Coinbase Settles Money-Laundering Investigation for $100 Million and Lays Off 20% of Staff

Times are tough, especially in the crypto space, which makes Coinbase’s $100 million settlement with New York regulators a major blow for the US crypto exchange. The company is also cutting around 20% of its staff, which is due to a combination of factors, including the continuing decline of the economy.

Violation of anti-money-laundering laws: As early as 2020, regulators detected compliance problems at Coinbase. After an investigation, it was found that the public cryptocurrency trading exchange was allowing customers to open accounts without thoroughly checking their backgrounds, which is in violation of anti-money-laundering laws.

• The compliance problems were first spotted during a routine examination of the company.
• The settlement was reached with the New York State Department of Financial Services.

Of the $100 million settlement, $50 million is part of a fine due to the violation, while the other $50 million will be used to improve the exchange’s compliance program. The compliance program is a vital tool that prevents those who might break the law from opening an account on the platform.

It is not a new problem: While the company’s compliance problems were only detected by regulators in 2020, the filing suggests that Coinbase was aware of its failure to meet state standards for money laundering and financial terrorism compliance since 2018. Considering Coinbase secured its license to operate in New York in 2017, it spans almost the entire duration.

• Coinbase tried to hire an independent consultant to solve the problem, but it did not fix the problems.
• Regulators opened a formal investigation in 2021.

The main problems: Investigators found two key areas with problems, starting with background checks into individuals whose backgrounds seemed odd. The other problem was following up on suspicious activity alerts. According to the Department of Financial Services, the number of backlogged alerts built up to 100,000 by late 2021.

• Checks into customers were underwhelming, merely scratching the surface.
• The ignored alerts were created by Coinbase’s internal monitoring system.
• The measures in place were so inadequate that the exchange was ordered to hire an outside monitor before the investigation concluded.

Without realizing it, Coinbase even helped a digital thief steal $150 million from a company. It is a severe cautionary tale when viewed through the lens of those concerned with regulations in the crypto space, especially with Coinbase being a major player in the industry.

The bigger picture: One potential issue Coinbase faced was its quick growth, which is something seen by many crypto companies. Because of that, it failed to scale its compliance department, leading to the issues seen during the investigation.

However, there have long been concerns around crypto and regulations, with US authorities speaking out about the industry potentially weakening protections against money laundering. Historically, there has been little oversight and scrutiny, which has led to situations like FTX’s collapse.

• Investment app Robinhood was fined $30 million for violating various regulations.
• Crypto exchange Kraken agreed to a $360,000 settlement for violating US sanctions.
• Binance, the world’s largest crypto exchange, is being investigated for possible anti-money-laundering violations.

But Coinbase has not given up on correcting its mistakes. According to the company’s chief legal officer, Paul Grewal, “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.”

Layoffs join the fray: Compliance is not the only issue Coinbase is currently facing. It is also cutting around 20% of its staff, or 950 employees. Moreover, it is not the first layoff the company has experienced, having let go of 1,100 people last June. Moreover, considering the lingering crypto winter and general economic decline, this might not be the last time the exchange has to let people go.