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Coinbase fined by NY regulators for lapses in due diligence

The crypto world has crashed recently, but many crypto startups going under. Coinbase, a larger platform, has now been fined for violations.

Crypto coins with law mallet representing coinbase

It’s been a rough year for crypto. We’ve seen the market fall and remain stagnant. We’ve dealt with Voyager freezing assets and filing bankruptcy. We’ve even seen FTX founder Sam Bankman-Fried charged with fraud. Needless to say, it hasn’t been a fun time for crypto traders. The latest news involves crypto leader Coinbase and customer due diligence lapses.

Coinbase, one of the most popular cryptocurrency exchange platforms, recently went under investigation in New York. The state says that a child predator and corporate embezzler conducted transactions within the platform the company discovered the activity. Coinbase, which operates fully remotely within the US and holds no corporate headquarters, has agreed to pay $50 million to resolve the violations of its anti-money laundering and know-your-customer practices. They’ll also invest an additional $50 to tighten up these programs to provide a safer exchange platform.

In 2020, we saw the crypto market flourish, with Bitcoin leading the pack and soaring to over $60,000 per coin. The crypto-curious rushed to download trading apps and get in on the rush, with some users cashing in big time. The bullish market was unfortunately short-lived, and soon Coinbase would find itself overwhelmed with a backlog of over 100,000 unreviewed transaction monitoring alerts and 14,000 users requiring enhanced due diligence procedures. Superintendent of the New York Department of Financial Services, Adrienne Harris, states,

“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.”

Not only did this create frustration for customers, but it also lead to illegal activity slipping right under their noses.

Examples of these infractions were brought to light by the agency. A former Coinbase customer who was charged with child sexual abuse crimes used the platform to conduct suspicious transactions that may have been associated with illegal activity. It took Coinbase over 2 years to become aware of the activity. Another Coinbase trader successfully conducted an elaborate identity theft scheme, in which he identified himself as an employee of an unnamed corporation. Once gaining access to the company’s bank account, he then transferred $150m of its balance into a Coinbase account, converted it to cryptocurrency, then deposited the funds into his personal crypto wallet.

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Cases like these only create distrust in the relatively new crypto world. Many folks find it difficult to grasp the concept of digital currency, citing security concerns. Instead of driving in new traders, the curious are more likely to hold their money in the bank. The FDIC does not insure or protect any cryptocurrency exchanges. With factors like record-breaking inflation, a slowing economy, and security breaches, we’re not sure when we’ll see the next crypto surge.

Coinbase addressed the settlement on its website, stating,

“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.”

Jennifer is a native Houstonian (go Astros!) with a knack for creating digital works of art. She has expansive experience creating content and branded collateral for Fortune 500 companies, as well as small local businesses. When she’s not buried in her laptop, Jennifer is the marketing director for a world championship circuit barbecue cook off team and pet mom to dog (Milo) and Guinea pig (Piggy Smalls).

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