Paxos-Binance BUSD

The Paxos-Binance BUSD case exposes a landmark failure in anti-money laundering oversight within the US cryptocurrency sector, particularly highlighting risks tied to stablecoins and exchange partnerships. Between 2017 and 2023, despite regulatory mandates, Paxos neglected robust due diligence and transaction monitoring of Binance’s use of BUSD, allowing over $1.6 billion in illicit funds to flow unimpeded. The exploitation of Binance’s weak geographic restrictions, coupled with Paxos’ inadequate AML screening, facilitated large-scale laundering activities in violation of US financial regulations. This historic enforcement action, culminating in a $48.5 million settlement and cessation of BUSD minting, underscores critical vulnerabilities in crypto compliance frameworks and the systemic threat posed by neglected third-party oversight in preventing money laundering in the US and global financial ecosystem.

Between 2017 and 2023, Paxos Trust Company partnered with Binance to issue the BUSD stablecoin, which quickly became widely used in the cryptocurrency market. However, NYDFS investigations revealed significant failures by Paxos to monitor risks stemming from Binance’s insufficient AML controls and unauthorized access by US residents via VPNs. These failures enabled illicit actors to launder approximately $1.6 billion through transactions involving BUSD on Binance’s platform. Despite warnings and third-party reports, Paxos did not escalate red flags or apply sufficient oversight, violating regulatory standards. The resulting enforcement action led to a historic $48.5 million settlement and a cessation of BUSD minting by Paxos. The case underscores the critical AML risks associated with stablecoins and exchange partnerships, highlighting the importance of rigorous due diligence and compliance in US and global crypto markets aimed at curbing money laundering activities.

Countries Involved

United States (primary jurisdiction), global impact due to Binance’s international operations.

Date Discovered / Reported

Investigation and reports primarily between 2017 and 2023, with a key settlement reported in August 2025.

Cryptocurrency Involved

Binance USD (BUSD)

Type of Crime

Money laundering facilitation, failure to conduct adequate anti-money laundering (AML) controls, and insufficient due diligence on third-party relationships; indirectly enabling illicit transactions.

Entities Involved

Paxos Trust Company (issuer of BUSD), Binance (crypto exchange and marketing partner of BUSD), various illicit actors using Binance’s platform for money laundering.

PEP Involvement

No explicit publicly disclosed involvement of politically exposed persons (PEPs) in this specific case, though Binance has been scrutinized in broader contexts for politically exposed persons.

Laundering Techniques Used

Use of stablecoins (BUSD) for layering illicit funds across exchanges.
Exploitation of Binance’s geofencing failures allowing US users to access unregulated trading platforms.
Use of VPNs to evade regulatory controls and access Binance exchange for illicit transactions.
Movement of illicit funds totaling an estimated $1.6 billion through Binance’s platform using BUSD as a medium.

Estimated Value Laundered

Reportedly $1.6 billion in transactions flowing through Binance involving illicit actors partially conducted with BUSD.

Transaction Analysis Summary

The New York State Department of Financial Services (NYDFS) found deficiencies in Paxos’ AML program, including failure to adequately review and monitor Binance’s compliance efforts. Despite repeated red flags, such as media reports on Binance users circumventing US regulations via VPNs, and third-party due diligence identifying $1.6 billion in suspicious transactions, Paxos failed to escalate these concerns to senior management or effectively block illicit usages. This prolonged lapse allowed large-scale laundering activity by criminal actors leveraging Binance and Paxos-issued BUSD to move illicit funds through crypto channels. The partnership and operational failures exemplify risks in third-party relationships and stablecoin issuance within the US financial regulatory framework.

Regulatory/Enforcement Actions Taken

Paxos agreed to a $48.5 million settlement with NYDFS (including $26.5 million in penalties and $22 million for compliance enhancements).
NYDFS ordered Paxos to cease minting its version of BUSD in February 2023 and subsequently Paxos ended its relationship with Binance.
NYDFS highlighted the failure of proper due diligence, AML oversight, and risk management leading to the settlement.
This case set precedent as the first major stablecoin regulatory action addressing AML failures, signaling heightened US scrutiny on stablecoins and crypto partnerships.
Enforcement actions also triggered broader federal and international regulatory interest in crypto AML compliance.

Links to Reports / Sources

Case Title / Operation Name:

Paxos-Binance BUSD Anti-Money Laundering Regulatory Probe Settlement

Country(s) Involved:

United States

Platform / Exchange Used:

Binance

Cryptocurrency Involved:

Binance USD (BUSD)

Volume Laundered (USD est.):

Approximately $1.6 billion

Wallet Addresses / TxIDs :

Not publicly disclosed

Method of Laundering:

Use of stablecoin transfers for layering illicit funds, exploiting weak geofencing on Binance, evasion of AML controls through VPNs

Source of Funds:

Funds linked to darknet marketplaces, Ponzi schemes, entities sanctioned by US Treasury (OFAC)

Associated Shell Companies:

N/A

PEPs or Individuals Involved:

N/A

Law Enforcement / Regulatory Action:

$48.5 million NYDFS settlement with Paxos including $26.5 million civil penalty and $22 million for compliance improvements; cease and desist on BUSD issuance

Year of Occurrence:

2017–2023 (transactions period), settlement in 2025

Ongoing Case:

Closed

AML Network Risk Rating:

🔴 High Risk