The New York Department of Financial Services (NYDFS) has reached a settlement totaling $48.5 million with a prominent crypto infrastructure firm. This agreement stems from concerns regarding the company’s collaboration with Binance and alleged deficiencies in its anti-money laundering (AML) protocols.
In February 2023, following an investigation into its tie with Binance and the identified AML vulnerabilities, the firm stopped the minting of Binance USD (BUSD) tokens. Consequently, Binance began phasing out support for BUSD across its various platforms.
The settlement encompasses a penalty of $26.5 million alongside a commitment of $22 million toward improving compliance measures.
NYDFS pointed out significant failures in due diligence on the part of the firm, stating that approximately $1.6 billion in illicit funds moved through Binance utilizing the BUSD stablecoin. This led to the NYDFS directive in February 2023, halting the distribution of BUSD by the company.
A representative commented that the settlement pertains to past compliance issues related to the previous partnership with Binance, asserting that these problems had been identified over two and a half years ago and have since been comprehensively addressed. They emphasized that there was no impact on customer accounts and no harm to consumers, noting that the winding down of BUSD in 2023 was achieved without compromising its peg to the dollar.
Amidst these developments, Adrienne A. Harris, the superintendent of NYDFS, underlined that firms operating under regulatory oversight are expected to implement effective risk management systems tailored to their specific business challenges, including those associated with partners and vendors. The importance of AML and Know Your Customer (KYC) regulations remains a prominent concern within the cryptocurrency industry, as numerous companies await clearer guidance on these crucial compliance requirements.
Additionally, the U.S. Securities and Exchange Commission (SEC) had previously issued a Wells Notice to the firm, signaling potential legal action regarding the BUSD stablecoin. The SEC accused the company of supplying unregistered securities and violating consumer protection laws in its dealings with Binance.
One day after the SEC’s warning, the NYDFS echoed similar concerns, particularly highlighting shortcomings in KYC procedures and mandating enhanced due diligence on new customer accounts.
Furthermore, though the firm was permitted to issue BUSD on the Ethereum blockchain, it had not received authorization for the issuance of Binance-Peg BUSD on any blockchain.
The recent developments across various regulatory bodies highlight the increasing scrutiny of cryptocurrency operations, emphasizing the necessity for robust compliance frameworks and due diligence processes to safeguard against illicit activities and to fulfill regulatory obligations effectively.