NYDFS Secures $48.5M Settlement with Paxos Over Binance Compliance Failures

The New York State Department of Financial Services (NYDFS) has reached a $48.5 million settlement with Paxos Trust Company over its failure to monitor illicit activity tied to its partnership with Binance, one of the world’s largest cryptocurrency exchanges. The settlement includes a $26.5 million fine and a $22 million commitment from Paxos to enhance its compliance infrastructure [1]. The NYDFS found that Paxos did not have adequate systems in place to detect or report suspicious transactions, despite its obligation to do so as a licensed crypto entity.

The regulator’s investigation revealed that between 2017 and 2022, $1.6 billion in suspicious transactions flowed through Binance, with some involving entities sanctioned by the U.S. government. Paxos failed to escalate these concerns to its senior leadership or board, even when clear warning signs were present [1]. For example, it did not report Binance’s use of weak geo-blocking measures to allow U.S. users access to its unregulated platform.

In 2019, Paxos partnered with Binance to issue the stablecoin Binance USD (BUSD), which became a regulatory focal point. By 2023, DFS had ordered Paxos to cease minting BUSD, prompting similar global actions against Binance. The regulator also found that Paxos lacked clear protocols for responding to law enforcement requests and had an insufficient compliance team to manage modern crypto risks [1].

The compliance failures extended beyond Binance-related issues. Paxos’s onboarding process failed to detect accounts with shared personal information or addresses, raising money laundering concerns. Its transaction monitoring tools were described as “unsophisticated,” unable to identify clear indicators of fraud or criminal activity [1].

As part of the settlement, Paxos must now invest in improved compliance tools, including transaction monitoring, customer onboarding, and law enforcement cooperation. DFS Superintendent Adrienne Harris emphasized the importance of the enforcement action, stating that it reinforces the need for crypto firms to take their compliance obligations seriously. “The Department continues taking significant steps to ensure accountability, in turn protecting consumers and safeguarding the integrity of the financial system,” she said [1].

This settlement comes after the U.S. Securities and Exchange Commission (SEC) closed its probe into Paxos’s BUSD stablecoin in 2024, following a Wells Notice issued in 2023. The case illustrates the growing scrutiny of crypto firms and the regulatory emphasis on AML compliance. Paxos’s inability to detect and respond to known risks highlights the need for stronger oversight and more sophisticated systems within the industry [1].

Source:

[1] Cryptonews (https://cryptonews.com/news/new-york-regulator-secures-48-5m-settlement-from-paxos-over-binance-dealings/)