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.”