The New York Department of Financial Services (NYDFS) has reached a $48.5 million settlement agreement with the cryptocurrency infrastructure company Paxos due to its partnership with Binance and failure to implement adequate anti-money laundering measures.
According to a Thursday announcement, Paxos agreed to pay $26.5 million in fines to the state of New York and will invest an additional $22 million to improve its compliance program.
The NYDFS stated that Paxos failed to conduct regular due diligence on Binance, leading to approximately $1.6 billion in illegal fund flows generated through its stablecoin, Binance USD (BUSD).
Regulators ordered Paxos to stop issuing the stablecoin in February 2023. NYDFS Superintendent Adrienne A. Harris noted:
"Regulatory entities must maintain an appropriate risk management framework to address their business risks, including relationships with business partners and third-party vendors."
Anti-money laundering regulations and know your customer (KYC) regulations have become hot topics in the cryptocurrency industry, with many companies seeking to clarify their legal responsibilities.
Paxos faces opposition from the SEC and NYDFS regarding the Binance stablecoin.
The U.S. Securities and Exchange Commission (SEC) issued a Wells notice to Paxos in February 2023, warning of potential legal action involving the BUSD stablecoin.
The SEC has charged Paxos with issuing "unregistered securities" and violating consumer protection laws by issuing the stablecoin in partnership with Binance.
This matter is still developing, and updates will be provided as information becomes available.
