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Coinbase Agrees to $100,000,000 Settlement with NYDFS Stemming from AML Practices




Coinbase has been a fixture in the digital asset sector for years now.  It has managed to achieve this through cultivating a perception that it is one of the most reliable, reputable, and regulated service of its kind.

While this is mostly true, the exchange has not managed to escape controversy completely.  The most recent example of this comes from the New York Department of Financial Services (NYDFS), which has levied a $100,000,000 fine/settlement against the exchange.

Details of the Fine

The settlement is the result of an investigation by the NYDFS in to past anti-money-laundering (AML) practices used by Coinbase.  One of the pillars of AML is what is often referred to as a ‘know-your-client (KYC)' check.  These entail gathering identifying information on a client, ensuring they are who they say they are, and providing an avenue for tracking the individual down in the event of future attempts to launder money or partake in similar illegal activity.  It is here the Coinbase dropped the ball, having failed to perform adequate KYC background checks.  Making matters worse, it is believed that Coinbase was aware of the lapses in KYC, and continued business as usual without notifying the appropriate regulators or ensuring continued monitoring of the effected accounts.

The following is a breakdown of what exactly Coinbase was charged with.

  • Failing to conduct business in an unsafe and unsound manner
  • Failing to maintain an effective and compliant BSA/AML program
  • Failing to properly report a cybersecurity incident to the NYDFS

As stated, the settlement reached between these two parties totals $100M.  Of this, $50M is being treated as a fine, while the other $50M is required to be put towards strengthening the platforms AML procedures moving forward.

The NYDFS stated that despite the ‘egregiousness of the compliance failures', the willingness of Coinbase to cooperate and amend its practices played a large role in the terms of the settlement.

Market Reaction

2022 proved to be a rough year for Coinbase, as the exchange saw its shares (COIN) drop precipitously during this time.  While investment funds like the ARK Innovation ETF routinely took advantage of this, purchasing shares for what it believes are at a severely undervalued price, the extended decline had many wondering when COIN would find its footing.

Now with the announcement of this settlement, it appears as though lingering fears by investors surrounding the future of COIN have somewhat abated.  In the hours after the news broke, COIN is trading roughly 8% higher on the day at time of writing.

Pending Crackdown

With trillions laundered each year in the United States alone, it is no wonder that settlements like the one discussed here are being reached.  It is much more efficient to prevent crime than to hold each offender accountable.  This means ensuring that platforms like Coinbase boast stringent, thorough measures surrounding AML.

Looking forward, there appears to be a pending crackdown in the making on AML practices in the digital asset sector in the form of the ‘Digital Asset Anti-Money Laundering Act of 2022‘.  While the idea of cracking down on AML may be well-intentioned, many have noted that if passed, the way in which this particular Act is structured will do nothing but increase the chance of recurring events like the FTX fiasco.