Latest Exchange to be Fined — Coinbase’s $100m Settlement with New York Regulators

After an inquiry into the cryptocurrency exchange's compliance with regulations to prevent money laundering, Coinbase Global Inc., based in the United States, settled with New York state authorities for $100 million (£81m).

CoinBase was fined $50 million by authorities who said the company had enabled users to register accounts as early as 2018 with insufficient background checks. To prevent prospective criminals from accessing the exchange, CoinBase must also invest those millions into increased compliance activities.

  • Coinbase, a cryptocurrency exchange, must pay $100 million ($50m fine and $50m corrections) to resolve background check charges and enhance compliance procedures.
  • Department of Financial Services (DFS) officials in New York discovered compliance problems at Coinbase as far back as 2018. As part of the settlement, Coinbase agreed to continue working with an auditing body for at least another year to strengthen its compliance practices.
  • Paul Grewal, Coinbase's chief legal officer, told CoinDesk via email, "Coinbase has made extensive efforts to correct these prior failures." He assured the audience that the company will cooperate with authorities on matters of compliance and strive to set an example. We’ve also seen Binance and FTX hit with serious fines.

The Compliance Problems Began in 2018

After Coinbase earned a New York licence in 2017, regulators claim to have discovered compliance issues in 2020. Their research showed that issues with the exchange's anti-money-laundering safeguards went back to at least 2018.

New York State Financial Services Superintendent Adrienne A. Harris said, "We discovered deficiencies that truly necessitated putting in place an independent monitor rather than waiting for a settlement." We have been extremely vocal about the issue of illegal funding in the industry. Because of this, our framework requires crypto firms to adhere to the same security measures as banks.

The settlement claims that Coinbase's process for checking older accounts for suspicious activity is too sluggish. The stock exchange will have to continue its compliance monitoring for at least another year. The overseer was not revealed by New York authorities.

Authorities Sounding the Alarm on Crypto

Multiple cryptocurrency exchanges have been investigated by federal prosecutors in the last few months, and the practices of foreign companies with regard to client verification have also been scrutinised. 

Two months after the collapse of FTX sent shockwaves across the market, authorities yesterday issued a warning to banks about the dangers associated with digital assets, such as legal ambiguities and false disclosures.

Binance Withdrawals Grew By £2.5 Billion in a Single Day

Coinbase isn’t the only exchange that has been in the fire. 

According to a research agency, Binance withdrawals increased to $3 billion (£2.5b) in a single day in mid-December 2022.

As a flood of bad articles about the crypto business spooked customers of the world's biggest exchange, and BTC price predictions became more challenging, investors reportedly withdrew up to $3 billion from Binance in mid-December 2022, says blockchain analytics firm Nansen.

At its height, Binance witnessed “as high as £2.5 billion in total net withdrawals” in a day, as per Thurman, an executive, who spoke with CNN. He placed the co-blame of worried traders on news that the US Department Of Justice was digging into the marketplace.

While this was happening, “simultaneously, a big market maker, Jump, withdrew large volumes from Binance with no contributions over the last few weeks,” Thurman stated. To paraphrase, “there's a lot of money leaving, and that's scared off a few people.”

Jump Trading Group, of which Jump Crypto is a subsidiary, specialises in crypto trading.

According to CEO Changpeng Zhao, the cryptocurrency exchange Binance has seen “some outflows” of about £9 billion. After, he stressed that the company has weathered rougher circumstances.

On Wednesday, he remarked in a chat on Twitter Spaces that withdrawals from investors' accounts were “quite regular market activity.”

Zhao says that the plunge of FTX caused considerable scepticism in the crypto market. Bankman-Fried, the creator of a popular cryptocurrency exchange that competed with Binance, was detained in the Caribbean after US authorities brought criminal counts against him.

“If you were wounded by one bank, you'll assume all the other banks are awful,” Zhao added. “The reality is that the failure of one bank is no indication of the failure of the whole banking system.”

Sam Bankman-Fried, FTX's founder, was recently indicted on charges of fraud. As a result of market uncertainty, the value of digital currencies has been falling. With its recent trading below $18k, Bitcoin has lost almost 60% of its value this year.

However, following FTX's stunning fall, Binance's company is also being thoroughly investigated. On Monday, Reuters cited unnamed sources to indicate that US authorities were considering closing a racketeering case against Binance by “dropping criminal prosecution against individual officials including creator Changpeng Zhao.”

No representative from the US Department of Justice was available for comment.

“As has been reported publicly,” Binance stated in a statement to CNN, “regulators are performing a thorough investigation of every crypto business.”

A spokesman for the company noted, “This fledgling sector has expanded swiftly and Binance has proved its commitment to security and compliance via major investments in our personnel including the tools and technology we employ to identify and discourage criminal behaviour.”

Before backing out of a bailout agreement with smaller competitor FTX last month, Binance had promised assistance.

In the US, Bankman-Fried was charged on eight counts on Tuesday, including wire fraud and conspiracy. Bankman-Fried was also accused of fraud by US markets authorities.

Bankman-Fried, often known as “SBF” was a crypto industry star until last month, when his business had a liquidity issue and filed for bankruptcy, rendering the cash of at least a million depositors inaccessible.

Concluding Remarks

Binance, the biggest cryptocurrency trading platform in the world is under investigation for possible anti-money-laundering offences by U.S. authorities.

Customers may create accounts with Binance without going through extensive identification verification until the autumn of 2021, but only provided they kept their daily trading volume below a specific threshold. 

At the time of its demise in November, FTX was also the subject of an investigation into possible violations of anti-money-laundering regulations. Attorneys claim that disgraced FTX founder and ex-CEO Sam Bankman-Fried orchestrated a plan to steal billions of dollars in client deposits.

Coinbase is the latest widely publicised addition.