Coinbase Global Inc and the New York Department of Financial Services (NYDFS) reached a $100 million settlement on Wednesday, January 04, 2023. The US-based global crypto trading platform will pay $50 million as a penalty for “significant failures in its compliance program” and invest another $50 million to strengthen its compliance infrastructure over the next two years. Coinbase will work with a third-party monitor as part of the agreement. Currently, Coinbase is the largest crypto exchange in the US and has a market capitalization of approximately $7.6 billion with a user base of 100 million users worldwide.
DFS called Coinbase “vulnerable to serious criminal conduct, including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking.” New York State’s superintendent of financial services, Adrienne A. Harris said that the crypto firm’s “compliance department had failed to keep up with the exchange’s rapid growth.” The regulators’ concern dates back to 2018 when they first reported issues with Coinbase’s anti-money-laundering controls.
The $100 million settlement comes in the wake of the crypto exchange’s failure to review thousands of transaction monitoring alerts and other suspicious activities on its platform. Furthermore, the regulators found that Coinbase did not conduct extensive background checks, even for users whose identities were unclear. As per DFS, Coinbase followed a “simple check-the-box” onboarding process that did not deter potential criminals from signing up. It failed to run sufficient background checks and let users open accounts, hence, violating anti-money-laundering laws. Prior to New York’s DFS, the company had received an investigative summons from the US Securities and Exchange Commission.
Coinbase’s chief legal officer, Paul Grewal, said in a statement that the publicly-traded crypto firm “has taken substantial measures to address these historical shortcomings.” He also stated that the refinement introduced in its compliance program “outpaces every other crypto exchange anywhere in the world.”
The Coinbase settlement came shortly after the FTX collapse in November 2022, which got regulators in the US up their ante on cryptocurrency firms.