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Key Takeaways
- Paxos will pay $48.5 million to settle compliance failures with New York regulators related to its partnership with Binance.
- The company must strengthen its compliance systems after DFS found failures in due diligence and anti-money laundering controls.
Blockchain infrastructure platform Paxos Trust Company has agreed to a $48.5 million settlement deal with the New York State Department of Financial Services (DFS) to resolve anti-money laundering (AML) compliance failures and due diligence lapses related to its former partnership with Binance, according to a Thursday press release.
The settlement includes a $26.5 million civil monetary penalty, as well as an additional $22 million that Paxos will spend to remediate compliance deficiencies and upgrade its systems under a DFS-approved plan over the next three years.
DFS found that Paxos, which partnered with Binance to issue PAX and $BUSD stablecoins in 2018 and 2019, failed to conduct proper due diligence on the crypto exchange, violating a 2020 regulatory agreement, as detailed in a Consent Order.
DFS ordered Paxos to stop minting $BUSD in February 2023, after which Paxos ended its Binance relationship.
Apart from Binance-linked issues, the investigation also uncovered broad cracks in Paxos’s compliance program.
The company’s Know-Your-Customer procedures failed to detect coordinated suspicious behavior. Moreover, its transaction monitoring systems were found to be largely manual and backward-looking, creating delays in detecting suspicious activity.
Under the settlement terms, Paxos must submit a detailed progress report to DFS by November 5, 2025, covering improvements to customer due diligence, Bank Secrecy Act/AML compliance, suspicious activity monitoring, and governance.
“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors,” said Superintendent Harris. “The Department continues taking significant steps to ensure accountability, in turn protecting consumers and safeguarding the integrity of the financial system.”