Blockchain infrastructure provider Paxos has agreed to a US$48.5 million settlement with New York regulators over anti-money laundering (AML) shortcomings linked to its former partnership with Binance.

Under the settlement with the New York State Department of Financial Services (NYDFS), the firm will pay a US$26.5 million penalty to the state and invest an additional US$22 million to enhance its compliance programme, Finextra reports.

Paxos had partnered with Binance to market and distribute the latter’s BUSD stablecoin.

According to the NYDFS, Paxos failed to carry out adequate due diligence on its former partner and had systemic weaknesses in its AML framework, including ineffective controls to monitor illicit activity and escalate red flags to senior management.

A review of Binance transactions between 2017 and 2022 across selected virtual currencies found that US$1.6 billion in transactions to or from the platform involved illicit actors.

It also found Binance had processed transactions to and from entities sanctioned by the US Office of Foreign Assets Control.

NYDFS Superintendent Adrienne Harris stated:

“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors.”

In response, a Paxos spokesperson said:

“Paxos has reached an agreement with the NYDFS in response to historical compliance matters including the prior partnership with Binance. This agreement includes a US$26.5M monetary penalty. For the avoidance of doubt, the compliance issues discussed are historical issues that were identified over two and half years ago and have since been fully remediated. These matters had no impact on customer accounts and there was no consumer harm. This marks the resolution of this matter and we are pleased to put it behind us.”

Featured image credit: Edited by Fintech News America, based on image by another69 via Freepik