Paxos Pledges $48.5M to Resolve NYDFS Compliance Probe Over Binance Partnership

Paxos Trust Company has agreed to a $26.5 million penalty with the New York State Department of Financial Services (NYDFS) over compliance lapses tied to its partnership with Binance on the stablecoin Binance USD (BUSD). The settlement resolves an investigation into Paxos’ anti-money laundering (AML) practices and due diligence when co-launching BUSD in 2018. In addition to the fine, Paxos has committed $22 million to strengthen its compliance infrastructure, bringing the total cost of the resolution to $48.5 million [1].

The NYDFS found that Paxos failed to independently verify Binance’s assurances regarding the implementation of geofencing measures to prevent U.S. users from accessing parts of the exchange that were unregulated. Binance’s Chief Compliance Officer had assured Paxos that such controls were in place, but Paxos accepted this without conducting its own assessment, a lapse NYDFS deemed significant [2].

According to the consent order, the compliance deficiencies identified by regulators date back more than two years and have since been addressed by Paxos. The company emphasized that no consumer harm occurred and that customer accounts were never affected. “These were historical issues that have been fully remediated,” a Paxos spokesperson stated. “We’re pleased to move forward” [3].

The partnership between Paxos and Binance, which began in 2018, saw Paxos acting as the issuer and custodian of BUSD while Binance listed the token on its platform. However, in early 2023, NYDFS ordered Paxos to stop minting BUSD due to ongoing concerns over the relationship with Binance. Paxos subsequently announced plans to wind down the partnership [4].

The case is part of a broader regulatory scrutiny of stablecoin operations. The U.S. Securities and Exchange Commission (SEC) had previously issued a Wells notice to Paxos in 2021, alleging that BUSD may constitute an unregistered security. That investigation was ultimately dropped in 2024 [5].

Binance itself has faced extensive legal challenges, including a $4 billion settlement with the U.S. Department of Justice in 2023 after its former CEO, Changpeng Zhao, pleaded guilty to violating U.S. AML laws. The SEC also sued Binance and Zhao for operating an unregistered exchange, though that case was dismissed in 2024 [6].

The settlement underscores the increasing regulatory expectations for crypto firms, particularly regarding the need for independent due diligence and robust AML controls. As the industry grows and partnerships expand, regulators are placing greater emphasis on ensuring that firms do not rely solely on assurances from third-party partners without independent verification.

Sources:

[1] Yahoo (https://finance.yahoo.com/news/stablecoin-provider-paxos-pay-26-150843888.html)

[2] Theblock.co (https://www.theblock.co/post/366002/paxos-settles-with-new-york-financial-regulator-for-48-5-million-over-involvement-with-binance-busd-partnership)

[5] ny.gov (https://www.dfs.ny.gov/reports_and_publications/press_releases/pr20250806)