axful, an online virtual currency trading platform, will pay a criminal penalty of $4 million after pleading guilty to violating the Bank Secrecy Act, promoting illegal prostitution, and knowingly transmitting funds derived from criminal offenses.
From 2015 to 2019, Artur Schaback, the operator of Paxful, allowed customers to open accounts and trade cryptocurrencies without having sufficient know-your-customer (KYC) information. He also presented fake anti-money laundering policies to third parties that were never implemented, and failed to file a suspicious activity report, despite knowing that Paxful customers were using this platform for criminal activity. According to the Justice Department, Paxful became a hub for romance scams, money laundering, human trafficking, sanctions violations, and other illegal activity.
“Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution, and commercial sex trafficking,” said assistant attorney general A. Tysen Duva of the Justice Department’s Criminal Division. “Crimes like this are a high priority for the Criminal Division because criminal money transmitters facilitate so many other crimes like money laundering, prostitution, fraud, romance scams, extortion and human trafficking. This sentence shows that companies will be held accountable when they create safe havens for criminal activity.”
Paxful knowingly transferred virtual currency on behalf of its customers, including Backpage, an online advertising platform for illicit prostitution and similar sites. In various criminal proceedings, Backpage and its owners and operators admitted that Backpage advertised and profited from illegal prostitution, including illegal sex work depicting minors. Paxful’s founders boasted about the “Backpage Effect,” which enabled the business to grow.
“By putting profit over compliance, the company enabled money laundering and other crimes. This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The U.S. Attorney’s Office will continue to protect victims and ensure that the cryptocurrency ecosystem is not exploited by criminals,” said U.S. Attorney Eric Grant for the Eastern District of California.
“Paxful’s deliberate disregard for anti-money laundering requirements and its role in promoting illegal prostitution and other criminal schemes enabled the movement of illicit funds at scale. This case sends a clear message: platforms that choose profit over compliance will face serious consequences and be brought to justice,” said Special Agent in Charge Linda Nguyen of the IRS-CI Oakland Field Office.
Considering how Paxful was marketed, Paxful knew its platform was used as a vehicle for prostitution, fraud, romance scams, and extortion schemes enforcement agencies stated. Paxful pleaded guilty to conspiring to violate the Travel Act; conspiring to operate an unlicensed MTB; and conspiring to violate the Bank Secrecy Act’s (BSA) anti-money laundering (AML) program requirement.
The Justice Department reached its resolution with Paxful based on several factors, including the nature and seriousness of the offenses, which involved Paxful’s processing of millions of dollars of illicit transactions and allowing its platform to be used for criminal activity. 