Paxos Settlement Confirmed

Settlement Details

Paxos Trust Company has agreed to pay $48.5 million to settle allegations with the New York State Department of Financial Services (NYDFS) related to failures in anti-money laundering compliance. The settlement includes a $26.5 million penalty and a commitment to invest $22 million in strengthening internal compliance systems.

Compliance Shortcomings

The NYDFS discovered that Paxos had insufficient monitoring of its partnership with Binance, a leading cryptocurrency exchange. Although Paxos was required to conduct regular checks for suspicious activity associated with Binance, its mechanisms for detecting illicit transactions were found lacking.

Investigation Findings

The investigation revealed that from 2017 to 2022, Paxos overlooked about $1.6 billion in transactions involving potentially illicit actors. The NYDFS noted that the company failed to address significant concerns about access through Binance's platform and neglected to warn leadership of potential risks.

Regulatory Actions Underway

The NYDFS previously ordered Paxos to stop minting its stablecoin, BUSD, intensifying regulatory scrutiny across the cryptocurrency industry. The investigation exposed inadequacies in Paxos' compliance framework, particularly its transaction monitoring tools for detecting fraudulent activities.

Future Improvements

Paxos has pledged to improve its compliance standards, focusing on refining transaction monitoring and onboarding processes. NYDFS officials stressed the criticality of robust compliance measures in the cryptocurrency sector to protect consumers and maintain financial system integrity.

Background on Paxos

Paxos partnered with Binance in 2019 to issue BUSD, which is tied to the US dollar. Recent developments highlight the growing regulatory challenges faced by cryptocurrency firms and the pressing need for effective anti-money laundering systems.