Blockchain infrastructure provider Paxos has reached a $48.5 million settlement with New York regulators over AML failures in its relationship with Binance.
The firm will pay a $26.5 million penalty to New York State and invest an additional $22 million to improve its compliance programme, under the settlement with New York State Department of Financial Services.
Paxos had a deal with Binance to market and distribute the latter's BUSD stablecoin.
According to the NYDFS, Paxos did not conduct sufficient due diligence of its former partner and had systemic failures in in its anti-money laundering program, failing to put in place controls effectively monitor for illicit activity and to escalate red flags to senior management.
A review of Binance transactions between 2017 and 2022, across select virtual currencies concluded that $1.6 billion in transactions flowed to or from the platform involving illicit actors and found that Binance had processed transactions to and from entities after the US Office of Foreign Assets Control sanctioned them.
NYDFS Superintendent Adriene Harris says: "Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors."
In response, a Paxos spokesperson says: “Paxos has reached an agreement with the NYDFS in response to historical compliance matters including the prior partnership with Binance. This agreement includes a $26.5M monetary penalty. 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. 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."