Paxos Trust agrees $48.5 million settlement over AML charges connected to Binance

The New York State Department of Financial Services (NYDFS) revealed on Thursday that Paxos Trust has agreed to a $48.5 million settlement for anti-money laundering (AML) lapses and failing to conduct due diligence on Binance.

Paxos Trust to pay $48.5 million in settlement with NYDFS

NYDFS Superintendent Adrienne Harris announced a $48.5 million settlement with Paxos over AML compliance failures and inadequate due diligence on Binance, according to a statement on the agency's website.

The fine comprises a $26.5 million penalty, with an extra $22 million to improve its AML program, based on a plan approved by the agency.

"Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors'" said Superintendent Harris.

The NYDFS claims Paxos's monitoring system was faulty and prevented the company from detecting money laundering schemes from bad actors opening multiple accounts on its platform. The agency also noted that Paxos lacked clear measures for launching investigations in response to law enforcement requests, which made it difficult to trace the bad actors.

Paxos partnered with Binance in 2019 to co-launch the Binance USD (BUSD) stablecoin. Paxos served as the regulated issuer and custodian, while Binance was responsible for marketing and distributing the token to its user base.

NYDFS ordered the company to cease minting BUSD in 2023 due to "safety and soundness" concerns related to Binance. Not long after, Paxos announced it was ending its partnership with the exchange.

The company also faced an investigation from the Securities and Exchange Commission (SEC) over its issuance of BUSD. The regulator issued a Wells notice to Paxos in 2023, alleging that BUSD was an unregistered security. However, the SEC withdrew the notice in 2024.