- Coinbase claims that its investment in compliance outpaces every other crypto exchange globally.
- Regulators first spotted issues with Coinbase’s compliance in 2020, but the exchange has been slow to implement recommendations.
US-based crypto exchange Coinbase has agreed to pay a $50 million fine after regulators ruled that it allowed users to register accounts without conducting adequate background checks, breaching anti-money-laundering laws.
The agreement with the New York State Department of Financial Services requires the crypto trading company to invest $50 million to strengthen its compliance program, which would boost its security and deter criminals such as child pornographers, money launderers, and drug traffickers from opening accounts with Coinbase.
Coinbase obtained a license to operate in New York in 2017, according to officials, and the compliance issues at the firm were first discovered during a routine assessment in 2020. Regulators said they were already concerned with Coinbase’s anti-money-laundering controls in 2018.
The state Department of Financial Services said Coinbase’s anti-money-laundering program was weak and inadequate for an organization of its size. Regulators further claimed that the trading platform’s systems for monitoring fraudulent transactions were below par, which was a threat to financial security.
In one case, a digital criminal who opened a Coinbase account under the guise of working for an undisclosed organization managed to steal $150 million without Coinbase’s knowledge.
Coinbase initially pledged to hire an independent consultant to bring its daily operations into compliance with anti-money-laundering rules, to know the identity of its users, and keep an eye out for any questionable conduct.
Financial Services Superintendent Adrienne A. Harris said in reaction to the settlement,
It is critical that all financial institutions safeguard their systems from bad actors, and the Department’s expectations with respect to consumer protection, cybersecurity, and anti-money laundering programs are just as stringent for cryptocurrency companies as they are for traditional financial services institutions. Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth.
Coinbase’s chief legal officer, Paul Grewal, said in a statement that the crypto exchange had taken steps to address the concerns raised by the financial regulator and “remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance.”
Grewal claimed that Coinbase’s investment in compliance “outpaces every other crypto exchange anywhere in the world,” adding that “customers can feel safe and protected while using our platforms.”
U.S. authorities have long been concerned that the crypto sector could weaken international anti-money-laundering safeguards. Interestingly, crypto executives have long taken pride in their ability to avoid regulation.
State and federal authorities have done everything they can to regulate exchanges like Coinbase and its international competitors over the past ten years. The recent FTX drama seems to have given regulators the upper hand in their quest to control the industry.
I have covered some exciting stories in my career as a journalist and find blockchain-related stories very intriguing. I believe Web3 will change the world and want everyone to be a part of it.