Coinbase agrees to a $100M Settlement: for AML and KYC violation

• Coinbase agreed to pay NYDFS a $100 M settlement. 
• $50 M will be fine, and $50 M will go towards AML background checks. 
• The company is alleged to have opened accounts without proper background checks. 

Crypto exchange Coinbase Global Inc. aka Coinbase, has agreed with the New York Department of Financial Services (NYDFS) to pay a $100 million settlement for Anti Money Laundering (AML) & KYC related issues. 

Per the consent order signed on January 4, 2023, by Adrienne Harris, NYDFS superintendent,  the compliance problems were detected, and the exchange’s AML controls were inadequate from 2020 through 2021.

Coinbase had agreed to pay the $100 million fine in two steps, where $50 million would be the fine paid and the other $50 million would go towards applying required AML background checks. 

The order further reads as, 

“Coinbase lacked sufficient personnel, resources and tools needed to keep up with these alerts, and backlogs rapidly grew to unmanageable levels.”

The regulators have reported that Coinbase allowed customers to open accounts without completing the required background checks, which is a direct violation of the AML requirements. There had been red flags in the company that were visible internally and externally, including the Department’s examination. Although Coinbase was working on resolving the issue, the progress was slow and was not visible in certain areas, creating an outstanding and pending list of backlogs. 

Per the regulators, the growth in the number of users at the exchange contributed to a “failure to keep pace” with the monitoring of dubious transactions; these factors eventually led to the backlog of 100,000 plus alerts. 

So much so that by the end of 2021, COinbase had a plethora of unreviewed transactions monitoring alerts that grew up to more than 100,000, most of which were older by months; also, the backlog of customers that required embellished due diligence exceeded the 14,000 mark. 

The alleged lack of control over background checks started in 2018, while the compliance investigation started in 2020. At the time, Coinbase had agreed to hire an independent examiner to ensure that the company diligently followed the Anti Money Laundering and Know-Your-Customer guidelines. 

But the compliance problem lingered, and the New York regulator decided to act in 2021. Harris had said:

“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.”

In their blog, Coinbase responded regarding the settlement noting that it “committed to $50 million in compliance program investments over the next two years.”

Per their blog post, the company views this resolution as a crucial step towards their commitment to continuous improvement, engagement with key regulators, and the push towards greater compliance in the crypto space, both for the company and others. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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