Paxos to pay $48.5 Million in New York Settlement over Compliance Failure

The New York Department of Financial Services (NYDFS) announced on August 7 that Paxos Trust Company will pay $48.5 million to settle allegations of anti-money laundering lapses tied to its past collaboration with Binance, the cryptocurrency exchange. The resolution includes a $26.5 million civil penalty and spending of $22 million for upgrading the compliance system of Paxos.

“Regulated companies must implement risk management frameworks that match the scale and nature of their business risks, including relationships with third-party vendors and partners,” said Adrienne A. Harris, Superintendent of the NYDFS.

Paxos had entered into an agreement with Binance, the world’s largest crypto exchange, to promote and issue the Binance USD (BUSD) stablecoin. According to NYDFS, Paxos failed to establish adequate controls to detect illicit activity on Binance’s platform and did not escalate warning signs to senior executives or its board of directors.

In 2023, NYDFS ordered Paxos to stop issuing BUSD and opened an investigation into Binance. That probe found that between July 2017 and November 2022, Binance facilitated transactions valued at $1.6 billion linked to illicit actors, including those running Ponzi schemes and operating darknet marketplaces.

The investigation also revealed that Binance processed transactions for entities sanctioned by the United States, ultimately leading to the termination of its partnership with Paxos.

Binance was not party to this case, as it had already pleaded guilty in November 2023 and agreed to pay a $4 billion criminal fine for breaches of anti money laundering and sanctions laws. 

Earlier this year, in May, the U.S. The Securities and Exchange Commission (SEC) dropped its civil case against Binance. The decision is widely viewed as a sign of shifting regulatory priorities for cryptocurrencies under President Donald Trump’s second term.

Paxos issued a statement saying that it was satisfied to reach the settlement. Paxos stressed that it has completely fixed the compliance problems identified by regulators. The company said that customer accounts remained secure throughout, no funds were lost, and no consumers suffered any harm.

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