Paxos Trust has agreed to a payout of $48.5 million after New York regulators reported the company’s insufficient measures against illegal activity on the Binance platform.
Violations by Paxos in Collaboration with Binance
The New York Department of Financial Services stated that Paxos Trust did not take adequate steps to prevent illegal transactions while working with Binance. The company previously helped issue Binance USD, a digital currency pegged to the U.S. dollar.
Regulators noted that Paxos lacked proper systems to identify suspicious transactions and failed to report issues to management.
As a result, approximately $1.6 billion in transactions flowed through Binance from 2017 to 2022, linked to scams and users on sanction lists.
Financial Consequences for Paxos Trust
As part of the settlement, Paxos Trust will pay a fine of $26.5 million and will allocate an additional $22 million to improve its compliance systems. New York officials emphasized the seriousness of the issues at Paxos, indicating a broader lack of controls within the company.
Paxos stated that no customer accounts were affected and that the concerns raised by the state have been addressed.
Situation of Binance and Legal Ramifications
Binance was not charged in this case, but it faces other legal challenges. In late 2023, Binance admitted to violating federal regulations and agreed to pay over $4 billion in fines for violations of anti-money laundering and sanctions laws.
Moreover, a separate case against Binance was paused, indicating New York’s intent to hold crypto companies accountable.
The settlement with Paxos Trust highlights the increasing scrutiny of the cryptocurrency industry and the need for stricter regulatory oversight of financial institutions.
