Coinbase settles $100M with New York regulators over anti-money-laundering compliance
Cryptocurrency exchange Coinbase Global Inc. reached a $100 million settlement with regulators in the New York Department of Financial Services today regarding failures in compliance with anti-money-laundering rules.
The settlement was split into two portions. The first part was a $50 million fine after a NYDFS investigation uncovered that Coinbase had “failed to maintain an effective and compliant [anti-money-laundering] program” in violation of policies.
The settlement also requires that the company invest $50 million over the next two years to build out its compliance program. That means Coinbase must track the identifying information of account holders so drug traffickers, terrorists and other potential lawbreakers can be identified and prevented from opening accounts on the exchange using Know Your Customer standards.
According to the settlement filing, the NYFDS first licensed Coinbase as a money transmitter in New York in 2017 and did a supervisory examination in 2018 through 2019 when it found serious problems with the company’s AML and KYC program features. Due to these deficiencies, the regulatory body asked that the company task a third-party consultant to fix them.
However, by 2021, Coinbase had seen “dramatic and unexpected growth” and was overwhelmed by a massive backlog of transaction monitoring alerts, which it had not yet gotten to. According to the filing, by this time the company had fallen behind by more than 100,000 alerts about potentially suspicious transactions, many of which were months old.
“At that time, Coinbase lacked sufficient personnel, resources, and tools needed to keep up with these alerts, and backlogs rapidly grew to unmanageable levels,” the regulators wrote in the filing. “This was compounded by Coinbase’s reliance in 2019 through November 2021 on an inadequate case management system for dispositioning alerts and filing.”
According to the NYDFS filing, prior to December 2020, Coinbase only did the bare minimum to verify its customer information and often failed to assign informed “risk ratings” to customers upon onboarding. Historically the company only took photo identification and did little more than that to verify them.
The settlement mentioned that Coinbase is still moving too slowly to rid itself of its backlogs and requires that the company work with a third-party monitor to continue to remediate its current issues and improve its compliance program.
“Coinbase remains committed to being a leader and role model in the crypto space, and this means partnering with regulators when it comes to compliance and other areas,” Paul Grewal, chief legal officer of Coinbase, said in a statement. “We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers should feel safe and protected while using our platforms.”
He added that he believes the resolution with regulators is a critical step in the company’s commitment to improving its policy toward compliance.
This settlement comes shortly after the dramatic collapse and bankruptcy of the crypto exchange FTX Trading Ltd., which has led to increased regulatory scrutiny of the crypto industry after it was revealed that massive malfeasance led to the company’s implosion. Former FTX Chief Executive Sam Bankman-Fried recently pleaded not guilty to criminal charges related to the bankruptcy. Two of Bankman-Fried’s associates, FTX co-founder Gary Wang and former Alameda Research co-CEO Caroline Ellison, last month pleaded guilty to federal fraud charges.
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