Coinbase has settled on a $100 million fine and improvements package with regulators for anti money laundering failures.
The package includes a backlog of more than 100,000 unreviewed transactions and a reliance on social media profiles to verify customers’ identities.
The New York State Department of Financial Services said that Coinbase would pay a $50 million fine for weak compliance measures and would spend a further $50 million on a two-year programme to improve its systems.
The DFS said Coinbase’s systems for enforcing anti money laundering rules had been “immature and inadequate”, leaving the exchange “vulnerable to serious criminal conduct” including “examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking”.
Issues around anti money laundering compliance have dogged the crypto industry since its inception, with critics arguing that the main use case for borderless digital tokens is to facilitate illicit activity.
Despite the efforts of firms to convince policymakers of their credentials, Senator Elizabeth Warren last month doubled down on that message, warning that crypto had become “the preferred tool for terrorists, for ransomware gangs, for drug dealers, and for rogue states that want to launder funds”.
The settlement comes as regulators ramp up their scrutiny of crypto exchanges following November’s collapse of FTX, once one of the world’s largest crypto companies, and the arrest of its founder, Sam Bankman-Fried, last month.
The regulator said Coinbase’s customer due diligence file from its retail customers historically consisted of “little more than a copy of a photo ID”, and that it “did the bare minimum” to verify due diligence information from retail customers, relying on self-reported social media profiles and overlooking information that was “clearly inaccurate, and/or incomplete”.
By the end of 2021, the backlog of Coinbase’s customers requiring enhanced due diligence exceeded 14,000, the New York DFS said.
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