering) Forum in San Francisco May 6. The three-day event is a chance for federal and state regulators to meet with the government's investigative agencies and other qualified consultants.

Jennifer Shasky Calvery

In her opening speech to the forum Calvery gave top billing to her department’s efforts to investigate potential regulatory violations in the virtual currency sector.

“Working closely with our delegated BSA examiners at the Internal Revenue Service (IRS), FinCEN recently launched a series of supervisory examinations of businesses in the virtual currency industry. […] Where we identify problems, we will use our supervisory and enforcement authorities to appropriately penalize non-compliance and drive compliance improvements.”

The news comes shortly after Ripple was fined by FinCEN for not having registered its service as a money services business with regulators, and for also not following correct AML and know-your-customer (KYC) rules designed to prevent illegal financial uses of the platform. In her speech Calvery explained the bureau's move further:

“Under the terms of the agreement, Ripple and its subsidiary, XRP II, consented to FinCEN’s $700,000 penalty, with credit for $450,000 in criminal forfeiture to be paid to the U.S. Attorney’s Office. They also admitted to FinCEN’s detailed statement of facts and admitted that their conduct constituted willful violations of the Bank Secrecy Act.”

Previous punishments for those failing to comply with established financial services regulations have included jail time for the likes of ex-BitInstant CEO Charlie Shrem. Sentenced to two years in federal prison for operating an un-licensed money transmission service that sent funds to the Silk Road marketplace, the businessman faces a lengthy stretch behind bars.

In her speech, Calvery took pains to note the fact that these regulations are not new, and highlighted the bureau's previous efforts to advertise its existence when “FinCEN issued guidance just over two years ago, noting that virtual currency exchangers and administrators are “money transmitters” under the Bank Secrecy Act (BSA) and its implementing regulations”.

Although financial services companies have always had an obligation to follow these national-level regulations, newer regional rules may also soon be coming into force. The final wording of New York's controversial BitLicense scheme is expected to be published in the coming weeks, meaning that digital currency startups in New York may soon face an additional layer of regulations, on top of the national set, to comply with.


David Mondrus, CEO at the Blockchain Factory, spoke to Cointelegraph today about the statement, and voiced fears that increasing regulations in the US would push startups to move to jurisdictions with more relaxed legislation:

"All this will do is drive innovation overseas. We already hear of companies registering in HK and avoiding US shores. This will only accelerate that trend"

One example that supports Mondrus' view is the case of Coinapult which moved from the US to Panama to become a registered company in 2014. Explaining his motivations for the move, Co-Founder Erik Voorhees talked to the Let's Talk Bitcoins podcast on May 6.

“[The government] think that their fiat currencies will outlive Bitcoin, but they're wrong. Once they realize that they're going to become very hostile, and we basically didn't want to build a bitcoin company in the US because of that.”

“We didn't want to apply the tyranny of the US to the entire world of people we were trying to build services for. We didn't want to have to apply ridiculous rules that the US politicians create to the rural farmer in Africa.”

Elsewhere in the US however, other fintech companies are showing that the sector is able to meet these financial services regulations and still thrive. The recent move by ItBit to become the first regulated Bitcoin bank in the US shows that regulations can work whilst still allowing for innovative financial products to develop, albeit within the constraints of the existing financial sector.