NYDFS imposes a fine of $26.5 million on Paxos for regulatory lapses related to Binance's BUSD stablecoin.
Paxos Trust Company, a prominent stablecoin issuer, has reached a settlement with the New York Department of Financial Services (NYDFS) for a sum of $48.5 million due to anti-money laundering (AML) deficiencies and lapses in due diligence, particularly in its former partnership with Binance.
The settlement includes a penalty payment of $26.5 million and an additional investment obligation of $22 million to enhance its compliance program, as per a remediation plan approved by the NYDFS. The investigation uncovered several shortcomings, including:
- Inadequate due diligence on Binance.
- A long-standing deficient AML compliance program, with unsophisticated Know Your Customer (KYC) and Customer Due Diligence (CDD) processes.
- Allowing customers to open multiple accounts undetected due to a lack of proper monitoring and controls.
- A deficient transaction monitoring system that failed to detect clear money laundering patterns.
- Lack of clear investigation guidelines following law enforcement requests, hindering the identification of bad actors.
- Known issues documented in audits from 2021 and 2022 regarding inadequate case investigation procedures and insufficient Suspicious Activity Report (SAR) filing procedures.
To address these issues, Paxos must submit regular status reports to NYDFS detailing substantial upgrades to its AML/BSA compliance program, including risk assessments, internal controls, case management systems, qualified compliance staffing, and independent testing.
In a separate development, Paxos announced on August 11, 2025, that it has filed an application to convert its NYDFS limited purpose trust charter into a national trust charter under the Office of the Comptroller of the Currency (OCC). This move aims to strengthen Paxos’s regulatory framework and signal a commitment to the highest standards of safety and transparency in blockchain infrastructure and tokenization.
Paxos has responded to these allegations, stating that the compliance issues are "historical" and have been "fully remediated". The company has also successfully wound down more than $16B in BUSD market cap without the token ever de-pegging. Paxos was founded with a deep belief in adherence to regulation and compliance.
Notably, Circle, unlike Paxos, has not chosen to operate as a trust, giving it the freedom to issue on many blockchains. Paxos' spokesperson stated that there are no new claims regarding Paxos' relationship with Binance or the issuance of BUSD.
Binance, in a separate case, entered into a $4.3 billion settlement with the Department of Justice over AML and other compliance breaches. Binance processed $1.6 billion in illicit transactions, although that figure does not necessarily represent stablecoin transactions.
Paxos was replaced as custodian for EDX Markets, the institutional crypto brokerage founded by Citadel Securities, Charles Schwab, and other big names. Paxos' other white-labeled stablecoins operate on similar models with different partners and have not faced any regulatory issues.
The trust structure, under which Paxos operates, provides maximum protection to clients in the event of a bankruptcy. However, it limits the number of blockchains on which Paxos can issue stablecoins. Paxos has invested significant resources in building a best-in-class compliance operation. Circle has now applied for a national trust charter.
- The settlement with Paxos Trust Company by the New York Department of Financial Services (NYDFS) highlights the need for stablecoin issuers to vigilantly adhere to anti-money laundering (AML) regulations, particularly in partnerships with entities like Binance.
- The investigation of Paxos revealed deficiencies in its compliance program, such as inadequate due diligence, unsophisticated Know Your Customer (KYC) and Customer Due Diligence (CDD) processes, and a lack of proper monitoring and controls.
- Despite the settlement and historical compliance issues, Paxos reaffirmed its commitment to regulation and compliance, stating that the issues have been fully remediated and the company has invested significant resources in building a best-in-class compliance operation.
- The general-news sector has been buzzing with reports of Binance entering a $4.3 billion settlement with the Department of Justice over AML and other compliance breaches, processing $1.6 billion in illicit transactions, although not all of these may have been stablecoin transactions.
