Paxos Trust has reached a settlement to pay $48.5 million to the New York Department of Financial Services. The settlement resolves allegations that it failed to adequately monitor illicit activity associated with its former partnership with Binance.
Partnership with Binance and Its Consequences
The NYDFS investigation focused on Paxos's prior role in issuing Binance USD (BUSD), a U.S. dollar-backed stablecoin. From 2019 until early 2023, Paxos served as the regulated entity responsible for minting and redeeming BUSD under New York oversight.
However, the regulator noted ‘systemic failures’ in Paxos's anti-money laundering program and a lack of effective mechanisms to monitor suspicious activity on Binance's platform. Reports indicated that between July 2017 and November 2022, approximately $1.6 billion in transactions on Binance were linked to illicit actions.
Regulatory Issues for Binance
Binance itself was not named in the NYDFS case, but it has faced regulatory challenges globally. In November 2023, the exchange pleaded guilty to violating U.S. AML and sanctions laws and agreed to pay $4.32 billion in criminal penalties.
Initially, the SEC filed a civil lawsuit against Binance, but the case was later dismissed, reflecting a more restrained approach to crypto enforcement.
Paxos's Future Plans
Paxos now joins a list of crypto companies penalized for compliance deficiencies. However, it has maintained partnerships with PayPal and Mastercard and continues to expand its regulated blockchain infrastructure services.
With the $48.5 million penalty now settled, the company appears focused on distancing itself from its past with Binance and reinforcing its trusted position in the market.
The settlement with NYDFS highlights the importance of regulatory compliance within the cryptocurrency industry and illustrates changes in the market. Despite challenges, Paxos continues to develop its services and aims to strengthen its reputation.
