Paxos to Pay $48.5 Million for AML Violations Linked to Binance

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New York-based financial institution and blockchain specialist Paxos has agreed to a $48.5 million settlement with New York regulators for “failure to conduct sufficient due diligence of its former partner, Binance, and systemic failures in Paxos’s anti-money laundering program.” The company is required to pay a $26.5 million penalty to the state of New York and invest an additional $22 million in enhancing its compliance program.

The settlement follows a New York Department of Financial Services (NYDFS) investigation that revealed significant AML and compliance failures during Paxos’s partnership with Binance. Paxos was found to have failed to adequately conduct background checks on customers, detect suspicious behavior, or act on red flags.

From 2017 to 2022, $1.6 billion in transactions flowed between Binance and illicit actors, including entities sanctioned by the US Office of Foreign Assets Control. Investigators found that Binance’s weak geofencing controls allowed US users to access an unregulated exchange.

NYDFS Superintendent Adrienne Harris emphasized that:

Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which include relationships with business partners and third‑party vendors.

NYDFS also found Paxos’s KYC and due diligence programs were so “unsophisticated” that customers sharing addresses, corporate documents, and behaviors indicative of illicit activity were able to open multiple accounts undetected. Its transaction monitoring systems failed to spot “obvious patterns of money laundering,” while internal procedures lacked guidance on when to investigate requests received from law enforcement.