Coinbase has agreed to a $100 million settlement with New York State following an investigation into its compliance program.
The New York Department of Financial Services (NYDFS) announced the settlement Wednesday (Jan. 4), saying the crypto exchange would pay the state a $50 million penalty for “significant failures in its compliance program.”
“These failures made the Coinbase platform vulnerable to serious criminal conduct, including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking,” the NYDFS said.
Coinbase has also agreed to invest $50 million in its compliance function over the next two years and to enhance its compliance program in accordance with a plan approved by the department, the announcement said.
In a statement on its website, Coinbase called the settlement “a critical step in our commitment to continuous improvement, our engagement with key regulators, and our push for greater compliance in the crypto space — for ourselves and others.”
According to the NYFDS, the agency’s investigation found that Coinbase’s Know Your Customer and Customer Due Diligence (KYC/CDD) program “was immature and inadequate,” with the company treating customer onboarding “as a simple check-the-box exercise and failed to conduct appropriate due diligence.”
The investigation also found that Coinbase could not keep up with the growth in the volume of alerts generated from its transaction monitoring system (TMS), leading to a “significant and growing backlog” of more than 100,000 unreviewed transaction monitoring alerts by late 2021.
Coinbase said it had made several investments in improving its compliance systems, including enhancements to its TMS.
“We took NYDFS’s concerns seriously and have taken substantial measures to address these historical shortcomings,” the company said.
The settlement comes as regulators are taking measures to stem a rising tide of crypto-related frauds and scams.
The U.S. Consumer Finance Protection Bureau (CFPB) reported in November that it had gotten more than 8,300 complaints related to crypto assets between October 2018 and September 2022, most of them in the last two years. In roughly 40% of crypto asset complaints handled since 2018, customers reported that frauds and scams were the key issues.
“Americans are also reporting transaction problems, frozen accounts and lost savings when it comes to crypto-assets,” CFPB Director Rohit Chopra said. “People should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam.”
PYMNTS reported last year that the NYFDS is among the country’s toughest and most well-regarded digital currency regulators, serving as a watchdog for the world’s largest financial and as “the obvious yardstick against which proposed national rules are measured.”
The agency has also worked to make New York a more crypto-friendly state, PYMNTS argued, a process that began with the overhaul of its regulations in June 2020.
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