The Central Bank of Ireland has fined Coinbase Europe €21.5 million after finding that the crypto asset and wallet services provider failed to properly monitor more than 30 million transactions for money laundering or terrorist financing over the course of a year.
It marks the fourth-biggest financial penalty ever imposed by the Irish financial regulator and comes less than three years after Coinbase Europe was authorised by the authority. It is the first sanction levelled against a player in the crypto sector by the Central Bank.
“Crypto has particular technological features which, together with its anonymity-enhancing capabilities and cross-border nature, makes it especially attractive to criminals looking to move their funds,” said Colm Kincaid, a deputy governor with the Central Bank, who is in charge of consumer and investor protection.
“This is why it is especially important that firms engaged in crypto services have robust controls in place to identify and report suspicious transactions.”
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Coinbase Europe’s parent, Coinbase Group, is the largest cryptocurrency exchange in the US and the world’s biggest custodian of Bitcoin. The parent group is led by chief executive and co-founder Brian Armstrong, one of the most influential people in the fast-growing cryptocurrency industry. The group employs about 100 in Ireland.
Coinbase Europe is one of three Irish-regulated group entities. It provides crypto asset and wallet services to customers globally to facilitate their use of the Coinbase Group’s trading platform to buy and sell crypto assets.
As a virtual asset service provider, the company is required to monitor customer transactions on an ongoing basis. Where Coinbase Europe suspects that a transaction is facilitating money laundering or terrorist financing it is required to file a suspicious transaction report (STR) with the Garda National Economic Crime Bureau’s financial intelligence unit and Revenue Commissioners as soon as possible.
Coinbase Europe has been fined due to faults in the configuration of their transaction monitoring system, which resulted in more than 30 million transactions not being properly monitored over a 12-month period, the Central Bank said in a statement on Thursday.
The value of these transactions amounted to over €176 billion, and accounted for approximately 31 per cent of all Coinbase Europe transactions conducted in the period when the faults existed.
Coinbase Europe subsequently filed about 2,700 suspicious transaction reports on a total of €13 million of transactions, on foot of the review.
The regulator said these contained suspicions associated with serious criminal activities including: money laundering; fraud or scams; drug trafficking; cyberattacks; and child sexual exploitation. The Central Bank said it cannot say if any of the suspicious transactions were a criminal offence.
Coinbase said in a statement that the problem was the result of three coding errors that caused five of its 21 transaction monitoring system (TMS) scenarios not to fully screen all transactions in 2021 and 2022.
These errors had been identified and rectified by the firm by the end of April 2022, according to the settlement document, posted on the regulator’s website. A rescreening of transactions resulted in almost 185,000 as needing further review. That process was completed in March of this year.
The issues of the case stem from transaction-monitoring problems at Coinbase Inc in the US, which were the subject of an investigation by the New York State Department of Financial Services (NYDFS). This resulted in a $50 million (€43.4 million) fine. The European unit had outsourced transaction monitoring to Coinbase Inc.
“Coinbase recognises the importance of effective AML (anti-money laundering) procedures and takes our obligations under AML legislation and regulatory guidance very seriously,” it said. “ Our goal has always been and will always be to build the most trusted, compliant, and secure platform in the world.”
Coinbase Europe and a related firm, Coinbase Custody International, or two of 22 so-called virtual asset service providers that have been authorised by the Central Bank since the middle of 2022. The group also has Irish entity, Coinbase Ireland, which was granted a licence as an e-money firm in 2019.
