Paxos Slapped with $48.5M Fine Over AML Lapses in Binance Deal—Regulators Strike Back
Crypto's compliance reckoning continues as Paxos gets hammered for cutting corners.
When the watchdogs come knocking...
The New York Department of Financial Services didn't mince words—Paxos failed basic anti-money laundering checks while issuing Binance's stablecoin. That $48.5 million penalty? Just the cost of doing business when you play fast and loose with KYC rules.
Behind the compliance carnage
Sources say Paxos skipped critical transaction monitoring for Binance's BUSD stablecoin. The result? A textbook case of how not to run a regulated crypto operation. Meanwhile, traditional banks smirk while adding another zero to their own AML violation budgets.
The takeaway? Crypto's 'move fast and break things' era is over—the regulators have entered the chat.
The New York Department of Financial Services announced the settlement on Thursday, marking one of the largest enforcement actions against a stablecoin issuer.
The settlement breaks down into two parts: Paxos will pay a $26.5 million penalty directly to New York State, while investing an additional $22 million to fix its compliance systems over the next three years.
What Paxos Did Wrong
New York regulators found that Paxos failed to properly monitor its business partner Binance for illegal activity. Between 2017 and 2022, approximately $1.6 billion in suspicious transactions flowed through Binance’s platform involving criminals and sanctioned entities, according to the regulatory settlement.
Paxos partnered with Binance in 2018 to create and manage the Binance USD stablecoin, known as BUSD. Under its agreement with New York regulators, Paxos was required to conduct regular checks on Binance’s operations. However, investigators found the company lacked proper controls to spot red flags or report suspicious activity to senior management.
One major problem was Binance’s weak geographic restrictions, which allowed U.S. customers to access the unregulated exchange. Paxos asked Binance to provide assurances about blocking American users but never verified these claims independently.
The settlement also revealed broader problems with Paxos’s compliance program. The company’s customer screening system was so weak that criminals could open multiple accounts using the same addresses and documents without being detected. Their transaction monitoring system also failed to catch obvious money laundering patterns.
The BUSD Shutdown
New York regulators first raised concerns about Binance in February 2023, ordering Paxos to stop creating new BUSD tokens. This made New York the first regulator worldwide to take action against the crypto exchange over safety concerns.
The MOVE came after the Securities and Exchange Commission accused Paxos of selling unregistered securities through BUSD. While the SEC later dropped its investigation in 2024, New York’s financial regulator continued pursuing the case.
At its peak, BUSD reached over $23 billion in circulation, making it the third-largest stablecoin globally. After New York’s order, Paxos ended its partnership with Binance and the token’s supply has steadily declined as users cash out their holdings.
Binance’s Legal Troubles
The settlement highlights the ongoing regulatory challenges facing Binance. The crypto exchange has faced scrutiny from multiple agencies over anti-money laundering violations and sanctions breaches.
In November 2023, Binance agreed to pay $4.3 billion in criminal penalties to resolve charges from the Department of Justice. The company’s founder and former CEO, Changpeng Zhao, pleaded guilty and served a four-month prison sentence.
Paxos Moves Forward
Despite the settlement, Paxos says the compliance issues were identified and fixed over two years ago. A company spokesperson stated that customer accounts were not affected and no consumers were harmed by the violations.
“These matters had no impact on customer accounts and there was no consumer harm,” the spokesperson said. “This marks the resolution of this matter and we are pleased to put it behind us.”
Paxos remains a major player in the stablecoin market, issuing PayPal’s PYUSD and other digital tokens. The company recently launched the Global Dollar stablecoin in Singapore under that country’s regulatory framework.
As part of the settlement, Paxos must submit detailed progress reports to New York regulators by November 2025, covering improvements to customer screening, money laundering prevention, and oversight systems.
What This Means
The settlement sends a clear message to crypto companies about the importance of proper compliance when partnering with overseas exchanges. New York’s financial regulator has taken the lead in policing the crypto industry, often acting ahead of federal agencies.
“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks,” said NYDFS Superintendent Adrienne Harris. “The Department continues taking significant steps to ensure accountability, in turn protecting consumers and safeguarding the integrity of the financial system.”
The case also reflects changing attitudes toward crypto regulation under the TRUMP administration. While federal agencies have scaled back enforcement actions, state regulators like New York continue pursuing compliance violations.
