Coinbase will pay a $50 million penalty and invest another $50 million in its compliance programme to settle a New York State regulatory investigation into its anti-money laundering practices.
The cryptocurrency exchange had "significant failures" in its compliance programme, says the New York State Department of Financial Services (DFS). This violated New York Banking Law and the DFS virtual currency, money transmitter, transaction monitoring, and cybersecurity regulations.
The DFS investigation found that Coinbase's Know Your Customer/Customer Due Diligence, Transaction Monitoring System, suspicious activity reporting, and sanctions compliance systems were all inadequate for a financial services provider of its size and complexity.
This, says the regulator, left the company's platform vulnerable to serious criminal conduct, including, fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking.
Early last year, the DFS took the "extraordinary step" of installing an independent monitor. That monitor will stay on for at least another year and Coinbase will invest $50 million in its compliance function over the next two years.
Says Superintendent of Financial Services Adrienne Harris: “Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth. That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor.”
In a blog on the settlement, Coinbase chief legal officer Paul Grewal writes: "Coinbase remains committed to being a leader and role model in the crypto space, and this means partnering with regulators when it comes to compliance and other areas. We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers should feel safe and protected while using our platforms."