The encyclopedia · Legal & Compliance · Legal decision · 2023
Coinbase let 100,000 suspicious transactions pile up unreviewed — NYDFS fined it $50M
NYDFS found 100,000 unreviewed transaction alerts and 14,000 unvetted customers. Coinbase paid $50M and committed another $50M to compliance fixes.
Coinbase · 2023-01-04
What happened
The New York Department of Financial Services found 'wide-ranging and long-standing failures' in Coinbase's anti-money laundering program. By the end of 2021, the cryptocurrency exchange had accumulated a backlog of roughly 100,000 unreviewed transaction monitoring alerts and approximately 14,000 customers awaiting enhanced due diligence reviews.
NYDFS concluded that these gaps left Coinbase vulnerable to use by drug traffickers, money launderers, and fraudsters. Customers could open accounts with minimal background checks, and the transaction monitoring system could not keep up with the exchange's rapid growth.
On January 4, 2023, Coinbase agreed to pay $50 million in penalties and commit another $50 million to improve its compliance program over two years. The settlement required an independent monitor to oversee compliance improvements, making it one of the largest AML enforcement actions against a cryptocurrency company.
Why it happened
- Coinbase prioritised user acquisition over compliance infrastructure.
- Transaction monitoring could not keep pace with trading volume growth.
- KYC and due-diligence processes were inadequate for a regulated financial institution.
- The backlog of alerts was a known issue that was not resourced appropriately.
The lesson
A compliance backlog is a deferred fine — every unreviewed alert is a bet that the regulator will not look before you catch up.
Aftermath
Coinbase invested heavily in compliance staffing and monitoring systems following the settlement. The case signalled to the crypto industry that state regulators would apply traditional banking standards to digital asset exchanges.
Sources
- Coinbase settles with New York financial regulator for $100 million — CNBC
- Coinbase fined $50 million by New York — CBS News
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