Coinbase: Rishi Sunak met with crypto firm ordered to pay $100m over anti money laundering compliance failures
Despite the collapse of FTX and probes into other crypto companies, the government has reiterated its ambition for the UK to become a ‘global crypto hub’
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Rishi Sunak and senior ministers met with a crypto-asset company last year, which has just reached a nine-figure settlement with US regulators over money-laundering compliance failures.
Last week, Coinbase agreed to pay out $100 million (£82m) to settle a complaint from the New York State Department of Financial Services, after an investigation found that the company’s anti money laundering systems had left the exchange “vulnerable to serious criminal conduct”. The crypto firm had to pay a fine of $50 million to New York State, and invest $50 million in compliance measures.
The government has sought to position the UK as a “global hub for crypto-asset technology,” but the sector was rocked by the collapse of high-profile exchange FTX in November and is now facing intensified scrutiny.
This comes after NationalWorld revealed that ministers met with crypto exchange company Binance twice last year, while the firm was the subject of an ongoing criminal investigation in the US and following a consumer warning about Binance from the UK’s Financial Conduct Authority.
Eight meetings in a year between Coinbase and ministers
Since December 2021, Coinbase has met with government ministers at least eight times, including two discussions with then-Chancellor Rishi Sunak.
Sunak met with Coinbase on 15 December 2021, to discuss “UK and global technology issues and opportunities,” and again in June 2022, to discuss “financial services in the UK,” according to government transparency releases.
Coinbase was one of several firms that met with then-economic secretary John Glen in the first quarter of 2022, before he announced in April that the UK would seek to become “the very best place in the world to start and scale crypto-companies”.
Glen met with Coinbase on 9 February, prior to the speech on 4 April, in which he also announced that the government would legislate for some ‘stablecoins’ to be recognised as a legitimate payment method in the UK.
Coinbase was part of a roundtable involving a number of other crypto-asset firms on 11 April, though Glen would have further one-on-one meetings with the firm twice in that week. Transparency releases only state that the meetings were held to discuss crypto-assets.
Steve Goodrich, head of research and investigations at Transparency International UK, said: “Transparency over who is lobbying ministers – and why – is an essential safeguard against potential wrongdoing, but the data currently provided by the UK government leaves a lot to be desired.
“Providing vague or generic descriptions of what was discussed in meetings with lobbyists is against the government’s own rules but time and time again we see these submitted in the transparency data. A complete overhaul of the UK’s lobbying rules is urgently needed to restore public trust in our politics and bring lobbying out of the shadows.”
More recently, the company met with Lord Grimstone, a minister at the Department for International Trade, on 28 June, to discuss “investment opportunities” and later with financial secretary Andrew Griffith on 29 September, as part of a roundtable discussion with a number of crypto-asset firms.
Simon Youel, head of policy and advocacy at the Positive Money think tank, said: “Despite the issues with the industry becoming clearer every day, the government still struggles to put forward use cases for crypto-assets that justify the hype, or benefits for the public that outweigh the costs.
“It is deeply concerning that the endless stream of scandals doesn’t seem to have calmed the government’s fervour to turn the UK into a guinea pig for the crypto industry.”
Speaking to MPs on the Treasury select committee on Tuesday (10 January), Griffith said he has spent more time focussing on the crypto-asset industry than any other sector and reaffirmed the government’s commitment to becoming a world-leader in crypto-assets.
Griffith was asked by Labour MP Emma Hardy how worried he is about people in the UK losing “life-changing amounts of money through crypto failures or scams”.
He said: “I am worried about that, but my worry would not be if they’ve done that in a knowing environment as sentient well-informed takers of risk, that is endemic in a financial system, my worry would be if they’ve fallen victim to an unregulated financial promotion or if they’ve misunderstood the status, in terms of the UK regulatory system, the kitemark of being FCA-regulated, or their access to the financial ombudsman scheme.”
Laura Mountford, deputy director of payments and fintech at the Treasury, added that the FCA estimates that only around 40% of UK users “understand or consider that they are purchasing crypt-assets as a gamble”.
Why was Coinbase fined by regulators?
Coinbase is a US-based crypto company which is among the largest exchanges in the sector. Last week, it was reported that the firm had settled a complaint with regulators at the New York State Department of Financial Services (DFS) relating to anti money laundering compliance.
The DFS confirmed that Coinbase would pay a fine of $50 million and a further $50 million on a two-year programme to improve its compliance systems.
Regulators say the company had allowed a backlog of more than 100,000 unreviewed transactions and 14,000 enhanced due diligence checks to build up. The DFS highlighted a case of a customer who had been allowed to set up an account without being designated as high risk despite having been charged with child sexual abuse crimes in the 1990s.
Failures in its compliance measures left Coinbase,“ vulnerable to serious criminal conduct, including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking,” it said.
Chief legal officer at Coinbase, Paul Grewal said the company “has taken substantial measures to address these historical shortcomings and remains committed to being a leader and role model in the crypto space”.
A government spokesperson said: “The UK is committed to creating a regulatory environment in which firms can innovate, while crucially maintaining financial stability and regulatory standards so that people and businesses can use new technologies both reliably and safely. Recent events in the crypto market reinforce the case for timely, clear and effective regulation.
“The government has already taken steps to bring certain crypto-asset activities into the scope of UK regulation – and is considering further proposals for a broader regulatory regime.”