Cybercurrency is a medium of exchange that uses cryptography to secure the transaction and to control the creation of new units. Cryptocurrencies are a subset of alternative currencies, or specifically, of digital currencies. Bitcoin became the first decentralized cryptocurrency in 2009. Recent developments teach that cybercurrencies are not beyond the reach of federal regulators.

The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California , recently assessed a $700,000 civil money penalty against Ripple Labs Inc. for willfully violating several requirements of the Bank Secrecy Act. Ripple, the second-largest cryptocurrency by market capitalization after Bitcoin, acted as a money services business and sold its virtual currency, known as XRP, without registering with FinCEN. It also failed to implement and maintain an adequate anti-money laundering program designed to protect its products from use by money launderers or terrorist financiers

In a FinCEN press release, FinCEN Director Jennifer Shasky Calvery said, “Virtual currency exchangers must bring products to market that comply with our 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.”

As cybercurrencies like XRP, Bitcoin and Monero gain prominence and consumer acceptance, financial institutions should monitor developments to ensure that, to the extent they engage or use cybercurrencies, they remain compliant with relevant regulatory schemes.