Key Notes
- Settlement includes $26.5 million penalty plus $22 million for compliance improvements following regulatory failures.
- Paxos allegedly failed to monitor Binance properly, enabling $1.6 billion in illicit transactions between 2017-2022.
- Company states all identified issues were remediated over two years ago with no customer account impact.
The New York State Department of Financial Services (NYDFS) has secured a $48.5 million settlement with Paxos Trust Company for alleged anti-money laundering deficiencies and due diligence failures related to the firm’s partnership with the Binance cryptocurrency exchange.
According to a NYDFS press release dated Aug. 7, Paxos was chartered as a limited purpose trust company and given authorization to “engage in virtual currency business” by the department in 2015.
Under the terms of that agreement, Paxos was purportedly required to perform due diligence on its partner, Binance. NYDFS claims that Paxos failed to institute the proper controls to effectively monitor Binance’s alleged activities.
The department specifically cites “lax geofencing restrictions that enabled US users to access an unregulated exchange,” which purportedly allowed $1.6 billion in transactions involving illicit actors between 2017 and 2022. NYDFS also claims that Binance processed transactions to and from entities after the US Office of Foreign Assets Control sanctioned them, while Paxos was required to monitor Binance for anti-money laundering and financial diligence.
Related: Binance Reaches 280M Users, Sets Sights on ‘1 Billion’ Goal
The terms of the settlement indicate that Paxos Trust will pay a $26.5 million penalty to New York State for “failure to conduct sufficient due diligence on its former partner, Binance, and systemic failures in Paxos’s anti-money laundering program.”
In addition to the penalty, NYDFS says Paxos has agreed to spend an additional $22 million to “improve its compliance program and remediate deficiencies pursuant to a plan approved by DFS.”
A Paxos spokesperson confirmed the agreement via email with Coinspeaker and explained that all the issues involved “were identified over two and a half years ago and have since been fully remediated. These matters had no impact on customer accounts, and there was no consumer harm. This marks the resolution of this matter, and we are pleased to put it behind us.”
However, there does appear to be at least some vitriol surrounding the situation on social media. A user on X who claims to be former SEC chief of staff Amanda Fischer posted a message congratulating the NYDFS shortly after the Paxos-Binance press release was published. The message also extends congratulations to Paxos’s “former chief risk officer.”
“Congratulations to @NYDFS for the settlement with Paxos regarding the firm facilitating $1.6B in illicit funds flowing to and from Binance, and congratulations to Paxos’s former chief risk officer for lecturing me online about crypto.”
Fischer and former Paxos CRO Austin Campbell appear to have recently engaged each other on X over remarks relating to the current state of cryptocurrency regulation in the US.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
Tristan is a technology journalist and editorial leader with 8 years of experience covering science, deep tech, finance, politics, and business. Before joining Coinspeaker, he wrote for Cointelegraph and TNW.
