Coinbase Pays $100 Million To New York Regulator Fine For AML Regulatory Vulnerability

Key Points:

• In response to inquiries concerning shortcomings in its compliance program, Coinbase and the New York Department of Financial Services came to a $100 million settlement.
• Following a settlement with the regulator, which discovered glaring gaps in the cryptocurrency exchange’s review of customer IDs and notifications on transactions.
• The NYDFS fined Coinbase $50 million and compelled the company to invest another $50 million into its compliance program.

After looking into Coinbase’s compliance program, the New York State Department of Financial Services, or NYDFS, has come to an agreement with the company.

Following a settlement with the regulator, which discovered glaring gaps in the cryptocurrency exchange’s review of customer IDs and notifications on transactions, the NYDFS fined Coinbase $50 million and compelled the company to invest another $50 million into its compliance program.

“Coinbase lacked sufficient personnel, resources, and tools needed to keep up with these alerts, and backlogs rapidly grew to unmanageable levels. By the end of 2021, Coinbase had a backlog of unreviewed transaction monitoring alerts grew to more than 100,000 (many of which were months old), and the backlog of customers requiring enhanced due diligence (‘EDD’) exceeded 14,000,” the settlement said.

Since 2017, Coinbase has had a license to run a virtual currency and money-transfer company in New York. Early in 2022, when the NYDFS discovered flaws in the exchange Know Your Customer (KYC) and transaction monitoring policies, the regulator established an impartial monitor to help the company address the issues.

The crypto exchange allegedly had numerous compliance “deficiencies” in relation to AML regulations, according to the financial authority. The NYDFS reported problems with user onboarding and transaction monitoring procedures.

Details of an early 2021 event in which a user stole $150 million from an undisclosed corporation by opening an account on the company’s behalf at Coinbase while posing as an employee despite providing insufficient documentation are included in the settlement.

The person gained access to the business’s bank account and then multiplied the company’s daily withdrawal cap by 50 before transferring $150 million to the exchange. He changed the fiat deposit into cryptocurrency and transferred it to a different wallet off-platform.

For six days, the exchange was ignorant of the activity until the company’s bank got in touch with it. The questioned cryptocurrency was eventually located by law enforcement, who then gave it back to the owner.

Coinbase chief legal officer Paul Grewal spoke out about the news:

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