Paxos, the blockchain infrastructure firm behind BUSD, has agreed to pay a $48.5 million settlement to the New York Department of Financial Services (NYDFS) for anti-money laundering (AML) failures related to its partnership with Binance (Finextra).
The Breakdown
- $26.5M in Penalties, $22M in Compliance Spend
Paxos will pay $26.5 million in civil penalties and invest an additional $22 million to overhaul its AML and compliance operations (Reuters). - Failure to Detect Red Flags
NYDFS accused Paxos of lacking “effective controls” and failing to escalate suspicious activity reports to senior management—especially regarding high-risk transactions through Binance (NYDFS Press Release). - Billions in Risky Transactions
The regulator cited over $1.6 billion in transactions between 2017 and 2022 involving flagged or sanctioned entities through the Binance platform (Finextra, Reuters). - The End of BUSD
This comes on the heels of NYDFS’s February 2023 order for Paxos to halt issuance of Binance USD (BUSD), effectively ending one of the most prominent dollar-pegged stablecoins (NYDFS). - Paxos Responds
Paxos said no customer funds were lost and emphasized that its current AML program is fully upgraded. The issues stemmed from legacy systems that have since been overhauled (Banking Dive).
Why This Matters
This case is a loud warning: in the world of stablecoins, compliance can’t be an afterthought. Regulators are now laser-focused on ensuring crypto firms meet traditional financial standards, especially when collaborating with major exchanges like Binance.
With regulators tightening the screws, crypto-native firms must either raise the bar—or risk getting buried under it.
