Paxos, historic partner of Binance, will have to pay a total of 48.5 million dollars following an agreement reached with the Department of Financial Services of New York (NYDFS) for serious violations in anti-money laundering (AML) systems.
This is one of the most significant regulatory sanctions in recent years, set to profoundly influence the compliance strategies of all fintech operating in the crypto market. According to data collected from various industry reports, this sanction is the highest imposed by a U.S. regulator in the cryptocurrency sector up to June 2024.
The objections of the New York authorities on Paxos’ AML practices
The investigation conducted by the NYDFS highlighted significant deficiencies in Paxos’s AML compliance programs, especially in managing its partnership with Binance. In particular, the authorities found gaps in both the due diligence processes on clients and in the timely monitoring and reporting of suspicious transactions.
Industry analysts note that such shortcomings are emblematic of the increasing pressure crypto operators are under to quickly adapt to ever-evolving rules.
What the agreement between Paxos and the regulator entails: sanctions and obligations
The settlement agreed with the regulator is divided into two fundamental parts:
- $26.5 million to be paid as a direct penalty
- 22 million dollars to be mandatorily allocated to the enhancement of anti-money laundering procedures and compliance systems
Official sources from the NYDFS have highlighted that these measures are “necessary to elevate transparency and security in a sector still too opaque.” The agreement comes in a global context where, in 2023 alone, financial sanctions against crypto operators have increased by 35% compared to the previous year.
The agreement comes after months of in-depth regulatory investigations, in a context of growing attention from authorities towards companies operating in the crypto sector.
Where did Paxos fail? The main shortcomings that emerged
The report from the NYDFS highlights specific critical issues:
- Insufficient checks on the identity and activities of users, especially for operations of an international nature
- Inadequate monitoring and failure to report suspicious transactions to the competent authorities
- Serious deficiencies in the due diligence procedures related to the collaboration with Binance, one of the main players in the sector
Such failures have generated concerns about possible illicit uses of digital assets managed by Paxos and Binance. In a sector already under close scrutiny for fraud and money laundering, the issues identified with Paxos represent a wake-up call for the entire crypto ecosystem. According to the 2024 analyses by Chainalysis, about 70% of money laundering investigations involving cryptocurrencies involve operations with missing or insufficient identity verifications.
New AML rules for Paxos: evolutions imposed by the settlement
Among the obligations introduced by the agreement are:
- Implementation of advanced digital systems for customer surveillance and transaction monitoring
- Strengthening of user identification and identity verification processes
- Continuous and periodic training of staff on evolving AML regulations
- Obligations of detailed and timely reporting to the supervisory authorities
These requirements represent the adoption of stringent standards aimed at stablecoin issuers and crypto service operators, within a rapidly changing regulatory framework. Experts emphasize that, in 2024, the adoption of AI-driven technologies for compliance has become an essential best practice to reduce the risks of sanctions.
Impact on the relationship between Paxos and Binance: a message to all digital finance
The maxi-sanction directly involves the partnership between Paxos and Binance, responsible for the issuance of the stablecoin BUSD. According to sector analysts, this event is seen as a turning point, increasing pressure on major international players to adopt more rigorous control models. In the current context, AML compliance is no longer an option, but an essential requirement to operate in the crypto sector without facing blocks or million-dollar fines.
Public sources confirm that this is one of the most significant sanctions in recent years in the crypto industry.
Stablecoin and transparency: the concrete consequences for Paxos
The sanction of 48.5 million dollars obliges Paxos to review the management of its stablecoins, increasing transparency both towards customers and regulators. In an official note, Paxos reiterated the “willingness to strengthen internal compliance and to fully cooperate with all competent authorities.”
The regulatory crackdown, initiated by the United States and followed by other major financial centers such as the European Union and the United Kingdom, signals a global shift in the control of crypto flows, with the adoption of more restrictive AML directives by the end of 2024.
What lessons for the sector after the Paxos-Binance case?
The investigation confirms an essential principle: an insufficient due diligence exposes to high risks of fraud and abuse. The Paxos-Binance case sends a clear message:
financial innovation without solid compliance generates significant reputational and regulatory risks. Today more than ever, every operator must raise the bar ensuring unequivocal transparency towards regulators.
Paxos has stated: “We are investing significant resources to ensure full compliance with the new supervisory directives.”
Compliance AML in cryptocurrencies: why the stakes are now very high
The tightening of rules against money laundering is global and without borders. Governments and regulators are demanding increasingly stringent standards to block illicit flows and protect consumers and financial markets. The Paxos case represents the latest example of a zero tolerance policy towards those who do not promptly update their systems and control processes.
The trend is clear: digital asset operators must invest in innovation and transparency to remain competitive. Otherwise, they risk facing severe penalties or exclusion from the regulated market.
Conclusions: the revolution of crypto compliance has begun
The stangata inflitta a Paxos marks a significant turning point in the crypto world. The combination of a multa record and mandatory compliance measures sets a globally relevant precedent for operators, investors, and regulators. The vigilanza si intensifica, raising entry barriers and requirements for those who want to operate in the sector.
In the coming months, the sector will closely watch how Paxos and other major players adjust their rules to avoid similar sanctions. AML compliance is now the true competitive challenge in the global landscape of digital finance.