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Coinbase and NYDFS reach agreement to resolve compliance investigation

Tl;dr: The New York Department of Financial Services (NYDFS) has announced a consent order focused on certain historical shortcomings in Coinbase’s compliance program. This consent order includes a $50 million penalty and a commitment from Coinbase to continue our investments in our compliance program. Our goal has always been and will always be to build the most trusted, compliant, and secure crypto exchange in the world.

By Paul Grewal

Company

, January 4, 2023

, 5min read time

Coinbase

Today’s Announcement 

As we disclosed in our 2021 annual 10K filing, Coinbase has been cooperating with an investigation by the New York Department of Financial Services (NYDFS) relating to our historical compliance program. Earlier today, the NYDFS announced a consent order that outlines the NYDFS’s concerns from that investigation about our 2018-2019 compliance program and the compliance backlogs that grew alongside our company’s growth in 2021. We took NYDFS’s concerns seriously and have taken substantial measures to address these historical shortcomings.  

Today’s consent order includes a $50 million penalty. Coinbase has also committed to $50 million in compliance program investments over the next two years. We view this resolution as a critical step in our commitment to continuous improvement, our engagement with key regulators, and our push for greater compliance in the crypto space – for ourselves and others. 

A Note About Our Compliance Program

We are always willing to acknowledge where we have fallen short and we welcome opportunities to improve our programs. Today, we want to share a bit more about the investments we have made over the past two years to ensure we have strong, scalable compliance processes built for the long term. 

Over the past two years, among other substantial investments and actions, we have: 

  • Built crypto-focused AML and sanctions compliance tools, such as our blockchain analytics tool, Coinbase Tracer, and our proprietary interdiction solution. We believe these Coinbase products will become industry standard in the coming years.

  • Further enhanced our automated Transaction Monitoring System (TMS) that analyzes every single transaction on the Coinbase platform, and can detect patterns suggestive of fraud, money laundering, or other illicit activity and flag them for further review by our investigators. 

  • Developed a proprietary Customer Risk Scoring (CRS) system to calculate risk ratings at onboarding and every day thereafter.

  • Built out our Enhanced Due Diligence (EDD) program targeting high-risk customers, who are also subject to other controls, like more-frequent KYC refresh, and lower thresholds when their transactions are analyzed by TMS.

  • Launched the Travel Rule Universal Solution Technology (TRUST), an industry-driven solution designed to comply with a requirement known as the Travel Rule while protecting the security and privacy of our customers.

We are grateful for our partnership with the NYDFS since we received our BitLicense in 2017 and are proud of our collaboration with regulators more broadly. In particular, we are proud that law enforcement looks to Coinbase for expertise in fighting crypto-related financial crime. We routinely conduct proactive investigations to remove bad actors from our platform and work with law enforcement to ensure they are brought to justice. 

Next steps

We recognize that the crypto industry is at an inflection point right now and that every public move by a crypto company will receive intense scrutiny. We believe that New York – and the broader industry – needs more crypto players committed to compliance and working with regulators. That is one of the reasons why we knew it was important to bring this matter to a conclusion, even though it is never the type of agreement reached lightly. 

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. We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers should feel safe and protected while using our platforms. And although we have not always been perfect, our goal has always been and will always be to build the most trusted, compliant, and secure crypto exchange in the world. Our customers deserve nothing less. 

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Paul Grewal

About Paul Grewal

Paul Grewal is the Chief Legal Officer of Coinbase where he is responsible for Coinbase’s legal, compliance, global intelligence, risk management and government relations groups. Before joining Coinbase, Paul was Vice President and Deputy General Counsel at Facebook. Prior to Facebook, Paul served as United States Magistrate Judge for the Northern District of California. Paul was previously a partner at Howrey LLP, where his practice focused on intellectual property litigation. Paul served as a law clerk to Federal Circuit Judge Arthur J. Gajarsa and United States District Judge Sam H. Bell. He received his JD from the University of Chicago Law School and his BS in Civil and Environmental Engineering from the Massachusetts Institute of Technology.