Coinbase had “inadequate” AML measures; settles for $100M with NYDFS

Hull Invest

Coinbase will pay a $50 million fine for violating the New York Banking Act and other state regulations. Press release January 4th.

The largest cryptocurrency exchange by trading volume will invest another $50 million over the next two years to update its compliance system, following a plan approved by New York regulators.

Coinbase has been licensed by the New York State Department of Financial Services (NYDFS) since 2017. In an enforcement investigation that followed the investigation, NYDFS found that Coinbase had taken “inappropriate” measures to prevent money laundering.

The regulator said Coinbase’s Know Your Customer and Customer Due Diligence (KYC/CDD) program was “immature and inadequate” in both its design and implementation. When it comes to KYC details, Coinbase simply asked users to tick a few boxes and failed to conduct due diligence, regulators said.

And growing fast — Coinbase pitch 108 million verified users — The company has been unable to keep up with the flood of alerts from its Transaction Monitoring System (TMS), according to a press release. Did.

As a result, Coinbase was unable to investigate and report suspicious activity in a timely manner as required by law. The NYDFS investigation found that in several cases, Coinbase filed suspicious activity reports months after the activity took place and became known to the exchange.

According to the NYDFS, Coinbase’s failure has made it more susceptible to criminal activity, including fraud, money laundering, activities related to alleged child sexual abuse material, and potential drug trafficking.

NYDFS Adrienne A. Harris Superintendent of Education said in a press release:

“Coinbase has failed to build and maintain a functioning compliance program to accommodate its growth. It became necessary to take immediate measures, including

The independent observer was established during the course of the NYDFS investigation in early 2022. The independent observer will continue to work with Coinbase for another year to fix any looseness in the compliance system. This may be extended at the discretion of the regulator.

On December 20, 2022, Coinbase CEO Brian Armstrong called for regulation of stablecoin issuers and centralized exchanges, saying these institutions pose the highest risk of harm to consumers. .

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