The New York Department of Financial Services (NYDFS) has reached a $48.5 million settlement with Paxos Trust Company, a stablecoin issuer, over anti-money laundering (AML) failures and due diligence deficiencies related to its partnership with Binance.
The NYDFS investigation revealed that Paxos failed to adequately monitor transactions and verify customer identities, particularly concerning its collaboration with Binance. These failures included insufficient customer due diligence, inadequate transaction monitoring, and delayed reporting of suspicious activities. According to the NYDFS, approximately $1.6 billion worth of virtual asset transactions processed by Binance between 2017 and 2022 were linked to addresses involved in illicit activities.
NYDFS Superintendent Adrienne A. Harris emphasized the department's commitment to safeguarding the financial system from illicit activity and ensuring a fair and equitable financial system for all New Yorkers. The settlement reflects the growing regulatory pressure on crypto firms to align with traditional financial standards.
Under the terms of the agreement, Paxos will pay a $48.5 million fine and implement stronger compliance programs under regulatory supervision. In addition to the fine, Paxos has also agreed to invest an additional $22 million to improve its compliance program and address the deficiencies, as approved by the NYDFS. Paxos has stated that it cooperated fully and has taken steps to enhance compliance and reduce future regulatory exposure.
This enforcement action is part of a larger trend of the NYDFS tightening its regulatory supervision over crypto-related firms. Previous cases include a $50 million settlement with Coinbase and demands for enhanced compliance measures from virtual currency operators. The NYDFS is focused on enforcing rigorous AML protocols in the crypto industry to prevent illicit financial flows, including fraud, money laundering, and terrorist financing. For firms like Paxos, the settlement serves as a reminder that compliance is essential for maintaining trust and regulatory approval and highlights the need for continuous monitoring and dynamic risk management strategies to address emerging threats.
