Paxos settles with New York financial regulator for $48.5 million over involvement with Binance BUSD partnership

Paxos Trust Company will pay $26.5 million in fines to New York after the state’s financial regulator found it failed to conduct enough due diligence when it partnered with Binance on the BUSD stablecoin. The regulator also cited shortcomings in Paxos’ anti-money laundering program.

The financial technology company settled with the New York State Department of Financial Services on Thursday, according to a statement. Paxos also agreed to put an additional $22 million into improving its compliance program, according to that statement.

“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors,” said NYDFS Superintendent Adrienne Harris in the statement. “The Department continues taking significant steps to ensure accountability, in turn protecting consumers and safeguarding the integrity of the financial system.”

NYDFS said that the firm cooperated with the regulator. Paxos said the issues were found years ago and have been remedied.

“For the avoidance of doubt, the compliance issues discussed are historical issues that were identified over two and half years ago and have since been fully remediated,” a Paxos spokesperson said in a statement. “These matters had no impact on customer accounts and there was no consumer harm. This marks the resolution of this matter and we are pleased to put it behind us.”

Paxos and Binance partnered in 2018 to launch Binance USD, or BUSD, which they said would be backed one-to-one for U.S. dollars and be available on the exchange, with Paxos serving as the custodian and issuer.

According to the consent order, NYDFS said Paxos asked Binance to “provide assurances imposed geofencing controls to ensure that U.S. customers were not accessing an unregulated trading platform.”

“Binance’s Chief Compliance Officer responded, ‘[w]ith confidence, I can say the policies and procedures are already in effect’ and later reiterated that Binance.com was ‘completely restricting US persons,'” according to the consent order released on Thursday.

Paxos accepted the exchange at its word and didn’t do its own independent review, NYDFS said.

By 2023, the NYDFS ordered Paxos to stop minting Paxos-issued BUSD over concerns with its relationship with Binance. Paxos also said at the time that it planned to end its relationship with Binance for BUSD.

Other legal woes

The U.S. Securities and Exchange Commission had also examined Paxos’ role in issuing BUSD, and issued a notice in 2021, alleging that the stablecoin was an unregistered security. An SEC investigation into BUSD was later dropped last year.

Binance, meanwhile, faced broader legal issues. The exchange’s former CEO Changpeng Zhao pleaded guilty in November 2023 and agreed to pay $4 billion to resolve the matter after the Justice Department found that the exchange violated anti-money laundering and sanctions laws, among others. The DOJ said Binance deliberately ignored U.S. rules.

The SEC previously sued Binance and Zhao for allegedly operating an unregistered exchange, but that was later dismissed this past year.