$3.6 million fine for Coinbase

Bad news in the last few hours for Coinbase: the Dutch central bank has fined the cryptocurrency exchange’s European subsidiary €3.3 million ($3.6 million) for failing to meet registration requirements before offering its services in the Netherlands.

The regulator said Coinbase operated without registration between 15 November 2020 and 24 August 2022. Eventually, Coinbase obtained proper registration on 22 September 2022, but, in the meantime, the DNB claimed that the company had enjoyed a competitive advantage by not paying supervisory fees. 

It is worth recalling that companies wishing to provide cryptocurrency services in the Netherlands must register with DNB under the Anti-Money Laundering and Anti-Terrorism Financing Act.

Disputes between Coinbase and the Dutch central bank: what happened 

Regarding the fine received against Coinbase by the Dutch central bank, a spokesperson for the exchange recently stated that the company disagreed with the DNB’s sanction. 

Specifically, stating that it was based on the time it took Coinbase to obtain registration in the Netherlands and does not include any criticism of the exchange’s actual services. And, adding, further, that the exchange should not be penalized for complying with the rules and engaging in the process. 

However, the penalty was increased from a base amount of $2.18 million due to the severity of the non-compliance, stated De Nederlandsche Bank (DNB) in a note.

The fine was also increased because of Coinbase’s size as one of the largest cryptocurrency exchanges in the world, as well as the number of customers it serves in the Netherlands. According to CoinGecko, Coinbase hosted more than $2.3 billion in volume in the last day.

However, the total amount was later reduced by 5% in recognition of the fact that the company had always intended to complete registration. The cryptocurrency exchange now has until 2 March to object to the fine. 

Coinbase’s spokesperson stated: 

“While we respect DNB’s authority to enforce its policies, we are carefully evaluating objections and the appeals process.”

Remaining on the topic of penalties, the Dutch regulator also issued an identical fine to Binance last summer for offering its services in the Netherlands without a license. Coinbase (COIN) stock is now down 1.48% and trading at $52.76.

The regulator’s allegations against Coinbase

According to claims by the Dutch central bank, Coinbase’s failure to comply with the Wwft is punishable by a category 3 fine. The base amount in this penalty category is €2 million, with a minimum amount of €0 and a maximum amount of €4 million. 

DNB applied its general penalty calculation policy (in Dutch) to determine the amount of the administrative penalty. The base amount was increased in consideration of the severity and degree of culpability of the non-compliance.

In increasing the fine, DNB took into account a number of factors mentioned above. These included the fact that Coinbase enjoyed a competitive advantage in that it did not pay any supervisory fees to DNB or incur any other costs in connection with DNB’s normal supervisory activities. 

Another important reason for the increased penalty is that the non-compliance lasted for an extended period: from 15 November 2020 until at least 24 August 2022 (the end date of DNB’s examination). This is why DNB considers the non-compliance to be very serious.

As anticipated, the registration requirement for crypto service providers was introduced on 21 May 2020 because of the high risk of money laundering and terrorist financing associated with crypto services. 

This is related to the anonymity associated with cryptographic transactions. 

The registration requirement allows DNB to more effectively monitor the risk of illicit financial flows.

So, the bank argues, Coinbase has violated the goals of the Wwft in the past by providing crypto services in the Netherlands without registering with DNB. 

This meant that Coinbase was unable to report unusual transactions to the Financial Intelligence Unit-Netherlands during the non-compliance period and until 22 September 2022. 

As a result, a large number of unusual transactions may have gone unnoticed by investigative authorities during this period.

Binance similar to Coinbase: the same fine against CZ’s company 

In July 2022, De Nederlandsche Bank (DNB) fined cryptocurrency exchange Binance €3.3 million ($3.35 million) for offering services in the Netherlands without the appropriate license.

In a statement issued at the time, the regulator said that the violations committed by Binance were punishable by a third category penalty, as was the case for Coinbase, meaning that the administrative penalty has a base amount of €2 million ($2.03 million).

However, for Binance, this base amount was increased, with DNB citing several reasons for this decision, again similar to those expressed for Coinbase. In fact, one of the reasons, according to DNB, is that Binance is not only the largest cryptocurrency service provider in the world, but also has a very large number of clients in the country.

In addition, the regulator said that Binance violated registration rules from 21 May 2020 until at least 1 December 2021, when DNB completed its investigation into the matter. According to DNB, this is another important reason for the increased penalty as it considers these violations very serious.