Coinbase comes to $100M settlement over foundation check disappointments

Author: Blessing I. Paul
Last Update On: 10-Jan-2023 01:31:01am
Category: Cryptocurrency, Technology, Web News
Topic: Cryptocurrency , Tech News

Coinbase comes to $100M settlement over foundation check disappointments. Modern York monetary controllers have found that the prevalent cryptocurrency trade Coinbase damaged anti-money washing laws by coming up short to conduct satisfactory foundation checks. Coinbase will pay a $50 million fine to the Modern York State Office of Money related Administrations and is additionally required to spend $50 million on moving forward its compliance program.

In its annual 10k filing in 2021, Coinbase stated that this investigation was ongoing.

During regular supervisory inspections in May 2020, state regulators became aware of issues at Coinbase. The Office of Foreign Assets Control (OFAC) programs, transaction monitoring systems, customer due diligence procedures, and anti-money laundering risk assessments were among the compliance programs that the Department of Financial Services identified as having "significant deficiencies.". Regulators discovered problems with Coinbase's "retention of books and records" and reporting to the state department while looking into possible legal violations in greater detail.

The compliance situation within Coinbase "reached a critical stage during the course of the Department's investigation," according to the filing. The authorities discovered that by the end of 2021, Coinbase had over 100,000 unreviewed transaction monitoring alerts backlogged, in addition to 14,000 users who needed enhanced due diligence.

The filing states that Coinbase signups were fifteen times higher in May 2021 than in January 2020, and by November 2021, there were twenty-five times more monthly transactions than in January 2020, which contributed to these backlogs.

In order to meet the expanding compliance requirements, according to regulators, Coinbase lacked sufficient staff. However, CEO Brian Armstrong claimed that over-hiring following the company's 2021 boom was to blame when Coinbase cut 18% of its workforce, or 1,100 employees, in June 2022.

Rather than full-time employees, over 1,000 independent contractors were in charge of clearing the backlog, according to the filing. According to regulators, Coinbase failed to adequately supervise or train these contractors, which resulted in "a substantial portion of the alerts reviewed by third parties being rife with errors," the filing states.

“The training Coinbase provided was not scalable for the size of the contractor force, and attendance at the training sessions was not adequately tracked,” regulators wrote. “The quality control process was not always performed by the contractor organizations to the standards that Coinbase provided, and initially, Coinbase did not have a system in place to audit the quality control that was done.”

As a result of these inaccuracies, regulators wrote that Coinbase failed to report potential instances of money laundering, narcotics trafficking and CSAM-related activity to authorities.

The filing also states that since 2018, Coinbase has been aware of its failures to meet state standards for money laundering and financial terrorism compliance.

“Although Coinbase has worked to correct these issues, its progress has been slow: progress in certain areas did not occur until recently, and work remains outstanding to the present,” the filing states.

The risks of this non-compliance are haven’t been merely hypothetical, regulators wrote.

The department found that one former Coinbase customer had faced criminal charges in the 1990s related to child sexual abuse material (CSAM). After engaging in “suspicious transactions potentially associated with illicit activity” for more than two years, Coinbase detected the activity, shut down the account and cooperated with law enforcement.

Another customer claimed to be an employee of a corporation and managed to gain unauthorized access to that corporation’s bank — by setting up a fraudulent Coinbase account in the name of the corporation, the customer transferred $150 million to their new account. Coinbase didn’t detect this fraud until six days later when contacted by the corporation in question; the money was later recovered after an investigation by law enforcement.

These charges come at a time when consumers are losing trust in popular cryptocurrency exchanges. After filing for bankruptcy, FTX founder and former CEO Sam Bankman-Fried is facing criminal charges including wire fraud and conspiracy to misuse customer funds; Bankman-Fried has plead not guilty to all charges.

“Coinbase has taken substantial measures to address these historical shortcomings and remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance,” said Coinbase chief legal officer Paul Grewal. “We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers can feel safe and protected while using our platforms.”

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