$50m Fine imposed on Coinbase for Compliance Failures
DFS (New York State’s Department of Financial Services) opens 2023 with imposing a $50m fine on COINBASE – a New York based crypto exchange platform provider. This is in addition to another $50 million that the firm was ordered to invest into its compliance program.
It’s noteworthy that the compliance control and associated penalties are now being applied not only to the institutions that have been proven to miss out on specific illegal transactions, instances of money laundering, or sanctioned entities, but to those whose compliance efforts and technological support were found faulty or inadequate.
Such is the case of Coinbase. Its Bank Secrecy Act and AML (Anti-Money Laundering) program was found insufficient to accommodate proper AML control. This includes its KYC and CDD (Know Your Customer and Customer Due Diligence), TMS (Transaction Monitoring System), suspicious activity reporting, and sanctions compliance systems, all of which were found “inadequate for a financial services provider of Coinbase’s size and complexity.”
As has been established by DFS, the failure to employ efficient AML program led to considerable vulnerability of Coinbase’s platform to potential fraud, money laundering, child sexual abuse (suspected), and narcotics trafficking.
In its findings DFS indicates that the failure to comply with AML regulations was caused by inability of keep pace with the amount of alerts generated by its AML system, resulting in a “significant and growing backlog” of over 100,000 unreviewed transaction monitoring alerts.
To reduce the workload and comply with strict AML regulations, financial and non-financial institutions need to conduct proper effective KYC and monitoring of all its transactions, screening them against constantly changing sanctions and blacklists. On the other hand, they need to reduce the workload on its compliance workforce to maintain profitability, while most of AML systems deliver over 30% False Alarms, lacking the capability to effectively match names and entries from multiple lists. This results in enormously high number of alerted transactions for manual review.
Based on its patented technology, Fincom’s AML solution is already helping many American financial institutions to comply with the strictest AML regulations effectively and efficiently by CONSIDERABLY reducing the alerts rate (among other advantages) and by screening transactions and monitoring clients onboarding validating their legitimacy against the most updated sanctions lists in Real Time, resolving the problems of transliterated or misspelled names, and more. Fincom’s AML solutions covers all the DFS’ AML and CTF requirements, protecting its clients’ integrity, reputation, and revenues by eliminating the risks of AML-related penalties.