Paxos Slapped with $48.5M Fine by NYDFS Over AML Violations – A Costly Compliance Wake-Up Call

Crypto's 'trust us' era takes another hit as Paxos forks over $48.5 million to New York regulators.

Another day, another crypto firm writing a check to make regulators go away. The NYDFS just extracted a $48.5 million pound of flesh from Paxos over alleged anti-money laundering failures. Because nothing says 'financial revolution' like old-school regulatory fines.

When will crypto startups learn? Compliance isn't optional—even in decentralized finance. The NYDFS isn't playing nice with companies that treat AML rules like suggestions. This settlement screams one thing loud and clear: play by traditional finance rules or pay the price.

Funny how blockchain's 'cut out the middleman' promise keeps running into the oldest middleman of all—government regulators. Maybe next time they'll spend less on marketing and more on compliance officers.

TLDR

• Paxos Trust Company has agreed to pay the New York State Department of Financial Services a $48.5 million settlement.
• The settlement resolves allegations of anti-money laundering deficiencies and due diligence failures related to Paxos’ partnership with Binance.
• Paxos will pay a $26.5 million penalty for failing to properly monitor Binance’s activities and ensure compliance with AML regulations.
• The settlement also requires Paxos to invest an additional $22 million to improve its compliance program under NYDFS’s oversight.
• NYDFS claims that Paxos allowed $1.6 billion in illicit transactions to flow through Binance from 2017 to 2022.

Paxos Trust Company has agreed to a $48.5 million settlement with the New York State Department of Financial Services (NYDFS). The settlement resolves allegations of anti-money laundering (AML) deficiencies and due diligence failures related to Paxos’ partnership with the Binance cryptocurrency exchange. The agreement highlights serious lapses in regulatory compliance, resulting in a significant financial penalty.

Paxos to Pay $26.5 Million for AML Program Failures

Under the settlement terms, Paxos will pay a $26.5 million penalty for its failure to conduct proper due diligence. The NYDFS claims Paxos allowed Binance to engage in illicit activities, resulting in $1.6 billion in transactions. These activities occurred between 2017 and 2022, involving individuals or entities that had been sanctioned by the U.S. Office of Foreign Assets Control (OFAC).

NYDFS authorized Paxos in 2015 to conduct VIRTUAL currency business and expected it to maintain strict AML controls. However, NYDFS determined that Paxos lacked proper monitoring and allowed Binance’s activities to go unchecked. This led to the facilitation of transactions tied to illicit actors, violating federal regulations.

In addition to the financial penalty, the NYDFS has outlined a plan to improve Paxos’ compliance program. Paxos is required to invest an additional $22 million to address compliance deficiencies. This investment will go toward strengthening its AML protocols under a corrective plan approved by NYDFS.

Former SEC Official Reacts to Paxos Settlement

A Paxos spokesperson responded to the settlement, emphasizing that the issues had been identified over two years ago. They assured the public that these issues did not impact customer accounts or cause any consumer harm. According to Paxos, the matter has now been fully resolved, and they are glad to MOVE past the situation.

Despite the company’s efforts to remediate the issues, social media reactions to the settlement have been mixed. A user on X, claiming to be former SEC chief of staff Amanda Fischer, congratulated the NYDFS for the resolution. Fischer also directed her remarks to Paxos’ former chief risk officer, Austin Campbell, who had recently debated her about cryptocurrency regulation.