Coinbase Fined $50 Million for Lax Anti-Money Laundering Measures

Posted on January 4, 2023
News
By Mark Otto
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Per a report from the New York Times (NYT), crypto exchange Coinbase (COIN) reached an agreement with the New York Department of Financial Services (NYDFS). The company will pay around $100 million to improve its account and background checks. Related Reading: UK Plans To Launch New Unit To Tackle Crypto Crimes Half of the settlement […][...]

Half of the settlement will go into paying a $50 million fine. The report claims the additional $50 million will improve the company’s compliance program. The financial regulator determined that Coinbase allowed bad actors to use its platform to launder money.

Coinbase Has To Meet The Same Standard As U.S. Banks

The crypto exchange has been under investigation by the NYDFS since at least 2021, but the holes in their compliance mechanism have been detected since 2020. The financial regulator found issues with the company’s anti-money laundering controls dated “as far back as 2018,” the NYT said.

At that time, the crypto exchange committed to hiring an independent firm to fix the issues with its compliance program. The company set up an in-house system to keep track of suspicious activity, but the N.Y. regulator wanted more.

Adrienne Harris, Superintendent of Financial Services for the state of New York, said:

We found failures that really warranted putting in place an independent monitor rather than wait for a settlement. We have been very outspoken about illicit financing concerns in the space. It is why our framework holds crypto companies to the same standard as for banks.

Thus, the NYDFS launched a formal investigation in 2021 using improper background checks and slow monitoring of suspicious activity as an excuse. In addition to the first independent monitor, Coinbase was ordered to hire a second independent company for its compliance program.

Paul Grewal, Coinbase’s Chief Legal Officer, added the following:

We view this resolution as a critical step in our commitment to continuous improvement, our engagement with key regulators, and our push for greater compliance in the crypto space – for ourselves and others (…). 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.

Coinbase Can Move On

Coinbase and the New York Department of Financial Services will work together for at least another year, the NYT claims. The company has a backlog of over 100,000 “alerts” on potentially illegal or suspicious transactions.

According to Grewal, the company has already made a “substantial investment” in its compliance program. These investments include building an on-chain analytics tool, Coinbase Tracer, and other solutions.

The crypto exchange is also monitoring every transaction on its platform with the Transaction Monitoring System (TMS). This tool allows it to “detect patterns suggestive of fraud, money laundering, or other illicit activity and flag them for further review.”

The crypto exchange also built the capacity to measure customer risk and applied more control to “high-risk customers” while complying with the U.S. Bank Secrecy Act and the Travel Rule. These solutions have been controversial, but Coinbase claims they protect their users’ “security and privacy.”

Grewal highlighted the importance of their cooperation with regulators and the importance of concluding this investigation. The company can move on while keeping its operations intact, which has been uncommon for crypto companies under scrutiny in recent months.