Blockchain infrastructure provider Paxos has reached a $48.5 million settlement with New York regulators over anti-money laundering (AML) failures linked to its partnership with Binance.
As part of the settlement with the New York State Department of Financial Services, Paxos will pay a $26.5 million penalty and invest an additional $22 million to enhance its compliance program.
Paxos had previously partnered with Binance to market and distribute the BUSD stablecoin. The NYDFS reported that Paxos did not conduct adequate due diligence on its former partner, leading to systemic failures in its AML program. This included ineffective monitoring for illicit activities and failure to escalate red flags to senior management.
A review of Binance transactions from 2017 to 2022 indicated that $1.6 billion in transactions were linked to illicit actors, and Binance had processed transactions involving entities sanctioned by the U.S. Office of Foreign Assets Control.
NYDFS Superintendent Adriene Harris stated, “Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors.”
In response, a Paxos spokesperson noted, “Paxos has reached an agreement with the NYDFS regarding historical compliance matters related to the prior partnership with Binance. The agreement includes a $26.5 million monetary penalty. For clarity, the compliance issues discussed are historical and were identified over two and a half years ago, having been fully remediated since. These matters did not affect customer accounts, and there was no consumer harm. We are pleased to resolve this matter and move forward.”