Author: Syedur Rahman 13 January 2023
Syed Rahman of financial crime specialists Rahman Ravelli considers what went wrong.
It will pay $50 million for its non-compliance and will spend a further $50 million on improving its anti-money laundering procedures, in a settlement reached with New York’s Department of Financial Services.
An investigation had found that Coinbase had failed to put adequate processes in place such as know your customer (KYC) / customer due diligence (CDD) checks, transaction monitoring systems (TMS), suspicious activity reporting and sanctions screening. The compliance processes that they had were not sufficient to support the complexity and rapid growth of the company between 2018 and 2022.
The procedures were said to be too simple and the customer onboarding processes were treated like tick-box exercises. There was also said to be a backlog of 14,000 customers needing enhanced due diligence.
Regulators will expect to see that crypto firms are ensuring that they know who their customers are and where they are based. This is the reason why locating customers and transactions is imperative. Knowing data such as the domain name and IP address, combined with the use of blockchain intelligence, will help a company improve its compliance systems.
The key lesson to be learned here is that compliance should be considered at every step of the way. Most exchanges will try to implement a compliance system at the early development phase. However, this is an ongoing obligation: as a crypto firm grows, compliance programmes will need to evolve and grow with it.
Any company facing problems such as those endured by Coinbase should examine its history, understand what has gone wrong previously and work to put it right. Internal tests and audits of compliance will help determine whether systems are effective or outdated.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.