Coinbase Agrees to $100M Settlement with New York Regulator Over AML Breach


Crypto exchange Coinbase has agreed to a $100 million settlement term with the New York State Department of Financial Services (NYDFS). The financial agency disclosed this in a press release on its website on Wednesday, January 4.

The settlement requires that Coinbase pay a $50 million fine for allowing customers to open accounts without significant, thorough “Know Your Customer” (KYC) procedures. According to the New York regulator, the act breaches anti-money laundering laws.

The remaining $50 million from the settlement will be used to build its account compliance system to prevent unauthorized persons from opening an account with the exchange. 

Coinbase Compliance Fiasco

Coinbase is the largest cryptocurrency exchange in the United States by trading volume. Yet the firm has failed to maintain such prestige in its customer background checks.

NYDFS first discovered Coinbase’s compliance breach in 2020 during a routine audit. Some irregularities were seen in its anti-money laundering control, and it was brought to their notice.

At the time, Coinbase hired an independent consultant to take on the course and avert breaching the anti-money law. Its efforts were insufficient as the regulator discovered the exchange still failed to run proper background checks on its customers and monitor their behavior for suspicious activities.

The financial watchdog then opened an official investigation into the exchange in 2021. NYDFS said the firm lacked in two key areas: getting more details of customers who look suspicious at first glance and dealing extensively with suspicious activity alerts generated by its internal monitoring system. 

The regulator reported that Coinbase had over 1,000 backlogs of alerts over nosy customers that were left unattended to. 

Regulators Continue to Double Down on Crypto Exchanges

Recent activities in the crypto industry have invited regulators to take stringent measures to protect investors. FTX’s mismanagement of user funds, Terra fall, and bankruptcy filings across major crypto lenders and miners have caused regulatory bodies to be highly alert on transactions with exchanges.

The prospect of the cryptocurrency industry weakening the anti-money laundering laws has been a concern for U.S. authorities. The industry has been able to tromp regulations and operate with minimal regulatory interference for years.

However, in recent years, regulatory bodies have increased their supervision of the crypto industry. It has endeavored to see that exchanges conform with financial orders like banks, insurance companies, and investment firms. Licensing is one of its tools to meet this goal.

Federal regulators have recently fined Robinhood for breaching several financial laws, including the anti-money laundering act. Authorities are also investigating Binance for the same deed. With the recent turn on exchanges, the industry will indeed have more compliance.

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