The settlement includes a $26.5 million civil monetary fine and mandates Paxos to spend an additional $22 million over three years to strengthen its compliance systems.
According to the financial regulator, this development follows a wide-ranging investigation into Paxos’ compliance failures related to anti-money laundering (AML) and customer due diligence procedures.
However, it failed to perform adequate due diligence on the trading platform, violating the terms of a 2020 agreement with the NYDFS.
This lack of oversight came to light during a review of Binance transactions conducted between 2017 and 2022. The review found that $1.6 billion worth of transactions were linked to illicit actors or entities sanctioned by the US Office of Foreign Assets Control (OFAC).
Apart from the Binance issues, the NYDFS also highlighted broader systemic issues within Paxos’s compliance program.
These include weak Know-Your-Customer (KYC) protocols and delayed responses to law enforcement inquiries. Additionally, outdated, manual transaction monitoring systems failed to detect coordinated suspicious activity and clear money laundering patterns.
The investigation further noted that Paxos lacked internal policies to determine when to initiate investigations after receiving a law enforcement request. This oversight limited the firm’s ability to identify and respond to high-risk behavior in a timely manner.
The action is part of a broader trend in New York’s regulatory approach to the crypto industry.
Commenting on these enforcement actions, Superintendent Adrienne Harris reaffirmed the agency’s commitment to safeguarding financial markets and consumers.
She said:
“The Department of Financial Services has led the nation in regulating the virtual currency industry, protecting consumers and markets through examinations, supervision, and where necessary, enforcement.”
