New York State’s Department of Financial Services (DFS) has slapped crypto exchange platform Coinbase with a $50 million penalty for “significant” compliance failures.
Furthermore, the company has been ordered to invest $50 million more in its compliance program over the next two years.
DFS discovered that Coinbase’s Bank Secrecy Act/Anti-Money Laundering program, including its KYC/CDD, transaction monitoring system (TMS), suspicious activity reporting, and sanctions compliance systems, were “inadequate for a financial services provider of Coinbase’s size and complexity.”
The flaws exposed Coinbase to “serious criminal conduct,” such as fraud, money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking, according to the agency.
Coinbase failed to build and maintain a functional compliance program capable of keeping up with its rapid growth, according to DFS Superintendent of Financial Services Adrienne Harris.
Coinbase was unable to keep up with the volume of alerts generated by its TMS, according to the department, resulting in a “significant and growing backlog” of more than 100,000 unreviewed transaction monitoring alerts by late 2021.
“That failure exposed the Coinbase platform to potential criminal activity, requiring the department to take immediate action, including the installation of an independent monitor,” Harris adds.