Paxos Penalized $48.5M by NYDFS Over Lax Compliance in Binance Stablecoin Deal
Paxos fined $26.5M, commits $22M to compliance overhaul after NYDFS probes BUSD-related AML failures.
The New York Department of Financial Services (NYDFS) has imposed a $48.5 million settlement on Paxos, a blockchain infrastructure firm, over serious compliance lapses linked to its now-terminated relationship with Binance. The move comes after investigations uncovered that approximately $1.6 billion in illicit transactions passed through Binance USD (BUSD), a stablecoin issued by Paxos.
The settlement breaks down into a $26.5 million civil penalty and a $22 million pledge from Paxos to revamp its internal compliance mechanisms. This overhaul is intended to address regulatory shortcomings in anti-money laundering (AML) and know-your-customer (KYC) controls that NYDFS deemed insufficient.
Paxos stopped minting BUSD in February 2023 following pressure from NYDFS. Binance, in turn, gradually phased out support for the token. According to NYDFS, Paxos had failed to conduct proper and ongoing due diligence on Binance, even as billions of dollars moved through the platform. NYDFS also revealed that Paxos was not authorized to issue the Binance-Peg BUSD tokens circulating on blockchains other than Ethereum.
In response to the regulatory action, a Paxos spokesperson said the settlement resolves “historical compliance matters” stemming from the company’s past collaboration with Binance. The firm stressed that the identified issues had been fully remediated over the past two and a half years, without any impact on customer accounts or the dollar peg of the BUSD.
Adrienne A. Harris, Superintendent of NYDFS, underlined the importance of sound risk management practices in the crypto industry, stating that licensed firms must maintain robust oversight of their partners and third-party relationships. This case illustrates regulators' growing insistence that crypto companies meet traditional financial compliance standards.
The Paxos settlement adds to the mounting regulatory scrutiny in the digital assets sector. In addition to NYDFS, the U.S. Securities and Exchange Commission (SEC) has also taken aim at the company. Earlier this year, the SEC issued Paxos a Wells Notice, signaling potential enforcement action. The agency alleges that Paxos distributed unregistered securities and failed to protect consumers in its handling of BUSD.
As regulators tighten the noose on crypto firms, the Paxos-Binance saga is a reminder that regulatory compliance is not optional, even in the decentralized world of blockchain finance.
