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Settlement is New York Department of Financial Services (DFS) into Coinbase and its anti-money laundering (AML) and compliance programs.
The failures uncovered in this investigation impacted the exchange’s customer due diligence (CDD) and trade monitoring procedures. His AML program at the firm was found to violate the New York Banking Act and DFS’s Virtual Currencies, Money Transfer Companies, Transaction Surveillance and Cybersecurity Regulations.
Negligence is also evident in reports of questionable activity and sanctions compliance systems, which DFS deems unsuitable for a financial services provider of Coinbase’s size and complexity.
Coinbase has held a DFS license since 2017. This certification allows you to operate as a cryptocurrency and money transfer business in New York State.
The survey highlights that Coinbase’s CDD program is immature, poorly coded and implemented. The regulator explains that Coinbase treats onboarding as a simple checkbox exercise. Most of all, we failed to conduct proper due diligence for our platform.
This immaturity was most evident in managing TMS alerts. This failure therefore accumulated in a backlog of 100,000 alerts by late 2021. Coinbase apparently failed to develop these procedures reliably in line with its own growth.
There is a lot to miss at 100,000 depth in the tray. Indeed, timely investigation of such alerts remains essential to the legal requirements of the DFS license. Time is of the essence in situations like this, but Coinbase appears to have left these alerts unaddressed for months.
There have been numerous instances of SARs being filed months after suspicious activity first became known to Coinbase as a result of Coinbase’s culpability.
These deficiencies have led to multiple allegations of serious criminal conduct. These include suspected trafficking of drugs and underage sexual material, along with possible examples of fraud and money laundering.
As a penalty for this, DFS ordered Coinbase to pay a penalty of $50 million. DFS then took the investigation a step further by installing independent monitors. The Monitor fully pursues the seriousness of the situation and aims to work with Coinbase to fix any outstanding issues.
according to the resulting conditions consent order, the monitor will continue to work with Coinbase for another year. However, this period may be extended by DFS.
The exchange has agreed to invest an additional $50 million over two years to fix its AML and compliance procedures.
It is critical that all financial institutions protect their systems from malicious actors, and the department’s expectations regarding consumer protection, cybersecurity, and AML programs are as relevant to cryptocurrency firms as they are to traditional financial services institutions. It’s tough,” he commented. Adrian HarrisDirector of the NY DFS.
She explains why Coinbase has failed to “build and maintain a functioning compliance program that can accommodate its growth.”
Harris confirms that DFS must take “immediate action,” including installing independent monitors.
At the same time, Coinbase took action to hasten its recovery. This reportedly includes building a more effective compliance program under the oversight of DFS and its appointed independent monitors.
The headline confirms New York’s tough stance on cryptocurrency crime. This is another success story in industry regulation and consumer protection.
