The money will count against the Cubs' $2.9 million international signing bonus pool for 2012-13.
The 22-year-old right-hander had signed in May 2009 with the Diamondbacks as "Juan Carlos Collado" for $17,000. He pitched in the Dominican Summer League program but the deal was terminated because of fraudulent paperwork, according to Baseball America. Paniagua was then declared ineligible to sign for one year.
In 2011, he signed with the Yankees for $1.1 million as Juan Carlos Paniagua. However, Major League Baseball terminated that contract because of "falsified documents" and he was declared ineligible to sign for one year. That time period ended Thursday.