Coinbase Reaches $100M Settlement With NYDFS

According to a press release by NYDFS on Wednesday, the settlement includes a $50 million fine Coinbase will pay the regulator for violating AML laws and a $50 million pledge to boost the company’s compliance program over the next two years.

The compliance program is supposed to prevent drug traffickers, sellers of child pornography, and other bad actors from opening accounts with the exchange. The regulator said Coinbase’s compliance issues were discovered during a routine examination in 2020 while it detected problems with the exchange’s anti-money-laundering controls in 2018.

The cryptocurrency exchange had initially agreed to hire an independent consultant to help oversee its operations to ensure it met AML laws, but that did not solve Coinbase’s issues, prompting the regulator to open a formal investigation into Coinbase in 2021.

The financial watchdog had also ordered Coinbase to hire an outside monitor different from the independent consultant the company previously agreed to hire as investigations were ongoing.

NYDFS said by late 2021, Coinbase had a backlog of around 100,000 alerts about potentially suspicious transactions that were not adequately checked. It added that the exchange only carried out simple “know your customer” checks on individuals before allowing them to open accounts.

According to the New York watchdog, Coinbase’s compliance failures made it vulnerable for bad actors to use it for “serious criminal conduct, including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking.”

Coinbase’s Compliance Dept. Failed to Keep Pace With Its Growth

Adrienne A. Harris, Superintendent of the NYDFS, said Coinbase failed to build a “functional compliance program that could keep pace with its growth.”

Founded in 2012, Coinbase is a leading crypto exchange in the United States, with more than 100 million users globally and about $7.6 billion in market capitalisation.

“Although we have not always been perfect, our goal has always been and will always be to build the most trusted, compliant, and secure crypto exchange in the world,” Paul Grewal, Coinbase’s chief legal officer said in a statement.

(By William A. Frederick)