A popular cryptocurrency exchange has been found guilty of violating anti-money laundering laws due to its failure to conduct adequate background checks. As a result, the cryptocurrency company must pay a fine of $50 million to the New York State Department of Financial Services. In addition, it must spend $50 million to improve its compliance program.
State regulators first discovered the problems with the cryptocurrency exchange during a routine supervisory examination in May 2020. As a result, the Department of Financial Services found deficiencies in several compliance programs. These programs included transaction monitoring systems, customer due diligence procedures, anti-money laundering risk assessments, and the Office of Foreign Assets Control (OFAC). The regulators also found problems with how the cryptocurrency exchange retained its records and books and reported to the state department.
During its investigation, the Department of Financial Services discovered that the company had built up a backlog of more than 100,000 transaction monitoring alerts that went without review. In addition, the company had a backlog of 14,000 users that required enhanced due diligence.
The exchange claimed it had such huge backlogs because of the considerable growth it experienced in 2021, seeing fifteen times the signups in May 2021 than in January 2020. As a result, by November 2021, the exchange had 25 times its monthly transactions in January 2020.
The regulators stated that the currency exchange didn’t have sufficient personnel to meet its increased compliance needs. However, the cryptocurrency exchange laid off 18% of its workforce in June 2022. Its CEO stated that the layoffs happened because of over-hiring after the significant increase in business in 2021.
The filing stated that over 1,000 third-party contractors made it possible for the company to catch up on the backlog, not the company’s full-time employees. Furthermore, regulators discovered that the cryptocurrency exchange failed to train or adequately oversee the contractors. According to the filing, this failure resulted in many of the alerts the third parties reviewed containing errors.
Because of these inaccuracies, the company did not report possible occurrences of money laundering, CSAM-related activity, and narcotics trafficking to authorities. The filing also says that the cryptocurrency exchange has known of its failure to meet state standards for financial terrorism compliance and money laundering since 2018. Furthermore, the company allegedly tried correcting the problems but proved slow to act. As a result, it did not progress in some areas until recently.
This case shows how important it is for companies to perform adequate background checks. In this case, it is crucial to run such checks on employees and, when required, on their customers. Failure to conduct these background checks can result in fines or other penalties. Therefore, the best way to comply with regulations concerning required background checks is to partner with a background check company you can trust.
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