Well, well, well! What do we have here? Paxos, the crypto bigwig, has just agreed to fork over a cool $48.5 million to the New York Department of Financial Services (NYDFS). Talk about paying the piper! 🎶
It seems our friends at Paxos weren’t exactly on top of things when it came to their buddy Binance. The NYDFS is alleging that Paxos didn’t do its homework and let some shady stuff slip through the cracks, especially in the anti-money laundering department. Oopsie daisy! 🙈
NYDFS Drops the Hammer on Paxos
According to an August 7 press release, Paxos is on the hook for a $26.5 million fine and has to cough up another $22 million to beef up its compliance program. They used to be chummy with Binance, even issuing the Binance USD (BUSD) stablecoin. But in 2023, the NYDFS said, “No soup for you!” and ordered Paxos to cut ties with Binance over some pretty lax geofencing and sanctions controls. The regulator hailed this as the “first orderly wind down of a stablecoin.” 🚀
“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 Superintendent Adrienne A. Harris. Like, duh!
Paxos, which got its license back in 2015 as a limited-purpose trust company, was all set to play in the virtual currency sandbox. They partnered up with Binance to issue, market, and distribute BUSD. But it turns out they weren’t playing by the rules. The NYDFS found that Paxos didn’t have the right controls to spot serious illegal activity on Binance. They also forgot to tell the boss and the board when they saw something fishy. 🐟
The real kicker? Binance’s “lax geofencing” let U.S. users sneak onto the unlicensed exchange. A deep dive into transactions from 2017 to 2022 showed that about $1.6 billion linked to criminal activity passed through. And get this, they even processed payments involving entities on the naughty list of the U.S. Office of Foreign Assets Control (OFAC). Ouch! 😖
More Compliance Fails Than a High School Musical
But wait, there’s more! The NYDFS also discovered that Paxos had been running a weak compliance program for years. Their Know Your Customer (KYC) procedures were so unsophisticated that users with shared addresses, overlapping documents, and suspicious behavior could open multiple accounts without anyone batting an eye. 🤔
Their transaction monitoring system was like a sieve, letting clear signs of money laundering slip right through. And when law enforcement came knocking, there were no clear rules for launching investigations, delaying the detection of illicit activity even further. Smooth move, Paxos! 🏆
Paxos is now trying to clean up its act and rebrand as a compliance-focused blockchain infrastructure provider. They claim the issues were historical, have been fixed, and didn’t affect customer accounts. So, they’re still in the game, operating other regulated stablecoins like Pax Dollar (USDP) and PayPal USD (PYUSD). 🌟
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2025-08-08 20:26