By Michael Scott
The New York financial regulator confirmed the acceptance of a $50M fine by Coinbase for its deficient anti-money laundering (AML) program. The Department of Financial Services (NYDFS) directed Coinbase to invest an additional $50M to ensure program compliance.
NYDFS Details the $100M Settlement
Explaining the $100M settlement, the department’s officials revealed that the systems implemented to detect criminal activity suffered significant failures.
The January 4 announcement by NYDFS illustrated that the $50M fine arose from violating the state’s banking and financial services regulations. The financial regulator observed that Coinbase suffered multiple compliance deficiencies relative to the anti-money laundering requirements. In particular, the NYDFS indicated that noncompliance issues arose within the onboarding users and transactions’ monitoring.
Coinbase Watched as Alerts’ Backlog Increased
The financial regulator demonstrated that Coinbase had known such issues since 2018. It added that the department’s investigations echoed the findings of external reviews and internal assessments.
While the department acknowledged Coinbase’s efforts to address the issues, it decried the slow progress, delayed intervention and outstanding work. NYDFS alleged that Coinbase failed to conduct adequate background screening of customers when opening the accounts. The nonaction contravened the AML requirements stipulated under the licensing regime.
The investigations by NYDFS detailed that Coinbase realized accelerated growth in users’ numbers, leaving the crypto exchange unable to keep pace. Consequently, Coinbase gradually overlooked monitoring suspicious transactions leading to a backlog exceeding 100,000 alerts.
Admitting Culpability
Coinbase head of legal affairs Paul Grewal restated its commitment to comply with the licensing regmine. He observed that Coinbase accepts that its program fell short of expectations. Confirming the agreement to settle the penalties, Grewal was optimistic that Coinbase would fix the issues.
The $100M settlement coincides with NYDFS’ renewed focus to avert criminal activity leveraging anonymity in crypto-related activities. Recently, the department challenged crypto firms to comply with the BitLicense requirements.
Despite the receipt of its BitLicense in 2017, Coinbase is subject to comply with other regulatory requirements imposed by the policymakers. Additionally, Coinbase is mandated to settle the annual assessment fees considered by the regulator necessary to eliminate criminal activity.