The New York State Department of Financial Services has announced that it has reached a settlement with Coinbase, one of the world's largest cryptocurrency exchanges, after finding that the company had violated anti-money laundering laws by failing to conduct proper background checks.

As part of the settlement, Coinbase will pay a fine of $50 million and will be required to invest an additional $50 million in improving its compliance program.

DFS found Coinbase treated its onboarding requirements for customers as a "simple check-the-box" and had not done sufficient background checks, DFS said in a statement.

The company's rapid growth in 2021, which saw signups increase 15-fold from January 2020 to May 2021 and monthly transactions rise 25-fold over the same period, contributed to a backlog of over 100,000 unreviewed transaction monitoring alerts and a backlog of 14,000 users requiring enhanced due diligence.

Despite laying off 18% of its workforce (or 1,100 people) in June 2022, Coinbase struggled to keep up with the growing compliance needs, relying on a large number of contractors who were inadequately trained and oversaw, leading to a high rate of errors in the alerts they reviewed.

The investigation into Coinbase's practices was initiated in May 2020, when regulators discovered significant deficiencies in the company's compliance programs, including its transaction monitoring systems, anti-money laundering risk assessments, and customer due diligence procedures.