Paxos Slapped with $48.5M Fine by NYDFS for Binance AML Lapses—Crypto’s Compliance Wake-Up Call
New York’s financial watchdog just made an example out of Paxos—and the crypto industry is on notice.
The NYDFS hammer came down hard: a $48.5 million penalty for anti-money laundering (AML) failures tied to its Binance stablecoin operations. Not exactly pocket change—even for an industry that treats regulatory fines as a cost of doing business.
Behind the headlines: This wasn’t just paperwork negligence. The regulator flagged "systemic" gaps in Paxos’ oversight of Binance’s BUSD stablecoin—the kind of red flags that make traditional finance types clutch their pearls (and short crypto stocks).
The silver lining? At least they didn’t get the FTX treatment. But with regulators now treating crypto compliance like a piñata, expect more exchanges to suddenly discover their passion for KYC paperwork.
Final thought: When the "wild west" phase ends, the sheriff always collects. Crypto’s maturing—whether it likes it or not.
AML Program Cracks Exposed
According to DFS, the AML system of Paxos, containing KYC and CDD systems, allowed risky users to slip through unchecked. Many users shared similar addresses, documents, or ownership profiles, signaling coordinated illicit activity.
Paxos lacked credible transaction tracking methods. It failed to build in warning mechanisms and identify the pattern of activities indicative of money laundering. More importantly, there were no explicit criteria as to when to initiate investigations upon the request of law enforcement agencies. This impeded the process of identifying malicious users on the platform.
DFS Leading the Charge
Superintendent Adrienne A. Harris stated, “Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks.” She added that NYDFS WOULD continue enforcing accountability to protect markets and consumers.
In February 2023, NYDFS ordered Paxos to stop minting BUSD. Consequently, Paxos began winding down its BUSD operations under supervision.
Also Read: Binance Releases Latest Reserve Report; BTC Balance Rises, ETH Drops
