By Jonathan Stempel
NEW YORK (Reuters) -Paxos Trust reached a $48.5 million settlement to resolve New York charges the virtual currency company failed to police illegal activity related to cryptocurrency exchange Binance, the state’s financial services regulator said on Thursday.
Adrienne Harris, New York’s financial services superintendent, said Paxos will pay a $26.5 million civil fine and spend $22 million to upgrade its compliance program.
Paxos previously partnered with Binance, the world’s largest cryptocurrency exchange, to market and distribute the Binance USD stablecoin.
New York’s Department of Financial Services said Paxos lacked effective controls to monitor wrongdoing at Binance, failed to escalate red flags to senior management, and had systemic failures in its anti-money laundering program.
The regulator said it ordered Paxos to review Binance’s exposure to illegal activity, which found that from July 2017 to November 2022 about $1.6 billion of transactions on Binance’s platform involved illicit actors, including Ponzi schemers and people sanctioned in darknet marketplaces.
Binance also processed transactions involving entities sanctioned by the U.S. Office of Foreign Assets Control, the review found.
New York ordered Paxos in February 2023 to stop issuing Binance’s stablecoin. Paxos subsequently ended its partnership with Binance.
In a statement, Paxos said it was pleased to settle. It also said it has “fully remediated” the compliance issues, customer accounts were not affected, and consumers were not harmed.
Binance was not a defendant in the New York case.
It entered a guilty plea in November 2023 and accepted a $4.32 billion criminal penalty for violating federal anti-money laundering and sanctions laws.
The U.S. Securities and Exchange Commission dismissed its own civil case against Binance in May, reflecting a change in approach toward cryptocurrencies during U.S. President Donald Trump’s second White House term.
(Reporting by Jonathan Stempel in New York; Editing by Kirsten Donovan)
