On August 7, 2025, the NY State Department of Financial Services (“NYDFS”) announced that it reached a $48.5 million settlement with Paxos Trust Company to resolve alleged anti-money laundering (“AML”) failures. According to NYDFS, Paxos agreed to pay a $26.5 million penalty for its AML deficiencies and due diligence failures related to a former partner, crypto exchange Binance Holdings Limited, and agreed to invest $22 million to improve its AML compliance program to a plan approved by NYDFS.
NYDFS reported that it granted Paxos a charter in 2015 that enabled it to operate as a limited purpose trust company and separately authorized the company to operate as a virtual currency business. According to NYDFS, Paxos was the first company in the State of New York to secure a Limited Purpose Trust Charter for Digital Assets. As a virtual currency business, Paxos was required, among other things, to maintain an effective AML program. In 2020, Paxos also signed a letter of agreement (“Letter Agreement”) with NYDFS concerning its ongoing relationship with Binance and its administration of the Binance USD stablecoin, in which the company agreed to conduct proper due diligence of Binance, including periodic reviews of Binance’s AML, sanctions, know-your-customer (“KYC”), and related policies and procedures. Paxos also agreed to report any material changes to Binance’s policies and procedures to NYDFS.
According to settlement agreement, the Department discovered, during an investigation conducted in 2022, that Paxos was not adequately monitoring Binance but had made assurances to NYDFS that Binance’s AML policies were reasonable based on the word of Binance’s Chief Compliance Officer, without actually testing or otherwise verifying the company’s claims. The Department reportedly found that Paxos’s only actual knowledge of Binance’s controls were based on a review of Binance’s written policies and procedures and a limited review of those policies and procedures conducted by Binance’s external auditor. In particular, Paxos reported in 2019 that Binance had geofencing controls in place that would scan IP addresses to determine if customers were U.S. persons and block those who attempted to circumvent these IP restrictions, including customers that use Virtual Private Networks (“VPNs”) – information that Binance executives allegedly confirmed on more than one occasion. However, NYDFS investigators discovered that, since at least April 2019, Binance had provided a guide on its website that directed customers who were interested in keeping their visits to the website and physical locations private, to use a VPN. NYDFS also confirmed that, between 2017 and 2022, Binance’s deficient compliance controls enabled $1.6 billion in transactions that either involved illicit actors or involved entities sanctioned by the U.S. Department of Treasury’s Office of Foreign Assets Control.
NYDFS investigators also reportedly discovered that Paxos’s own AML compliance program had been deficient for years. The shortcomings reported by NYDFS included KYC, transaction monitoring, and investigation failures that enabled Paxos’s customers to open multiple accounts without detection and failed to detect other obvious patterns of money laundering.
NYDFS also reminded the public that it was first regulator to address Binance’s compliance shortcomings. Following its 2022 investigation, the Department ordered Paxos to stop minting Binance USD stablecoin in February 2023. Shortly thereafter, according to NYDFS, other regulators began launching investigations into Binance’s internal controls.