Paxos Settles $48.5M with NYDFS Over BUSD AML Failures
Paxos has agreed to a $48.5 million settlement with the New York Department of Financial Services (NYDFS) over inadequate oversight of BUSD, the stablecoin it issued with Binance. The deal includes a $26.5 million fine and a $22 million investment in Paxos’s AML compliance program.
An NYDFS review found that between 2017 and 2022, lax geofencing, weak sanctions controls and poor KYC allowed about $1.6 billion in illicit transactions to flow through BUSD. Paxos failed to flag suspicious activity or escalate red flags, and lacked clear procedures for law enforcement requests.
Paxos ceased issuing BUSD in early 2023 under NYDFS order. Licensed as a limited-purpose trust company since 2015, it has since rebranded as a compliance-focused blockchain infrastructure provider. Paxos says all historical AML shortcomings are fully addressed and continues to issue other regulated stablecoins, including Pax Dollar (USDP) and PayPal USD (PYUSD). Traders should note that this Paxos settlement may reinforce compliance standards but is unlikely to affect current stablecoin markets.
Neutral
In the short term, the Paxos settlement over BUSD AML failures is unlikely to shift trading volumes or disturb the peg. BUSD remains fully reserved and price-stable. In the long term, the $48.5 million settlement and increased compliance investment could bolster confidence in regulated stablecoins and promote market stability. However, since Paxos no longer issues BUSD and the issues are historical, immediate market reaction should remain muted.