Paxos Trust has agreed to pay $26.5 million in fines after compliance failures were found in its partnership with Binance. The investigation was conducted by the New York State Department of Financial Services (NYDFS).
Fine and Reasons
Paxos has agreed to a $26.5 million fine after regulators found deficiencies in anti-money laundering compliance related to the launch of Binance USD (BUSD) in 2018. In addition to the fine, Paxos will invest $22 million to enhance its compliance infrastructure.
Paxos' Response to the Investigation
Paxos cooperated with the inquiry, highlighting that the compliance issues stem from over two years ago and have since been addressed. 'These were historical issues that have been fully remediated. There was no consumer harm, and customer accounts were never impacted,' a Paxos spokesperson stated.
Context and Consequences for Binance
Paxos originally partnered with Binance to launch BUSD, a stablecoin backed one-to-one by U.S. dollars. However, according to the consent order, Paxos relied too heavily on Binance’s assurances regarding geofencing measures to block U.S. users from accessing its unregulated platform. By early 2023, NYDFS ordered Paxos to stop minting BUSD due to concerns over its ongoing relationship with Binance.
The situation surrounding Paxos and its fine from NYDFS highlights the importance of regulatory compliance in the cryptocurrency space and impacts the reputations of both Paxos and Binance.
