Coinbase Settles $100M Penalty for AML Flaws, Vows Compliance Boost
Coinbase, a prominent cryptocurrency exchange, has consented to a $100 million penalty to settle claims of compliance lapses. The settlement with New York's Department of Financial Services (NYDFS) follows a history of issues with Coinbase's anti-money laundering (AML) controls.
Coinbase's rapid expansion, with a 25-fold increase in transaction activity and a 15-fold increase in customer signups between 2020 and 2021, overwhelmed its compliance systems. This resulted in a backlog of over 100,000 unreviewed alerts and 14,000 customers requiring enhanced due diligence, which went unaddressed. The NYDFS described Coinbase's customer onboarding as a 'simple check-the-box exercise'.
Regulators have been aware of Coinbase's AML control problems since at least 2018. In early 2022, the NYDFS appointed an independent monitor, Kathleen Rice, former New York Attorney General Andrew Cuomo’s top aide, to work with the company. As part of the settlement, Coinbase will pay a $50 million penalty and invest another $50 million to enhance its compliance function over the next two years. The independent monitor will continue to work with Coinbase for another year. Meanwhile, the Federal Reserve, FDIC, and OCC have issued a joint statement warning banks of risks associated with crypto-assets and crypto-asset sector participants.
Coinbase's settlement with NYDFS underscores the importance of robust AML controls in the rapidly evolving crypto industry. The company's significant investment in improving its compliance function signals its commitment to addressing past issues and ensuring customer protection. The appointment of an independent monitor further demonstrates this commitment. Meanwhile, the joint statement from U.S. regulators emphasizes the need for banks to be vigilant about the risks posed by crypto-assets.
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