Paxos Pleases NYDFS with $48.5 Million AML Compliance Settlement

Paxos Trust Company, a major blockchain infrastructure provider, has agreed to a $48.5 million settlement with the New York Department of Financial Services (NYDFS) to resolve allegations of anti-money laundering (AML) compliance failures, particularly linked to its former partnership with Binance, one of the world’s largest cryptocurrency exchanges [1]. The settlement includes a $26.5 million civil penalty and $22 million earmarked for remediation efforts over the next three years, as outlined in a DFS-approved compliance plan [2].

The NYDFS investigation revealed that Paxos failed to conduct adequate due diligence on Binance, neglected to monitor transactions effectively, and delayed the reporting of suspicious activities [2]. These shortcomings were found to violate a 2020 regulatory agreement and were most pronounced during the Binance collaboration, where customer verification processes were found to be insufficient [1]. The regulator also noted broader weaknesses in Paxos’s compliance framework, including Know-Your-Customer (KYC) procedures that failed to detect coordinated suspicious behavior and transaction monitoring systems that were largely manual and reactive [2].

DFS ordered Paxos to cease minting Binance-pegged stablecoin BUSD in February 2023, following which Paxos terminated its relationship with the exchange [2]. The case reflects a growing trend of regulatory enforcement in the crypto sector, where authorities are increasingly holding firms accountable for lapses in compliance. The settlement signals a shift from advisory guidance to active enforcement, demonstrating that even well-established crypto entities are not immune to legal consequences for noncompliance [1].

The enforcement action also highlights the risks associated with third-party partnerships and the necessity of robust internal controls. Experts note that the case underscores the importance of adopting proactive strategies, such as advanced monitoring systems and independent audits, to mitigate legal and reputational risks [1]. For Paxos, the settlement represents a significant financial and reputational blow, serving as a cautionary tale for the broader industry.

As the crypto sector matures, firms must align with the stringent compliance expectations of traditional financial markets. The case reinforces the need for transparency, accountability, and rigorous operational standards—especially in high-risk or cross-border activities. Regulators have made it clear that they will continue to enforce AML standards rigorously, and the Paxos settlement sets a precedent for future enforcement actions [1].

Source:

[1] Paxos Settlement: A Staggering $48.5 Million Fine Signals Tougher Crypto Regulation (https://www.ainvest.com/news/paxos-pays-48-5-million-aml-compliance-failures-binance-partnership-2508/)

[2] Paxos to pay $48 million in New York settlement over AML compliance failures (https://cryptobriefing.com/paxos-binance-settlement-compliance-failures/)

[3] DFS has secured a $48.5 Million settlement with Paxos Trust Company for anti-money laundering deficiencies and diligence failures (https://beincrypto.com/regulator-announces-48-5-million-settlement-with-paxos-amid-binances-aml-woes/)