Paine resigned from the captaincy on Friday as it was revealed he'd been involved in a sexting exchange with a one-time Cricket Tasmania employee in late 2017.
Cricket Tasmania say the matter only came to attention in mid-2018, after Paine had assumed the captaincy in the wake of the ball-tampering scandal in South Africa that cost Steve Smith the position.
With Paine cleared of a code of conduct breach, Cricket Australia bosses kept the wicketkeeper-batsman in the position despite his elevation to the leadership being based around a good guy image seen as needed to restore pride and respect in the Test captaincy.
Hughes, who tearfully quit as Australian captain himself in 1984, said it was astounding Paine held onto the position once those in charge knew of the sexting matter.
"(Paine) did what he had to do (by resigning) but what I find staggering is that Cricket Australia reviewed the situation and did nothing," Hughes told Five AA radio in Adelaide.
"The standard you walk past is the standard you accept.
"Integrity? You've got to be kidding me. For god's sake. You found that out and then said well that's still acceptable and to appoint him captain? Give me a break.
"It's absolutely staggering."
Most of those at the top of Cricket Australia at the time of Paine's original appointment, including chief executive James Sutherland, have since left their positions with the body undergoing a comprehensive hierarchy change.
The players' union meanwhile issued a statement reiterating its support for Paine, who has insisted he wants to play on for Australia in the upcoming Ashes series.
"While regrettable, this was an historical mistake that was a private matter between consenting individuals," the Australian Cricketers' Association statement said.
"Tim fully cooperated in an integrity investigation by Cricket Australia in 2018 in which he was exonerated ... while Tim has clearly made a mistake, he will continue to have the full and unequivocal support of the ACA."