Coinbase, the largest cryptocurrency exchange in the US, has encountered another setback, continuing its streak of recent challenges. In the latest development, Ireland’s central bank fined the platform $25 million for violating anti-money laundering and counter-terrorist financing regulations.
Notably, this enforcement action underscores the growing scrutiny faced by virtual asset service providers (VASPs) as governments and regulatory bodies worldwide strive to mitigate the risks associated with digital assets. It serves as a warning for crypto platforms to prioritize regulatory compliance and invest in robust AML and CFT frameworks.
Irish Central Bank Fines Coinbase
The Central Bank of Ireland has levied a substantial fine of €21.5 million, equivalent to approximately $25 million, on Coinbase Europe. According to a recent Reuters report, this penalty is imposed due to the company’s breaches of anti-money laundering (AML) and counter-terrorist financing (CTF) transaction monitoring obligations.
The Central Bank’s investigation revealed that Coinbase Europe’s transaction monitoring system was plagued by configuration faults, resulting in a staggering 30 million transactions worth over €176 billion not being properly monitored over a 12-month period between April 2021 and March 2022. This lapse in compliance not only underscores the complexity of regulating digital assets but also emphasises the critical need for robust AML and CFT rules.
Notably, the transactions in question reportedly surpassed $202 billion, making up around 31% of Coinbase’s total transactions during the period.
Coinbase Agrees to Settle
Coinbase Europe has reportedly agreed to the $24.7 million settlement with Ireland. According to Coinbase, coding errors led to incomplete screenings for suspicious activity in its internal compliance software. The company discovered the issue through internal testing, implemented a fix within weeks, and conducted a thorough review of affected transactions.
As a result, Coinbase submitted approximately 2,700 suspicious transaction reports worth around $15million, out of 185,000 flagged transactions. Notably, these STRs don’t necessarily indicate illicit activity but were failed to comply with Ireland’s AML regulations. The exchange noted,
“Coinbase recognizes the importance of effective AML procedures and takes our obligations under AML legislation and regulatory guidance very seriously.”
To prevent similar issues, the exchange has enhanced its Transaction Monitoring System with stricter pre-deployment reviews, expanded scenario testing, and ongoing improvements to detect high-risk activity. The company took almost three years to complete the monitoring of impacted transactions. The subsequently submitted transaction reports contained potential links to serious crimes such as money laundering, fraud, drug trafficking, cyber attacks, and child sexual exploitation.
What Led to Coinbase’s $25M Fine?
The bank based its $25 million penalty on Coinbase’s average annual revenue in Ireland from 2021 to 2024, estimated at $480 million. The fine stems from the company’s failure to maintain adequate systems for detecting and reporting potential money-laundering risks, due to three coding errors affecting five of its 21 monitoring scenarios, specifically failing to screen certain crypt addresses containing special characters.
Unveiling Coinbase’s Regulatory Challenges
Significantly, Coinbase has faced several crypto lawsuits and regulatory challenges throughout its journey. The US Securities and Exchange Commission sued the platform in 2023, alleging it operated as an unregistered broker and exchange. The lawsuit claimed that the exchange offered tokens that should have been registered as securities. However, earlier this year, the SEC under the Trump administration dropped the case.
In addition, a federal judge allowed a narrowed lawsuit to proceed against Coinbase, accusing the company of concealing business risks, including the likelihood of an SEC lawsuit.
