Coinbase Inc., a cryptocurrency exchange based in the United States (COIN.O), and the New York Department of Financial Services (DFS) have announced a settlement of $100 million in separate statements on Wednesday.
The regulator’s inquiry into the firm’s adherence to rules intended to prevent money laundering is concluded with the settlement, which carries a $50 million fine.
The department discovered Coinbase had not conducted enough background checks and had handled its customer onboarding obligations as a “simple check-the-box,” according to the regulator.
“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth. That failure exposed the Coinbase platform to potential criminal activity,” stated Adrienne Harris, Superintendent of the New York DFS.
According to Paul Grewal, Coinbase’s chief legal officer, the exchange has rectified the issues.
The company’s compliance program in the years 2018 and 2019, as well as the compliance backlogs as the exchange grew in 2021, were the main focus of the study, according to a blog post by Coinbase.
The blog post stated, “We took NYDFS’s concerns seriously and have taken substantial measures to address these historical shortcomings.”
One of the biggest cryptocurrency exchanges in the world and a publicly traded company, Coinbase, will spend an additional $50 million to step up compliance operations targeted at preventing prospective criminals from accessing the exchange, the company said. In addition, Coinbase must collaborate with a third-party monitor as part of the agreement.
The settlement was first reported by the New York Times. DFS and other regulators have been looking into Coinbase. It has previously acknowledged getting documents and material requested by the US Securities and Exchange Commission for investigative subpoenas.
Coinbase neglected to alert law enforcement
According to regulators, Coinbase lacked the workforce necessary to meet the expanding compliance requirements. Yet when Coinbase eliminated 1100 employees, or 18% of its employment, in June 2022, CEO Brian Armstrong claimed that the layoffs resulted from overstaffing following the business’s 2021 boom.
Instead of full-time workers, over 1,000 independent contractors were in charge of clearing the backlog, according to the filing. In addition, the complaint states that regulators discovered that Coinbase did not adequately supervise or educate these contractors, which resulted in “a considerable fraction of the alerts evaluated by third parties was replete with inaccuracies.”
Regulators said that the firm neglected to alert law enforcement to possible cases of money laundering, drug trafficking, and CSAM-related activities as a result of these mistakes. Additionally, according to the lawsuit, the firm has known since 2018 that it has fallen short of state requirements for compliance with anti-money laundering and anti-financial terrorism laws.
