In February 2023 Paxos Trust was instructed to stop issuing the Binance BUSD stablecoin on behalf of the cryptocurrency exchange. Later that year Binance entered into a $4.3 billion settlement with the Department of Justice over anti money laundering (AML) and other compliance breaches. Now the New York Department of Financial Services (NYDFS) says it has settled a case with Paxos, imposing a $26.5 million penalty and requiring it to invest $22 million to improve its compliance program.
In reality, Paxos has already paid a high price for having Binance as a client – its reputation as one of the most compliant crypto institutions has been damaged. For example, it landed the deal to be custodian for EDX Markets, the institutional crypto brokerage founded by Citadel Securities, Charles Schwab and other big names. But after the Binance case, it was replaced. The publicity and timing around this settlement is also unfortunate amidst a stablecoin boom.
The NYDFS said that Paxos failed to have sufficient controls in place to monitor the illicit activity taking place in Binance. The regulator mentions that Binance processed $1.6 billion in illicit transactions, although that figure does not necessarily represent stablecoin transactions.
However, the NYDFS stated that “In addition to Paxos’s failures related to Binance, the Department’s investigation revealed that Paxos operated a deficient compliance program for years.” It added that Paxos had an unsophisticated KYC and due diligence program.
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