Paxos Hit With $48M Fine for AML Compliance Lapses
Paxos Settles with New York Over Compliance Failures
Paxos Trust Company, a blockchain infrastructure platform, has reached a $48.5 million settlement agreement with the New York State Department of Financial Services (DFS). This resolves issues related to anti-money laundering (AML) compliance failures and due diligence lapses, especially concerning its past partnership with Binance, according to a press release issued Thursday.
The settlement includes a $26.5 million civil monetary penalty. Paxos will also allocate an additional $22 million to correct compliance deficiencies and enhance its systems over the next three years, under a plan approved by the DFS.
Key Compliance Issues
- DFS determined that Paxos, in its partnership with Binance to issue PAX and BUSD stablecoins between 2018 and 2019, failed to conduct adequate due diligence on the crypto exchange.
- This failure violated a 2020 regulatory agreement, as detailed in the Consent Order.
- In February 2023, DFS directed Paxos to cease minting BUSD, leading to the end of its relationship with Binance.
The investigation extended beyond the Binance connection, revealing wider problems within Paxos’s compliance framework.
Specific Deficiencies
- Know-Your-Customer (KYC) procedures failed to detect coordinated suspicious activities.
- Transaction monitoring systems were largely manual and retrospective, which delayed the identification of suspicious behavior.
Paxos is required to submit a detailed progress report to DFS by November 5, 2025. This report must outline improvements in customer due diligence, Bank Secrecy Act/AML compliance, suspicious activity monitoring, and overall governance.
Superintendent Harris stated that regulated entities must maintain risk management frameworks that align with their business risks, including those associated with business partners and third-party vendors. He added that the Department is committed to ensuring accountability to protect consumers and the financial system's integrity.
Paxos' Response
Paxos stated that the compliance issues were identified over two years ago and have since been fully resolved without affecting customers.
A Paxos spokesperson said that the firm has reached an agreement with the NYDFS regarding historical compliance matters, including the Binance partnership. The spokesperson emphasized that these issues are historical, identified more than two and a half years ago, and have been fully remediated, with no impact on customer accounts or consumer harm.
The company underscored its ongoing commitment to compliance and regulatory oversight.
The spokesperson affirmed Paxos' dedication to regulation and compliance, noting significant resources invested in building a best-in-class compliance operation. Paxos commits to maintaining regulatory compliance moving forward.