The New York Department of Financial Services (NYDFS) has imposed a fine of $ 48.5 million on Paxos as part of his enforcement action against the Stablecoin emittent, according to an announcement of 7 August.
The settlement includes a civil monetary fine of $ 26.5 million and Paxos is supposed to spend an extra $ 22 million over three years to strengthen its compliance systems.
According to the financial regulator, this development follows a wide investigation into the compliance errors of Paxos with regard to anti-money laundering procedures (AML) and Due Diligence procedures for customers.
Paxos’ relationship with Binance supervises
The enforcement action Centered on Paxos’ relationship with Binance, the greatest crypto Exchange through trade volume.
According to the financial supervisor, Paxos started to publish the Binance USD (BUSD) Stablecoin in collaboration with the exhibition.
However, it could not perform sufficient due diligence on the trading platform, so that the conditions of a 2020 agreement were violated with the NYDFs.
This lack of supervision came to light during an evaluation of Binance transactions that were carried out between 2017 and 2022. The assessment showed that $ 1.6 billion in transactions was linked to illegal actors or entities punished by the US Office of Foreign Assets Control (OFAC).
As a result, the NYDF’s Paxos ordered to stop the issue of BUSD in February 2023. This directive effectively ended the partnership of Paxos with Binance and led to the gradual phasing out of busd from the market.
Apart from the Binance problems, the NYDFs also emphasized broader systemic problems within the Paxos compliance program.
These include weak know-your-customer (KYC) protocols and delayed answers to research into law enforcement. In addition, outdated, manual transaction waxing systems could not detect coordinated suspicious activities and clear money laundering patterns.
The investigation also noted that Paxos missed an internal policy to determine when they had to initiate investigation after receiving a request for law enforcement. This supervision limited the ability of the company to identify risky behavior in time and to respond to risky behavior.
The Crypto enforcement trend from New York
The promotion is part of a broader trend in the regulatory approach to New York of the crypto industry.
Over the years, the NYDFS has taken enforcement actions against companies such as Robinhood, Block Inc. (Operator of Cash App) and the Nu-Blank Genesis.
In comments on these enforcement actions, chief inspector Adrienne Harris confirmed the dedication of the agency to protect financial markets and consumers.
She said:
“The Department of Financial Services has led the nation to regulate the virtual currency industry and to protect consumers and markets by exams, supervision and where necessary, enforcement.”