Crypto exchange Coinbase (NASDAQ: COIN) agreed to pay a total of $100 million to settle charges with the New York State Department of Financial Services, after regulators discovered the crypto exchange violated anti-money-laundering laws by repeatedly failing to conduct adequate customer background checks.
The settlement, announced Wednesday, is comprised of a $50 million fine, as well as an agreement to spend $50 million on bolstering internal controls to prevent criminals from accessing Coinbase’s services. The crypto exchange is also required to comply with a third-party monitor.
Coinbase’s compliance issues first came to light during a routine checkup in 2020, and the investigation was launched in 2021. As a result, outside monitors were brought in to oversee the exchange’s compliance operations simultaneously during the investigation process. However, Coinbase still wasn’t able to adequately overhaul its customer background check procedures. Not only did the exchange fall behind on conducting thorough identity checks, but it also failed to address suspicious-activity alerts in a timely manner.
The Department of Financial Services discovered that Coinbase accumulated a backlog of over 100,000 customer transaction alerts that had not been addressed, in addition to only conducting the most basic “know your customer” checks and allowing customers to open accounts without undergoing rigorous identity-verification processes. Regulators uncovered one situation where a fraudster stole $150 million from a company by pretending to be its employee on Coinbase’s application process.
In another instance, the regulatory investigators discovered that Coinbase failed to uncover questionable financial activity of a customer charged with crimes related to child sexual abuse material, even though details of the convictions were publicly available. It wasn’t until two years later that the exchange detected the user’s potentially illicit activity and closed the associated accounts.
US authorities have been imposing settlements for anti-money-laundering violations on crypto trading exchanges including Robinhood and Kraken. Binance, the world’s largest crypto exchange, is also under investigation by federal prosecutors due to potential violations. Many such crypto exchanges are based in regions where such regulatory protocols are more relaxed, including the now-collapsed FTX.
Information for this briefing was found via the Department of Financial Services. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.