Paxos Slapped with $48M NYDFS Fine Over Binance AML Failures—Crypto’s Compliance Wake-Up Call
Crypto's 'trust us' era just got a $48 million reality check. The New York Department of Financial Services (NYDFS) dropped the hammer on Paxos—the stablecoin issuer turned regulatory punching bag—for allegedly playing fast and loose with Binance's compliance gaps.
When the watchdog bites back
NYDFS didn't just fine Paxos—it made an example of them. The settlement exposes how even blue-chip crypto firms still treat anti-money laundering (AML) rules like optional features rather than core infrastructure. Sources suggest Paxos turned a blind eye to Binance's sketchy transaction monitoring—until regulators forced them to see dollar signs ($48 million worth).
The compliance tax no one budgeted for
This isn't your typical 'cost of doing business' settlement. The fine represents nearly 10% of Paxos's 2024 revenue—a brutal reminder that crypto's regulatory free ride ended years ago. Meanwhile, Binance skates away unscathed—again—proving that in crypto, the house always wins (except when it's a NY-regulated stablecoin issuer).
Wake-up call or snooze button?
The industry will spin this as 'growing pains.' TradFi veterans will smirk. Either way, the message is clear: want to play banker? Better bring a compliance team that's as sharp as your tokenomics whitepaper.
NYDFS Probe Finds Paxos Lacked Oversight
According to an August 7 press release, the terms of the settlement require the stablecoin issuer to pay a $26.5 million fine and invest $22 million in its compliance program. Paxos previously issued the Binance USD (BUSD) stablecoin until 2023, when the NYDFS ordered it to stop over the exchange’s poor geofencing and sanctions controls. According to the regulator, the action was the “first orderly wind down of a stablecoin.”
“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors,” said Superintendent Adrienne A. Harris.
Paxos, licensed in 2015 as a limited-purpose trust company, was authorized to operate in the VIRTUAL currency space. It later entered a partnership with Binance to issue, market, and distribute BUSD.
As part of its regulatory obligations, the firm was required to conduct regular due diligence on Binance. However, New York’s financial watchdog found that it did not have proper controls in place to monitor for serious illegal activity happening on or through the exchange. It also failed to escalate red flags to its senior management and board.
One key issue was Binance’s “lax geofencing,” which allowed users in the U.S. to access its unlicensed exchange. A review of historical transactions between 2017 and 2022, focusing on selected digital assets, revealed that approximately $1.6 billion that moved through it was linked to criminal activity. The investigation also found that the platform had processed payments involving entities that had already been sanctioned by the U.S. Office of Foreign Assets Control (OFAC).
Compliance Issues
Beyond its shortcomings with Binance, the New York regulator also found that Paxos had been running a weak compliance program for years. The company’s Know Your Customer (KYC) procedures were described as “unsophisticated,” allowing users with shared addresses, overlapping documents, and suspicious behavior to open multiple accounts undetected.
Its poor transaction monitoring system also failed to catch clear signs of money laundering. Authorities noted that the firm had no clear rules for launching investigations after receiving law enforcement requests, which further delayed the detection of illicit activity on the platform.
Paxos has since moved to rebrand itself as a compliance-focused blockchain infrastructure provider. The company has stated that the issues identified were historical, have been fully resolved, and did not impact customer accounts. It continues to operate other regulated stablecoins, including Pax Dollar (USDP) and PayPal USD (PYUSD).
