Coinbase to pay $100 million in fines, compliance improvements

Jan. 4 (UPI) -- Coinbase will pay the New York State Department of Financial Services $50 million to settle charges it failed to conduct proper background checks on new user accounts and another $50 to bolster its compliance program.

NYSDFS Superintendent Adrienne Harris said Coinbase displayed "significant failures" in its compliance program that violated the New York State Banking Law and the New York State Department of Financial Services regulations.

The agency said the failures in complying with virtual currency, money transmitter, transaction monitoring and cybersecurity regulations made Coinbase vulnerable to serious criminal conduct, including fraud, possible money laundering, suspected child sexual abuse material-related activity and potential narcotics trafficking.

"It is critical that all financial institutions safeguard their systems from bad actors, and the department's expectations with respect to consumer protection, cybersecurity, and anti-money laundering programs are just as stringent for cryptocurrency companies as they are for traditional financial services institutions," Harris said in a statement.

"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."

The department said by late 2021, Coinbase's inability to keep up with its alerts resulted in a significant and growing backlog of more than 100,000 unreviewed transaction monitoring alerts.

"Today Coinbase and NYDFS have come to an agreement to settle a NYDFS investigation, disclosed in our 2021 annual 10K filing, into our historical compliance program," Paul Grewal, Coinbase's chief legal officer, told Coindesk.

"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."