The New York Department of Financial Services (NYDFS) reached a $48.5 million settlement with crypto infrastructure company Paxos over its partnership with the Binance crypto exchange and failure to uphold sufficient anti-money laundering provisions.
Paxos has agreed to pay the state of New York a $26.5 million penalty and will spend an additional $22 million to overhaul its compliance program, according to Thursday’s announcement.
NYDFS said Paxos failed to conduct regular due diligence on Binance and saw about $1.6 billion in illicit flows from and to the crypto exchange via its stablecoin Binance USD (BUSD).
The regulator ordered Paxos to stop distributing the stablecoin in February 2023. NYDFS superintendent Adrienne A. Harris said:
“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which include relationships with business partners and third-party vendors.”
Anti-money laundering regulations and know-your-customer (KYC) regulations have become a hot-button issue in the cryptocurrency industry, with many firms seeking regulatory clarity on their legal liabilities and responsibilities under the law.
Related: US DOJ could still pursue money laundering, sanctions charges against Roman Storm
Paxos faced pushback from the SEC and NYDFS over Binance stablecoin
The US Securities and Exchange Commission (SEC) sent a Wells Notice, a warning of potential legal action, to Paxos regarding the BUSD stablecoin in February 2023.
SEC officials accused Paxos of distributing “unregistered securities” and violating consumer protection laws by partnering with Binance to distribute the stablecoin.
This is a developing story, and further information will be added as it becomes available.
