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Coinbase to pay $100 million over lax money laundering safeguards

New York financial regulators identified ‘significant failures’ in the company’s efforts

Monitors display Coinbase signage in New York. (Michael Nagle/Bloomberg News)
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An earlier version of this article included a photo of a billboard depicting the logos of Coinbase and Deadfellaz. Deadfellaz was not part of Coinbase's settlement, and no allegations have been levied against the company.

Coinbase, the largest U.S.-based cryptocurrency trading exchange, will pay a $50 million fine to settle allegations from New York regulators that it broke the law by failing to adequately guard against money laundering on its platform.

The company will spend an additional $50 million over the next two years beefing up its compliance program to address the “significant failures” identified by the New York Department of Financial Services, the state agency said Wednesday.

“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth,” Adrienne A. Harris, New York’s superintendent of financial services, said in a statement. “That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action.”

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Coinbase’s problems ran deep enough that the state agency took what it described as an extraordinary step, installing an independent monitor at the company early last year, even as its investigation progressed, to begin working on fixes. State regulators found Coinbase’s program to verify new users’ identities, a requirement under banking law, was “immature and inadequate,” amounting to a “simple check-the-box exercise.” By late 2021, the company had a backlog of 100,000 alerts to suspicious activity that it had yet to address.

Paul Grewal, Coinbase’s chief legal officer, said in a statement that the company 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.”

The development is the latest headache for a crypto industry reeling from a months-long cascade of high-profile scandals and bankruptcies.

The collapse of FTX, formerly one of Coinbase’s chief rivals, continues reverberating through the sector. FTX founder Sam Bankman-Fried pleaded not guilty Tuesday to federal charges he defrauded investors and customers by siphoning billions of dollars in customer funds from the trading platform to his investment fund. BlockFi, another crypto firm that did business with FTX, has filed for bankruptcy while others struggle to avoid it.

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Trading volumes and cryptocurrency prices have plummeted. Coinbase has attempted to weather the industry’s winter by positioning itself as a trustworthy and reputable brand in the freewheeling world of crypto, encouraging users to “tune out the noise.” But its stock has tracked the crypto slump, leaving the company’s market capitalization at $8.6 billion, roughly a tenth of its value when it went public in April 2021.