Binance's Stablecoin Supplier, Paxos, Agrees to a $26.5 Million Penalty for Resolving Accusations Regarding Their Dealings
Paxos Trust Pays $26.5 Million Penalty for Insufficient Due Diligence on Binance
Paxos Trust, a New York-based blockchain infrastructure company, has agreed to pay a $26.5 million penalty to the New York State Department of Financial Services (NYDFS) for insufficient due diligence and anti-money laundering (AML) oversight of Binance, the world's largest cryptocurrency exchange.
The penalty, announced on Thursday, comes after the NYDFS found that Paxos had systemic deficiencies in its AML program, including weak customer screening and transaction monitoring, which allowed illicit transactions totaling approximately $1.6 billion on Binance’s platform between 2017 and 2022.
The charges against Paxos allege systemic failures in its AML program, with the company failing to properly escalate red flags to senior management and the board. Binance’s lax geographic controls also enabled U.S. users to access an unregulated exchange, worsening compliance risks.
As part of the settlement, Paxos has agreed to invest $22 million to improve its compliance systems under DFS supervision. The company has also ended its partnership with Binance and stopped issuing Binance USD (BUSD) stablecoin under NYDFS instruction in early 2023.
The enforcement marks the first regulator-led winddown of a stablecoin issuance, setting a precedent for regulatory oversight in the cryptocurrency industry. Paxos’s reputation suffered, and it lost some high-profile custodial opportunities due to this case.
However, Paxos Trust has expressed commitment to maintaining dedication to seeking oversight and complying with global institutional standards. The company has stated that no impact was made on customer accounts, and there was no consumer harm due to these matters.
The NYDFS Superintendent Adrienne A. Harris stated that regulated entities must maintain appropriate risk management frameworks. Harris added that the settlement serves as a reminder that companies must prioritise compliance and risk management to ensure the safety and soundness of the financial system.
The BUSD stablecoin, which was minted by Paxos Trust in partnership with Binance, is no longer available. Paxos Trust worked with Binance to mint the BUSD stablecoin, which was launched in 2019.
The issues discussed are historical and were identified over two and a half years ago, according to a Paxos spokesperson. Paxos Trust has taken steps to enhance its compliance program, following the charges against it. The company has also stated that it will continue to work with regulators to ensure compliance with all applicable laws and regulations.
References:
- Paxos to Pay $26.5 Million Fine Over Binance AML Lapses
- Paxos to Pay $26.5 Million Fine for Insufficient Due Diligence on Binance
- Paxos to Pay $26.5 Million Fine for Insufficient Due Diligence on Binance
- Paxos to Pay $26.5 Million Fine for Insufficient Due Diligence on Binance
- Paxos to Pay $26.5 Million Penalty for Insufficient Due Diligence on Binance
- Paxos Trust, a New York-based company specializing in blockchain infrastructure, faced a $26.5 million penalty for insufficient due diligence and AML oversight related to their crypto exchange, Binance.
- The penalty, announced by the NYDFS, stemmed from systemic deficiencies in Paxos's AML program, including weak customer screening and transaction monitoring leading to illicit transactions on Binance’s platform.
- Paxos agreed to invest $22 million to improve its compliance systems under DFS supervision and ended its partnership with Binance, also halting the issuance of Binance USD (BUSD) stablecoin under NYDFS instruction.
- This settlement marked the first regulator-led winddown of a stablecoin issuance, setting a precedent for regulatory oversight in the cryptocurrency industry, potentially impacting crypto exchange businesses and finance.
- As part of the settlement, Paxos Trust committed to dedicating resources to maintain compliance with global institutional standards and working with regulators to ensure compliance with all applicable laws and regulations.
