After facing a huge backlash from the crypto community over its recent acquisition of blockchain analytics firm Neutrino, Coinbase has announced employees who worked with the controversial Hacking Team will not have any future role at the company. CEO Brian Armstrong said his company had a “gap in its diligence process” that led to the decision.
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Coinbase has faced severe criticism on- and offline after acquiring Neutrino to assist with regulatory (namely KYC-AML) compliance. Customers fearing for their privacy led a #deletecoinbase campaign which apparently has had an impact on management at the exchange.
At issue was a number of Neutrino staff who had previously worked with Hacking Team, an Italian surveillance technology group that achieved notoriety in the early 2010s for selling its products to governments with poor human rights records to identify and monitor journalists and other critics.
As if that wasn’t enough, Coinbase then claimed they’d acquired a new analytics firm because a previous provider had secretly sold its customer data. The backlash spread wide on social media platforms, and included high-profile members of the community publicly deleting their Coinbase accounts.
‘Gap in Diligence Process’ Led to Neutrino Oversight
In a Medium post this week, Coinbase CEO Brian Armstrong explained his company was in a difficult position — enabling access to cryptocurrency brought extra regulatory requirements in order to interface with the legacy financial world. To perform know-your-customer and anti-money-laundering (KYC-AML) duties meant blockchain analysis to trace any suspicious funding sources.
Despite finding Neutrino to be the most suitable company for the job, Armstrong said Coinbase had not performed adequate due diligence on its employees’ backgrounds. Neutrino employees at the center of the scandal would not play any part in Coinbase’s business, he said.
“While we looked hard at the technology and security of the Neutrino product, we did not properly evaluate everything from the perspective of our mission and values as a crypto company. We took some time to dig further into this over the past week, and together with the Neutrino team have come to an agreement: those who previously worked at Hacking Team (despite the fact that they have no current affiliation with Hacking Team), will transition out of Coinbase.”
Coinbase, he wrote, remained committed to being “the most secure, trusted and legally compliant bridge to cryptocurrency” while still believing in crypto’s core principles of individual liberty and a more open financial system.
Between a Rock and a Hard Place
The company, like other new players in the financial world, often finds itself torn between efficiency and privacy for customers and the legal requirements that come with being a prominent upstart. A single slip-up or accusation of criminal activity could invite harsh regulatory action beyond that a “traditional” bank may experience.
In many ways it reflects the environment companies like PayPal have faced for decades, leading them to impose restrictive policies like account freezes over minor irregularities and typos.Such actions frustrate customers who then accuse the providers of poor service and of not abiding by their initial principles.
Any successful company in the crypto space — at least, until the hypothetical future date when cryptocurrency users no longer need to trade their assets for “real” national currencies — will face similar conditions. However, several will now likely take a closer look at the ways they go about achieving those compliance standards.
Are you a Coinbase account holder? Does this announcement change your mind on recent events, or not? Let us know in the comments.
Images via Pixabay, Twitter
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