The New York Department of Financial Services (NYDFS) has reached a $48.5 million settlement with the crypto infrastructure company Paxos regarding its partnership with Binance and allegations of failing to maintain adequate anti-money laundering provisions.
According to a Thursday announcement, Paxos has agreed to pay a $26.5 million fine to the state of New York and will spend an additional $22 million to reform its compliance program.
NYDFS stated that Paxos failed to conduct regular due diligence on Binance and saw approximately $1.6 billion in illegal funds flowing in and out of the crypto exchange through its stablecoin Binance USD (BUSD).
The regulator ordered Paxos to stop distributing the stablecoin in February 2023. NYDFS Superintendent Adrienne A. Harris stated:
"Anti-money laundering regulations and know your customer (KYC) regulations have become hot topics in the cryptocurrency industry, with many companies seeking regulatory clarity to understand their legal responsibilities and obligations under the law."
The U.S. Securities and Exchange Commission (SEC) sent a Wells Notice to Paxos in February 2023, which is a warning of potential legal action concerning the BUSD stablecoin.
SEC officials accused Paxos of distributing "unregistered securities" and violating consumer protection laws by distributing the stablecoin in partnership with Binance. However, the SEC withdrew the Wells Notice in 2024.
A day later, NYDFS similarly accused Paxos of selling "unregistered securities," forcing the company to stop distributing the BUSD stablecoin.
The New York financial regulator also stated that the lack of KYC controls was one of several reasons for issuing the notice.
"Under DFS requirements, Paxos needs to conduct due diligence on each new customer," NYDFS stated in its February 2023 notice.
At that time, the regulator also indicated that while it "authorized Paxos to issue BUSD on the Ethereum blockchain," it did not authorize the issuance of "Binance-pegged BUSD" on any blockchain.
"The compliance issues discussed are historical issues that were identified two and a half years ago and have since been fully corrected," a Paxos spokesperson told Cointelegraph.
"There are no new allegations regarding Paxos' relationship with Binance or the issuance of BUSD," the spokesperson continued.
Related: Binance founder Changpeng Zhao seeks to dismiss $1.8 billion FTX lawsuit
Original article: “Paxos reaches $48.5 million settlement with New York regulators over its partnership with Binance”
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