Paxos to pay $48 million in New York settlement over AML compliance failures

Key Takeaways

Paxos will pay $48.5 million to settle compliance failures with New York regulators related to its partnership with Binance.
The company must strengthen its compliance systems after DFS found failures in due diligence and anti-money laundering controls.

Blockchain infrastructure platform Paxos Trust Company has agreed to a $48.5 million settlement deal with the New York State Department of Financial Services (DFS) to resolve anti-money laundering (AML) compliance failures and due diligence lapses related to its former partnership with Binance, according to a Thursday press release.

The settlement includes a $26.5 million civil monetary penalty, as well as an additional $22 million that Paxos will spend to remediate compliance deficiencies and upgrade its systems under a DFS-approved plan over the next three years.

DFS found that Paxos, which partnered with Binance to issue PAX and BUSD stablecoins in 2018 and 2019, failed to conduct proper due diligence on the crypto exchange, violating a 2020 regulatory agreement, as detailed in a Consent Order.

DFS ordered Paxos to stop minting BUSD in February 2023, after which Paxos ended its Binance relationship.

Apart from Binance-linked issues, the investigation also uncovered broad cracks in Paxos’s compliance program.

The company’s Know-Your-Customer procedures failed to detect coordinated suspicious behavior. Moreover, its transaction monitoring systems were found to be largely manual and backward-looking, creating delays in detecting suspicious activity.

Under the settlement terms, Paxos must submit a detailed progress report to DFS by November 5, 2025, covering improvements to customer due diligence, Bank Secrecy Act/AML compliance, suspicious activity monitoring, and governance.

“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 Department continues taking significant steps to ensure accountability, in turn protecting consumers and safeguarding the integrity of the financial system.”

Paxos reaffirms commitment to oversight after NYDFS agreement

In a statement, Paxos said the compliance issues were identified more than two and a half years ago, have since been fully resolved, and have not affected its customers.

“Paxos has reached an agreement with the NYDFS in response to historical compliance matters, including the prior partnership with Binance,” a company spokesperson said. “For the avoidance of doubt, the compliance issues discussed are historical issues that were identified over two and a half years ago and have since been fully remediated. These matters had no impact on customer accounts, and there was no consumer harm. This marks the resolution of this matter, and we are pleased to put it behind us.”

The firm also emphasized its long-standing focus on compliance and regulatory oversight.

“Paxos was founded on a deep belief in adherence to regulation and compliance, and we have invested significant resources in building a best-in-class compliance operation,” the spokesperson said. “No other blockchain and tokenization platform has shown more dedication to seeking oversight and complying with global institutional standards as Paxos has done for over a decade — and we are committed to maintaining that moving forward.”

AUG 8, 7:30 PM: Updated with Paxos statement.