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New York financial regulators have imposed a $48.5 million penalty on blockchain infrastructure firm Paxos for compliance failures tied to its partnership with cryptocurrency exchange Binance. The settlement announced August 7 reveals systemic anti-money laundering (AML) deficiencies in Paxos' oversight of Binance USD (BUSD) stablecoin operations.
The New York Department of Financial Services (NYDFS) mandated Paxos pay 【$26.5 million】 in civil penalties and invest 【$22 million】 to upgrade its compliance systems. Investigators found the company failed to conduct proper due diligence on Binance, allowing approximately 【$1.6 billion】 in suspicious transactions through the BUSD stablecoin between 2019-2023.
——This enforcement action sends a clear message that New York-licensed entities must maintain robust risk management frameworks—— stated NYDFS Superintendent Adrienne Harris. The regulator first ordered Paxos to cease BUSD issuance in February 2023 after identifying multiple compliance violations.
The case represents a rare coordinated regulatory response. While the SEC initially alleged BUSD constituted an unregistered security in 2023, it withdrew its Wells Notice in 2024. NYDFS maintained separate grounds for enforcement, focusing on AML/KYC failures rather than securities law violations.
Notably, regulators distinguished between authorized Ethereum-based BUSD and unauthorized "Binance-Peg BUSD" tokens issued on other blockchains. This technical distinction proved crucial in establishing Paxos' regulatory liabilities.
The settlement coincides with heightened global scrutiny of cryptocurrency compliance practices. Recent cases involving Tornado Cash and other platforms demonstrate regulators' increasing focus on transaction monitoring and counterparty vetting requirements.
——The Paxos penalty establishes important precedents for stablecoin issuers—— noted blockchain compliance expert Miranda Tan. ——Expect regulators to examine all fiat-backed tokens through this AML lens moving forward——
As part of the settlement, Paxos must implement enhanced due diligence protocols and transaction monitoring systems by Q1 2026. The company retains its BitLicense but faces increased regulatory reporting requirements for three years.