U.S.-based cryptocurrency exchange Coinbase will have to spend $100 million in a settlement with the New York State Department of Financial Services (NYDFS) after the regulator alleged that the exchange might be supporting a variety of illicit practices, the NYDFS announced Wednesday.
The exchange will pay a $50 million fine to the state of New York for its “immature and inadequate” due diligence and compliance programs that left the exchange vulnerable to “serious criminal conduct,” according to an NYDFS press release. In addition to paying this penalty, the company is also required to abide by a consent order mandating an additional $50 million in spending over the next two years to beef up the company’s compliance programs.
“By late 2021, Coinbase’s failure to keep pace with its alerts resulted in a significant and growing backlog of over 100,000 unreviewed transaction monitoring alerts,” the NYDFS alleged. “One consequence of Coinbase’s failed TMS was that as uninvestigated TMS alerts languished for months in the backlog, Coinbase routinely failed to timely investigate and report suspicious activity as required by law.”
Suspected criminal activity ranging from fraud, money laundering, child sexual abuse material and narcotics trafficking were all potentially encouraged by the platform’s lax compliance with the Bank Secrecy Act and anti-money laundering programs, with the problem getting worse as the exchange exploded in size in recent years and reports of suspicious activity piled up, the NYDFS alleged. An Independent Monitor, who was first installed at Coinbase in April 2022 during the regulator’s investigation to oversee Coinbase’s compliance program, will continue their work with the company and continue to cooperate with the NYDFS, according to the consent order.
#ICYMI: Superintendent Adrienne A. Harris Announces $100 Million Settlement with Coinbase, Inc. after DFS Investigation Finds Significant Failings in the Company’s Compliance Program: https://t.co/VRLBwXpMxs pic.twitter.com/gm9TIbaB7U
— NYDFS (@NYDFS) January 4, 2023
Coinbase described the implementation of the consent order and issuance of the fine as a “critical step in our commitment to continuous improvement,” and stressed its positive relationship with regulators in a Wednesday press release.
“We are grateful for our partnership with the NYDFS … and are proud of our collaboration with regulators more broadly,” Paul Grewal, the company’s Chief Legal Officer, wrote Wednesday. “We routinely conduct proactive investigations to remove bad actors from our platform and work with law enforcement to ensure they are brought to justice.”
The crypto exchange, in its press release, cited the fact that the cryptocurrency industry was “at an inflection point” as a key reason to agree to the settlement amid the “intense scrutiny” that crypto companies were currently under. (RELATED: Coinbase CEO Expects Company’s Revenue To Fall 50% Amid Industry Turmoil)
The settlement comes one day after Sam Bankman-Fried, founder of now-defunct cryptocurrency exchange FTX, plead not guilty to several counts of fraud. Two of Bankman-Fried’s business associates have plead guilty to their role in an alleged scheme, with one alleging that Bankman-Fried asked her to help conceal billions in loans to connected individuals, using money from customers’ FTX accounts.
In a recent television ad, Coinbase appealed to investors that its position as a publicly traded U.S. company — FTX is headquartered in the Bahamas — meant that investors could trust it to provide “regular audits and transparent accounting,” according to The New York Times.
Coinbase directed the Daily Caller News Foundation to its press release.
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