Binance and Anti-Money Laundering (AML) infractions lead to a $48 million settlement between Paxos and the New York Department of Financial Services (NYDFS)

Binance and Anti-Money Laundering (AML) infractions lead to a $48 million settlement between Paxos and the New York Department of Financial Services (NYDFS)

In a significant move, Paxos Trust Company has agreed to a $48.5 million settlement with the New York Department of Financial Services (NYDFS) following an investigation into compliance issues linked to its partnership with Binance and failures in its anti-money laundering (AML) program[1][2][3][5].

The settlement, announced in August 2025, consists of a $26.5 million fine and a $22 million investment commitment to overhaul Paxos's compliance program[1][2][3][5]. The NYDFS investigation, which began in 2022, uncovered several key findings.

Firstly, Paxos failed to conduct sufficient and regular due diligence on Binance, its former partner with whom it had a stablecoin distribution agreement for Binance USD (BUSD) starting in 2019[1][2][4][5]. Approximately $1.6 billion in illicit funds flowed through Binance using BUSD between 2017 and 2022, with Binance’s “lax geofencing” allowing US users to access its unregulated exchange, some involving sanctioned entities[1][2][4][5].

Secondly, Paxos operated a deficient AML compliance program for years, including unsophisticated know-your-customer (KYC) and due diligence controls, failing to properly monitor suspicious transactions and escalate red flags related to illicit activity[3][4][5]. As a New York-chartered trust company since 2015, Paxos was required by NYDFS to maintain an effective AML compliance program and ensure compliance with U.S. sanctions and suspicious activity reporting obligations[3][4][5].

Following the NYDFS order in February 2023, Paxos ceased minting BUSD stablecoins, effectively ending its partnership with Binance for this product[1]. Binance subsequently phased out BUSD support on its platforms. Despite the compliance failures, Paxos asserted there was no consumer harm or impact on customer accounts, and the stablecoin wound down without losing its 1:1 dollar peg[1].

Superintendent Adrienne Harris of NYDFS emphasized that the settlement reinforces New York’s leadership role in virtual currency regulation, focusing on protecting consumers and financial system integrity by enforcing rigorous risk management and accountability among regulated entities and their business partners[2][5].

Paxos continues to operate other regulated stablecoins, including Pax Dollar (USDP) and PayPal USD (PYUSD)[6]. The firm was licensed in 2015 as a limited-purpose trust company and was authorized to operate in the virtual currency space.

The NYDFS's action is considered the "first orderly wind down of a stablecoin," setting a precedent for regulating the rapidly growing digital asset industry[7].

[1] https://www.nydfs.ny.gov/press-releases/department-financial-services-announces-settlement-paxos-trust-company [2] https://www.nydfs.ny.gov/about/press-releases/superintendent-harris-reinforces-new-yorks-leadership-role-virtual-currency [3] https://www.nydfs.ny.gov/regulations-and-laws/administrative-orders/administrative-order-paxos-trust-company [4] https://www.nydfs.ny.gov/regulations-and-laws/administrative-orders/administrative-order-paxos-trust-company-excerpt [5] https://www.coindesk.com/policy/2023/02/15/paxos-to-stop-issuing-binance-usd-stablecoin-after-nydfs-order/ [6] https://www.paxos.com/products/stablecoins/ [7] https://www.cnbc.com/2023/02/15/paxos-to-stop-issuing-binance-usd-stablecoin-after-nydfs-order.html

1. Despite the settlement and compliance issues, Paxos continues to operate in the crypto industry, managing regulated stablecoins like Pax Dollar (USDP) and PayPal USD (PYUSD).
2. The general news outlets reported that the NYDFS's action set a precedent for regulating the digital asset industry, marking the "first orderly wind down of a stablecoin."
3. In the Binance-Paxos partnership, Paxos failed to conduct adequate due diligence, allowing approximately $1.6 billion in illicit funds to flow through Binance using Binance USD (BUSD) between 2017 and 2022.
4. Crimes and justice authorities are watchful of the crypto industry, as inadequate anti-money laundering (AML) compliance programs can lead to the flow of illicit funds, as revealed in the Paxos-Binance case.

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