Paxos Fines $48.5M for AML Failures in Binance Partnership

Paxos Trust Co. has reached a $48.5 million settlement with the New York State Department of Financial Services (NYDFS) over alleged failures in anti-money laundering (AML) controls and due diligence in its partnership with Binance. The enforcement action, announced on August 7, includes a $26.5 million civil penalty and a $22 million investment in compliance measures aimed at remedying the firm’s shortcomings [1]. The settlement is tied to Paxos’s role as the issuer of the Binance USD (BUSD) stablecoin, a dollar-pegged digital asset, during its collaboration with the now-embattled crypto exchange [2].

According to NYDFS, Paxos failed to perform sufficient due diligence on Binance, particularly between 2017 and 2022, during which the exchange processed approximately $1.6 billion in transactions linked to criminal and blacklisted entities. This lack of oversight allowed potentially illicit activity to go unchecked, violating the regulatory expectations set for licensed financial institutions [3]. The regulator also highlighted significant weaknesses in Paxos’s AML framework, including inadequate know-your-customer (KYC) and customer due diligence (CDD) protocols. These deficiencies allowed users with similar addresses, documents, or ownership structures—often indicative of coordinated illicit activity—to operate on the platform without scrutiny [1].

NYDFS further stated that Paxos lacked effective transaction monitoring systems capable of identifying patterns of suspicious behavior associated with money laundering. Additionally, the firm had no clear criteria for responding to law enforcement requests for investigations, which hindered efforts to detect and address potential violations [3]. These issues, according to the regulator, compromised the integrity of Paxos’s compliance program and exposed the platform to significant financial crime risks.

Adrienne A. Harris, NYDFS Superintendent, emphasized that regulated entities must maintain risk management frameworks commensurate with the scale and nature of their business. The enforcement action, she noted, reflects the regulator’s continued commitment to ensuring accountability and safeguarding market integrity and consumer interests [3].

This settlement follows a series of regulatory actions against Paxos. In February 2023, NYDFS ordered the firm to cease issuing BUSD, leading to the supervised wind-down of its stablecoin operations [3]. The $48.5 million fine is among the largest penalties imposed on a crypto custodian for AML violations and signals a broader intensification of regulatory scrutiny across the digital asset sector.

The case underscores the growing expectations for transparency, due diligence, and operational robustness in the crypto industry. As Paxos allocates resources toward strengthening its compliance infrastructure, the enforcement action serves as a clear warning to other firms operating in the space. Regulators are increasingly prioritizing AML compliance, and failures in this area will continue to face substantial financial and reputational consequences.

Source:

[1] AInvest, [https://www.ainvest.com/news/paxos-payouts-48-5-million-binance-due-diligence-settlement-2508/](https://www.ainvest.com/news/paxos-payouts-48-5-million-binance-due-diligence-settlement-2508/)

[2] AInvest, [https://www.ainvest.com/news/paxos-settles-nydfs-charges-48-5-million-busd-partnership-2508/](https://www.ainvest.com/news/paxos-settles-nydfs-charges-48-5-million-busd-partnership-2508/)

[3] The, [https://www.cryptotimes.io/2025/08/07/paxos-fined-48-5m-by-nydfs-over-binance-and-aml-failures/](https://www.cryptotimes.io/2025/08/07/paxos-fined-48-5m-by-nydfs-over-binance-and-aml-failures/)