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Coinbase reaches $100 settlement with New York state over background check failures

The US cryptocurrency exchange Coinbase will pay a $50 million fine and invest $50 million to strengthen compliance by allowing consumers to register accounts with minimal background checks.

Coinbase, a publicly traded cryptocurrency exchange based in the United States, agreed to pay a $50 million fine after anti-money-laundering rules were violated by allowing consumers to register accounts without proper background checks.

Settlement with NY State

The settlement with the New York State Department of Financial Services, which was announced on Wednesday, will also require Coinbase to invest $50 million to strengthen its compliance program, which is intended to prevent drug traffickers, child pornographers, and other potential lawbreakers from opening accounts with the exchange.

It is the most recent blow to the once-thriving global bitcoin trading industry. Several cryptocurrency companies have filed for bankruptcy in the past year, including the second-largest cryptocurrency exchange in the world, FTX, which failed in November. Sam Bankman-Fried, the company’s founder, and several FTX officials are currently facing federal prosecution.

Coinbase’s compliance issues were originally discovered during a routine review in 2020 after the exchange obtained a New York operating license in 2017. In 2018, they discovered issues with the exchange’s anti-money-laundering systems.

Read more: Former FTX CEO Sam Bankman-Fried pleads not guilty on all counts of fraud

Coinbase Did Not File Any Reports

Coinbase-FTX-Crypto-Money-CSAM-Sam Bankman-Fried-Investment
The U.S. cryptocurrency exchange will pay a $50 million fine and invest $50 million to strengthen compliance by allowing consumers to register accounts with minimal background checks.

Due to these mistakes, regulators noted that Coinbase failed to submit to authorities potential instances of money laundering, narcotics trafficking, and CSAM-related behavior.

The document also indicates that it has been aware of its failures to comply with state money laundering and financial terrorism regulations since 2018.

The department discovered that a previous customer faced criminal charges in the 1990s for possessing child sexual abuse material (CSAM). After more than two years of “suspicious transactions likely related to unlawful activities, Coinbase recognized the activity, closed the account, and cooperated with law enforcement.

Another client claimed to be an employee of a corporation and gained unlawful access to the corporation’s bank. After creating a bogus account in the name of the corporation and transferring $150 million to it, the customer claimed to be an employee of the corporation. 

Coinbase didn’t identify this fraud until six days later when the company in question notified them; the money was later recovered after a law enforcement inquiry.

These fees come at a time when consumers’ trust in prominent bitcoin exchanges is eroding. Sam Bankman-Fried, the founder and former CEO of FTX, is facing federal allegations of wire fraud and conspiracy to misuse client cash; he has pleaded not guilty to all charges.

Read more: FTX bankruptcy: US investigators look into $372 million hacking theft


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