• Coinbase to pay $50 million penalty for inadequate AML measures.
• The NYDFS found Coinbase’s Know Your Customer and Customer Due Diligence (KYC/CDD) program to be “immature and inadequate.”
• Coinbase will invest another $50 million over the next 2 years to update its compliance systems.
Coinbase, the largest cryptocurrency exchange by trading volume, is facing the repercussions of inadequate Anti-Money Laundering (AML) measures. The New York State Department of Financial Services (NYDFS), which has licensed Coinbase since 2017, has announced that the exchange will pay a penalty of $50 million as well as invest another $50 million over the next two years to update its compliance systems.
The NYDFS conducted an examination and then an enforcement investigation to evaluate Coinbase’s AML measures. The regulators found that the exchange’s Know Your Customer and Customer Due Diligence (KYC/CDD) program was “immature and inadequate,” both in terms of how it was designed and implemented. Essentially, Coinbase only required users to check a few boxes in order to verify their identity and did not conduct due diligence.
Furthermore, due to the high number of users — Coinbase has over 108 million verified users — it failed to keep up with the high volume of alerts from its Transaction Monitoring System (TMS). This resulted in a backlog of more than 100,000 unreviewed TMS alerts by late 2021, leading to Coinbase’s failure to timely investigate and report suspicious activities.
To address the deficiencies in its AML measures, Coinbase has agreed to pay a penalty of $50 million as well as invest another $50 million over the next two years to update its compliance systems. The plan has been approved by the NYDFS.
Coinbase was founded in 2012 and operates in many countries around the world. It is considered one of the most trusted exchanges and has over 108 million verified users. However, its failure to maintain adequate AML measures has resulted in a hefty fine and the need for improvements to its compliance systems.