The New York Division of Monetary Companies entered a consent order on January 4, 2023, requiring a big cryptocurrency buying and selling platform to instantly pay a $50 million civil financial penalty and make investments one other $50 million by itself compliance enhancements over the subsequent 24 months. The DFS discovered the corporate violated the Anti-Cash Laundering Act, Financial institution Secrecy Act and New York banking legal guidelines because of deficiencies in its compliance capabilities together with its Know-Your-Buyer/Buyer Due Diligence procedures, Transaction Monitoring System, OFAC screening program, and Anti-Cash Laundering threat assessments.
The DFS had beforehand recognized these deficiencies in 2020, and the cryptocurrency buying and selling platform agreed to remedial efforts at the moment. Nonetheless, the corporate’s compliance techniques couldn’t sustain with the “dramatic and surprising” progress of its enterprise in 2020 and 2021. By the top of that yr, it was overwhelmed with a considerable backlog of greater than 100,000 unreviewed transaction monitoring alerts (lots of which had been months outdated) and greater than 14,000 clients requiring enhanced due diligence. These backlogs left the platform weak to criminals and different dangerous actors.
For instance, as a result of the platform didn’t implement enough KYC/CDD insurance policies and procedures, one buyer fraudulently claiming to be a company worker was in a position to switch $150 million from the company checking account to the platform, convert the cash into cryptocurrency, after which switch the cryptocurrency off the platform. Moreover, the DFS has recognized transactions on the platform that ought to have been stopped and reported to authorities for attainable cash laundering, suspected youngster sexual abuse material-related exercise, and potential narcotics trafficking; however as a result of the Transaction Monitoring System was insufficient, these transactions weren’t prevented nor reported.
Upon coming into the consent order, DFS Superintendent Adrienne A. Harris stated, “It’s crucial that every one monetary establishments safeguard their techniques from dangerous actors, and the Division’s expectations with respect to shopper safety, cybersecurity, and anti-money laundering applications are simply as stringent for cryptocurrency firms as they’re for conventional monetary companies establishments.”