Central Bank of Ireland Fines Coinbase $24.6M for Anti-Money Laundering Failures

The Central Bank of Ireland has fined Coinbase Europe €21.4 million ($24.6M) for breaching its anti-money laundering (AML) and counter terrorist financing transaction monitoring obligations between 2021 and 2025, the bank said on Thursday in a press release.

Coinbase Europe has been fined due to faults 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 over €176 billion ($203bn), and accounted for approximately 31% of all Coinbase Europe transactions conducted in the period when the faults existed, it said.

The Irish central bank went on to say that it took Coinbase Europe almost three years to fully complete the monitoring of the impacted transactions. This subsequent monitoring led to the reporting of 2,708 Suspicious Transaction Reports (STR) with the national Financial Intelligence Unit for further analysis and potential 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 that opportunity,” said Central Bank of Ireland deputy governor Colm Kincaid in a statement.

The STRs submitted in respect of the late monitoring of the transactions contained suspicions associated with serious criminal activities including: money laundering; fraud/scams; drug trafficking; cyber-attacks (malware/ransomware); and child sexual exploitation.

“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. This is why it is especially important that firms engaged in crypto services have robust controls in place to identify and report suspicious transactions,” Kincaid said.

In June of this year, Coinbase moved its regulatory base from Ireland to Luxembourg, where the exchange now holds a license under Europe’s 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 firm to have encountered difficulties with CBI, the people said.

Asked about the situation with BoI in a recent interview, Coinbase’s VP of international policy Tom Duff Gordon said there wasn’t one particular reason the exchange left Ireland for Luxembourg, which he pointed out has a relatively mature set of laws, particularly around areas like tokenization.

Regarding the Irish central bank, Duff Gordon said:

“At the top of the bank, let's just say that historically they have not necessarily seen the kind of value of this industry. I think that is changing though, and I think they've been on a journey on the topic. If you look at the speeches that policy people have made over the last year and a half, I think they're now becoming much more positive about the evolution of this market. But certainly they tend towards the more conservative side.”

In a response following the fine, Coinbase said it had built a Transaction Monitoring System (TMS), that 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 screen all transactions in 2021 and 2022," Coinbase said.

"For example, crypto addresses separated by special characters were overlooked by these scenarios. These coding errors did not impact the other TMS scenarios that screened transactions, or Coinbase’s complementary compliance controls."

Coinbase Europe has admitted the prescribed contraventions and has agreed to the undisputed facts as set out in the Settlement Notice, the CBI said, which included the application of a 30% settlement scheme discount.

UPDATE (Nov. 6, 13:45 UTC): Adds Coinbase comments on transaction monitoring system