Coinbase Fined $100 Million for Lax Background Checks

Cryptocurrency exchange Coinbase has reached a $100 million settlement with the New York State Department of Financial Services after the department’s investigation revealed that Coinbase failed to properly vet users before opening an account, leading to criminal activity on the exchange.

The $100 million settlement comes as two payments of $50 million each—one is a fine for failing to conduct appropriate background checks (referred to as a “compliance program”) on users opening accounts. The other $50 million is an investment in bolstering their compliance program over the next two years. NYDFS found that Coinbase’s lackluster compliance program led to criminal activity on the exchange “including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking,” as outlined in the department’s press release.

“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth,” said Superintendent of Financial Services Adrienne A. Harris. “That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor.” 

Coinbase said in a press release on the settlement that the exchange has been cooperating with the NYDFS since 2021, and that the department’s concern about the exchange’s compliance program specifically dates back to 2018-2019. The DFS described Coinbase’s compliance program as “immature” and “a simple check-the-box exercise,” and further states that the company failed to conduct due diligence on its users and was unable to keep up with the platform’s growing user base. 

“Coinbase remains committed to being a leader and role model in the crypto space, and this means partnering with regulators when it comes to compliance and other areas,” said Coinbase Chief Legal Officer Paul Grewal in the company’s press release. “We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers can feel safe and protected while using our platforms.”