The Central Bank of Ireland has fined Coinbase Europe €21.4 million ($24.6 million) for failing to meet its anti-money laundering (AML) and terrorist financing transaction monitoring obligations between 2021 and 2025, the bank said Thursday in a press release.
Coinbase Europe has been fined for failures in the configuration of its transaction monitoring system, which resulted in more than 30 million transactions not being properly monitored over a 12-month period, the central bank said.
The value of these transactions amounted to more than 176 billion euros ($203 billion) and represented approximately 31% of all Coinbase Europe transactions made in the period in which the flaws existed, it said.
The Irish central bank went on to say that it took Coinbase Europe almost three years to fully complete tracking of the affected transactions. This subsequent monitoring led to the submission of 2,708 suspicious transaction reports (STRs) to the national Financial Intelligence Unit for further analysis and possible investigation.
“To be effective in combating financial crime, law enforcement agencies rely on regulated financial institutions to have systems in place to monitor transactions and report suspicions. The failure of such a system within any financial institution creates an opportunity for criminals to evade detection, and criminals will take advantage of that opportunity,” Central Bank of Ireland Deputy Governor Colm Kincaid said in a statement.
The STRs filed regarding the late monitoring of transactions contained suspicions associated with serious criminal activities, including: money laundering; fraud/scams; drug traffic; cyber attacks (malware/ransomware); and child sexual exploitation.
“Cryptocurrencies have particular technological characteristics that, together with their anonymity-enhancing capabilities and cross-border nature, make them especially attractive to criminals looking to move their funds. This is why it is especially important that companies engaged in crypto services have robust controls to identify and report suspicious transactions,” Kincaid said.
In June this year, Coinbase moved its regulatory base from Ireland to Luxembourg, where the exchange now holds a license under the European Markets in Crypto Assets (MiCA) regime.
Coinbase was said to have encountered some friction with the Central Bank of Ireland (CBI), according to people familiar with the matter, although the exchange was not the only crypto company to run into difficulties with the CBI, the people said.
When asked about the situation with BoI in a recent interview, Coinbase vice president of international policy Tom Duff Gordon said there was no particular reason why the exchange left Ireland for Luxembourg, which he noted has a relatively mature set of laws, particularly in areas such as tokenization.
Regarding the Irish central bank, Duff Gordon said:
“At the top of the bank, let’s just say that historically they haven’t necessarily seen the kind of value in this industry. However, I think that’s changing, and I think they’ve come a long way on the issue. If you look at the speeches that the authorities have given over the last year and a half, I think they are now becoming much more positive about the evolution of this market. But they certainly tend toward the more conservative side.”
In response to the fine, Coinbase said it had created a Transaction Monitoring System (TMS), which analyzes financial transactions to detect suspicious patterns or anomalies.
“In building this TMS system, Coinbase inadvertently made three coding errors that caused five of the 21 TMS scenarios to not fully examine all transactions in 2021 and 2022,” Coinbase said.
“For example, these scenarios ignored crypto addresses separated by special characters. These coding errors did not impact the other TMS scenarios that examined transactions, nor Coinbase’s supplemental compliance checks.”
Coinbase Europe has admitted the prescribed breaches and accepted the undisputed facts set out in the Settlement Notice, the CBI said, which included applying a 30% discount to the settlement plan.
UPDATE (Nov 6, 13:45 UTC): Adds comments from Coinbase on transaction monitoring system
