Coinbase fined $100M over KYC and AML failures

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Coinbase has agreed to cough up a total of $100 million to bring an end to an investigation into failures of its anti-money laundering (AML) and know-your-customer (KYC) measures.

The exchange announced on Wednesday that it will pay $50 million to the New York Department of Financial Services (NYDFS) and will invest the same amount in bringing these programs up to standard.

Shortcomings in Coinbase’s compliance measures became apparent when the price of bitcoin surged to over $60,000 in 2021. As reported by NBC, by the end of that same year, the exchange was sitting on 100,000 unreviewed transaction monitoring alerts and had 14,000 customers who required enhanced due diligence procedures.

In a statement, NYDFS superintendent Adrienne Harris said, “Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth (our emphasis).

“That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor.”

According to the NYDFS, this criminal activity included an ex-Coinbase employee, who had previously been charged with child sexual abuse crimes, carrying out a number of suspicious transactions. It apparently took Coinbase more than two years to uncover this activity.

In its own statement, Coinbase says, “We view this resolution as 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.”

Read more: Lawsuit says Coinbase ignored red flags before user’s wallet was drained

Kraken also fined but spot the difference

Another of the world’s most popular exchanges, Kraken, has also been fined for operating less than robust compliance programs. The company was ordered to pay out $462,000 to settle a number of issues concerning violations of sanctions on Iran.

The exchange will pay the fine to the US Treasury Department’s Office of Foreign Assets Control (OFAC) after it processed more than 800 transactions for users in Iran between October 2015 and June 2019.

Kraken reportedly had controls in place to prevent Iranian users from opening accounts but had no way of blocking IP addresses based on location.

After the fine was imposed, Kraken told Reuters:

“Kraken is pleased to have resolved this matter, which we discovered, voluntarily self-reported and swiftly corrected.

Of course, it must be noted that the circumstances surrounding Coinbase and Kraken’s penalties are very different. Not only that, the two have been sanctioned by two different regulators. Indeed, OFAC has a history of handing out fines to crypto exchanges that are far less than the massive penalties imposed by the NYDFS.

In December 2020, the regulator fined California-based BitGo nearly $99,000 for sanctions violations, and a couple of months later ordered Atlanta-based BitPay to pay over $500,000 for the same offense.

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