The Central Bank of Ireland has fined Coinbase Europe €21.4 million ($24.6 million) for breaching its anti-money laundering (AML) and counter-terrorist financing obligations between 2021 and 2025, the bank announced in a press release on Thursday.
Coinbase Europe was fined due to flaws in the configuration of its transaction monitoring system, which resulted in poor monitoring of more than 30 million transactions over a 12-month period, the central bank said.
The value of these transactions was more than 176 billion euros ($203 billion) and represented approximately 31% of all Coinbase Europe transactions made during the period the defaults existed, it said.
The Irish central bank went on to say that it took Coinbase Europe almost three years to fully complete monitoring of the affected transactions. This subsequent monitoring led to the reporting of 2,708 suspicious transaction reports (STRs) to the National Financial Intelligence Unit for further analysis and possible investigation.
“To effectively combat financial crime, law enforcement relies on regulated financial institutions to have systems in place to monitor transactions and report suspicions. The failure of such a system within a financial institution creates an opportunity for criminals to evade detection – and criminals will seize this opportunity,” Central Bank of Ireland Deputy Governor Colm Kincaid said in a statement.
The STRs submitted regarding late transaction monitoring contained suspicions associated with serious criminal activities, including: money laundering; fraud/scams; drug trafficking; cyberattacks (malware/ransomware); and sexual exploitation of children.
“Crypto has particular technological characteristics that, combined with its anonymity-enhancing capabilities and cross-border nature, make it particularly attractive to criminals seeking to move their funds. This is why it is particularly important that companies engaged in crypto services implement 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 Crypto Asset Markets (MiCA) regime.
Coinbase has reportedly encountered friction with the Central Bank of Ireland (CBI), according to people familiar with the matter, although the exchange is not the only crypto company to have encountered difficulties with the CBI, the sources said.
Asked about the BoI situation in a recent interview, Coinbase VP of International Policy Tom Duff Gordon said there was no particular reason why the exchange left Ireland for Luxembourg, which he pointed out has a relatively mature set of laws, particularly in areas like tokenization.
Regarding the Irish central bank, Duff Gordon said:
“At the top of the bank, let’s just say historically, they haven’t necessarily seen the type of value in this industry. I think that’s changing, and I think they’ve covered it. If you look at the speeches that policymakers have given over the last year and a half, I think they’re now becoming a lot more positive about where this market is going. But they certainly tend to be more conservative.”
In a response following the fine, Coinbase said it had built a Transaction Monitoring System (TMS), which analyzes financial transactions to detect suspicious patterns or anomalies.
“In creating this TMS system, Coinbase inadvertently made three coding errors that prevented five of the 21 TMS scenarios from completely screening all transactions in 2021 and 2022,” Coinbase said.
“For example, cryptographic addresses separated by special characters were overlooked by these scenarios. These coding errors did not impact other TMS scenarios that filtered transactions, nor Coinbase’s additional compliance checks.”
Coinbase Europe admitted the prescribed offenses and accepted the undisputed facts as set out in the settlement notice, the CBI said, which included the application of a 30% discount under the settlement program.
UPDATE (November 6, 1:45 p.m. UTC): Adds Coinbase comments on transaction monitoring system
