Ripple’s XRP excluded from being a security by FinCEN

Information has recently emerged that suggests that Ripple’s XRP token is not a security. The Financial Crimes Enforcement Network signed an agreement with Ripple Inc. that allowed them to continue their sale of XRP in 2015. According to an agreement signed between FinCEN and the Securities and Exchanges Commission in 2006, information about examination and enforcement of the SEC’s norms will be shared between the two agencies.

In 2015, FinCEN, along with the US Attorney’s Office for the Northern District of California, assessed a $700,000 penalty against Ripple. This was keeping in view with Ripple violating the Bank Secrecy Act and acting as an unregistered Money Services Business. They also did not meet Anti-Money Laundering requirements. This was settled with an agreement.

The agreement mentions XRP as a “currency of the Ripple network”, effectively removing it from the position of being declared as a security. The agreement also states that “Any sale or transmission of XRP by Ripple Labs or any of its subsidiaries shall be conducted only through an entity registered with FinCEN”. This would realize Ripple Inc. as a Money Services Business, regulated by FinCEN.

While it is not an end-all solution to the securities-or-not debate propagated by the SEC, XRP holders can hope for a conclusion favorable to their cause. As FinCEN has the power to determine whether an asset is a currency and as a currency cannot be a security by definition, the question seems to be answered.

Since the settlement is between the Department of Justice and the company, it binds the US government. However, the settlement agreement drawn up by the Department of Justice includes a clause that states that the agreement does not “bind any other federal agencies, or any state, local or foreign law enforcement or regulatory agencies, or any other authorities.”. The settlement may still be used as fodder against the SEC in the lawsuit that Ripple is preparing for.

Richard Holland, the Director of the company behind Toast Wallet, said:

“The gov’t has to follow the rules of evidence. They can’t settle with prejudice on an agreed set of facts then later open a new case that contradicts those agreed facts. Everyone is bound to the rules of the court.”

Surprisingly, Ripple’s Chief Cryptographer, David Schwartz pitched into the debate, saying:

“At the time, I was worried that the settlement would damage our credibility with FIs. Ironically, many actually saw it as a positive for reasons like this.”

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