The New York Department of Financial Services (NYDFS) has settled with Paxos, imposing a penalty of $48.5 million due to inadequacies in its anti-money laundering measures related to its partnership with Binance. The settlement includes a $26.5 million fine and a commitment to invest an additional $22 million to enhance Paxos's compliance programs. The NYDFS noted that Paxos did not conduct regular due diligence on Binance, which managed to facilitate approximately $1.6 billion in illicit transfers involving its stablecoin, Binance USD (BUSD). This regulatory action follows previous scrutiny, as the SEC warned Paxos in February 2023 about potential legal issues, claiming the BUSD could be an “unregistered security” and that their partnership with Binance violated consumer protection laws. NYDFS Superintendent Adrienne A. Harris emphasized the need for regulated entities to have robust risk management frameworks in place, particularly regarding third-party relationships. The developments highlight ongoing regulatory challenges faced by crypto firms, especially regarding their compliance with anti-money laundering and Know Your Customer (KYC) regulations.

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