Paxos has reached a $48.5 million settlement with the New York Department of Financial Services (NYDFS) over anti-money laundering (AML) lapses and inadequate due diligence related to its partnership with Binance. The settlement includes a $26.5 million civil penalty and an additional $22 million to be invested in enhancing Paxos's AML compliance programs.
Paxos partnered with Binance in 2019 to issue and distribute the Binance USD (BUSD) stablecoin, with Paxos acting as the regulated issuer and custodian.
NYDFS found significant deficiencies in Paxos’s AML controls, particularly failures to detect and report suspicious transactions linked to illicit activity on Binance’s platform, including Ponzi schemes etc.
From July 2017 to November 2023, approximately $1.6 billion in transactions on Binance involved actors engaged in illicit activities, which Paxos failed to monitor effectively.
In February 2023, NYDFS ordered Paxos to cease issuing BUSD due to "safety and soundness" concerns related to Binance. Subsequently, Paxos ended its partnership with Binance.
Paxos stated these compliance issues are historical and have been fully remediated, with no impact on customer accounts or consumer harm. NYDFS described this settlement as a resolution of past concerns.
The settlement mandates that Paxos improve user identification, transaction monitoring using advanced systems, staff training, and timely regulatory reporting to prevent future AML compliance failures.
This settlement represents one of the largest penalties in recent years imposed on a crypto firm by a U.S. state regulator, signaling heightened regulatory scrutiny in the crypto industry, especially concerning AML practices and partnerships with major exchanges like Binance.
Paxos has affirmed its commitment to regulatory compliance and stringent oversight as a foundation for its business going forward.
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