Paxos Pleases NYDFS with $48.5M Settlement Over Binance AML Failures

Paxos Trust Company has reached a $48.5 million settlement with the New York Department of Financial Services (NYDFS) to resolve allegations of anti-money laundering (AML) and Know Your Customer (KYC) compliance failures tied to its former partnership with cryptocurrency exchange Binance [1]. The settlement, announced on August 7, 2025, includes a $26.5 million penalty to New York State and a $22 million investment by Paxos to strengthen its compliance infrastructure [2]. The violations were linked to the issuance of Binance USD (BUSD) between 2019 and 2023, during which the firm failed to implement sufficient controls to detect and prevent illicit financial activity [3].

According to NYDFS, Paxos’ compliance program was characterized by “deficient” oversight and an “unsophisticated” KYC framework, resulting in approximately $1.6 billion in suspicious transactions going undetected [1]. The regulator further noted that internal red flags regarding unusual activity were not escalated to senior management, highlighting a critical failure in the firm’s risk management processes [4]. The enforcement action signals a growing regulatory emphasis on ensuring that digital asset firms maintain robust compliance frameworks, especially in cross-partner collaborations [1].

The investigation into Paxos began over two years ago, with NYDFS ordering the company to stop issuing BUSD in February 2023 [1]. Around the same time, the U.S. Securities and Exchange Commission (SEC) issued a Wells notice to Paxos, suggesting potential enforcement action over securities law violations. However, the SEC dropped its case in 2024 [1]. A Paxos spokesperson has described the compliance lapses as “historical” and stated that they were fully resolved over two and a half years ago [1]. The spokesperson also emphasized that no customer accounts were affected and no consumer harm occurred as a result of the violations [1].

The settlement with NYDFS underscores the increasing regulatory focus on AML and KYC requirements in the crypto sector. NYDFS Superintendent Adrienne Harris emphasized the need for regulated entities to maintain risk management frameworks that align with their business risks, particularly in relationships with third-party vendors [1]. As the case illustrates, even firms with strong market positions can face significant financial and reputational consequences for failing to meet evolving compliance expectations.

Industry observers note that the enforcement action could serve as a precedent for future regulatory actions against digital asset firms. The decline in BUSD usage following the enforcement action has also prompted a shift in liquidity toward more regulated stablecoins, reflecting investor preference for compliance-conscious assets [1]. The broader regulatory environment continues to evolve, with Paxos’ settlement reinforcing the expectation that firms must proactively address compliance challenges to maintain trust and regulatory alignment [1].

Source:

[1] AInvest, “Paxos Pleases NYDFS with $48.5M Settlement Over Binance Compliance Lapses,” https://www.ainvest.com/news/paxos-pleases-nydfs-48-5m-settlement-binance-compliance-lapses-2508/

[2] BraveNewCoin, “Paxos Hit with $48.5 Million Fine for Anti-Money Laundering Failures in Binance Partnership,” https://bravenewcoin.com/insights/paxos-hit-with-48-5-million-fine-for-anti-money-laundering-failures-in-binance-partnership

[3] FinTech Weekly, “Paxos Agrees $48.5 Million New York Settlement Over...,” https://www.fintechweekly.com/magazine/articles/paxos-48m-new-york-binance-aml-settlement

[4] Reuters via MSN, “Paxos Trust in $48.5 million New York settlement over...,” http://www.msn.com/en-us/money/companies/paxos-trust-in-48-5-million-new-york-settlement-over-binance-related-lapses/ar-AA1K6hO1?apiversion=v2&batchservertelemetry=1&domshim=1&noservercache=1&noservertelemetry=1&renderwebcomponents=1&wcseo=1