Paxos will pay $48.5 million to resolve issues flagged by New York regulators concerning its previous collaboration with Binance
$9.24B
and shortcomings in its anti-money laundering protocols.
The New York Department of Financial Services (NYDFS) publicly disclosed the settlement on August 7.
The deal requires Paxos to allocate $26.5 million for penalties and invest an additional $22 million to bolster its internal compliance mechanisms.
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Regulators determined that Paxos did not adequately monitor its association with Binance, leading to approximately $1.6 billion in potentially illicit transactions involving its Binance USD (BUSD) stablecoin.
According to NYDFS Superintendent Adrienne A. Harris:
Entities operating under regulatory oversight are obligated to implement robust risk management protocols that align with their specific business exposures, encompassing partnerships and vendor relationships.
Back in February of 2023, NYDFS directed Paxos to cease minting BUSD. Concurrently, the US Securities and Exchange Commission (SEC) issued a Wells Notice to Paxos.
The SEC’s preliminary assessment suggested that Paxos, through its affiliation with Binance, potentially violated securities regulations by offering an unregistered security. However, in 2024 the SEC opted to drop the Wells Notice and decided against pursuing formal charges.
NYDFS also asserted that Paxos did not fully comply with Know Your Customer (KYC) rules designed to ensure businesses verify the identities of their clients.
In related news, the SEC recently settled with Huynh Tran Quang Duy, the founder of MyConstant. Discover the terms of the settlement here.