Paxos Settles for $48.5M Over Binance BUSD Partnership

Paxos Trust Company will pay $26.5 million in fines to New York after the state's financial regulator found shortcomings in due diligence during its partnership with Binance on the BUSD stablecoin. The New York State Department of Financial Services (NYDFS) highlighted issues with Paxos’ anti-money laundering program as well. The financial technology firm reached a settlement on Thursday, agreeing to invest an additional $22 million to enhance its compliance framework. NYDFS Superintendent Adrienne Harris stated that regulated entities must implement risk management practices that reflect their operational risks, including those posed by business partners. The Department aims to ensure accountability to protect consumers and maintain the financial system's integrity. Despite these findings, NYDFS acknowledged Paxos's cooperation, and the company clarified that the compliance concerns were identified and addressed over two and a half years ago, posing no detriment to customer accounts. A Paxos spokesperson expressed relief at putting this matter behind them, confirming that it did not affect consumers. Paxos and Binance initially teamed up in 2018 to launch Binance USD (BUSD), a stablecoin intended to be backed one-to-one by U.S. dollars, with Paxos acting as custodian and issuer. The regulator's consent order revealed that Paxos relied on assurances from Binance regarding geofencing controls to prevent access to unregulated platforms by U.S. customers, yet failed to conduct its independent review. In 2023, due to concerns regarding its relationship with Binance, NYDFS directed Paxos to cease minting BUSD. Paxos indicated its intention to end the partnership. Additionally, the U.S. Securities and Exchange Commission (SEC) investigated Paxos for its role in issuing BUSD, labeling the stablecoin an unregistered security in a 2021 notice, although the investigation was ultimately dropped. Binance has faced its legal challenges, including a guilty plea from former CEO Changpeng Zhao, who agreed to pay $4 billion over violations of anti-money laundering laws. The SEC has also pursued legal action against Binance for operating an unregistered exchange, which was dismissed this past year. Disclaimer: The Block is an independent media outlet. This article is for informational purposes and not intended as legal or financial advice.