A popular online platform for trading virtual currencies, Paxful Holdings Inc., has been sentenced to pay a $4 million criminal penalty after admitting to serious violations of U.S. law. The platform pleaded guilty to multiple charges, including promoting illegal prostitution, breaking anti-money laundering rules, and knowingly handling money from criminal activity.
Authorities said Paxful knowingly allowed criminals to use its services, turning a blind eye to fraud, scams, and prostitution, all while making millions of dollars in profit. Officials emphasized that this case highlights the risks when online financial platforms prioritize profit over following the law.
Platform Used by Criminals for Millions in Transactions
Paxful operated an online peer-to-peer system where users could trade virtual currencies for cash, gift cards, and other items. From January 2017 to September 2019, it processed more than 26.7 million trades valued at nearly $3 billion, earning over $29.7 million in revenue.
Investigators found that Paxful actively transferred money for known illegal operations, including Backpage, a site used for illegal prostitution. Between 2015 and 2022, nearly $17 million in bitcoin was sent from Paxful to Backpage and similar sites, with the company earning at least $2.7 million in profit from these transactions.
The platform marketed itself as a place that did not require detailed user verification. Customers could open accounts and trade without providing proper identification. Investigators revealed that Paxful presented fake anti-money laundering (AML) policies that were never enforced and failed to report suspicious activity, even when aware that users were committing crimes.
Because of these practices, Paxful became a vehicle for illegal activity, including prostitution, fraud, romance scams, and extortion schemes.
Guilty Pleas and Legal Violations
Paxful admitted guilt on several serious charges. These included:
- Conspiring to violate the Travel Act by promoting illegal prostitution across state lines.
- Operating an unlicensed money transmitting business (MTB) by knowingly transferring funds from criminal activity.
- Violating the Bank Secrecy Act by failing to maintain an effective anti-money laundering program.
The violations allowed criminals to move money from scams, illegal prostitution, cyberattacks, and even distribution of child sexual abuse material.
Paxful’s co-founder and former chief technology officer, Artur Schaback, also pleaded guilty in a related case for conspiracy to fail to maintain an effective AML program.
Authorities noted that Paxful did not voluntarily disclose its wrongdoing but cooperated with the investigation after being approached. The company helped investigators by providing documents, analyzing internal data, and taking steps to fix its practices.
While the law suggested a criminal penalty of $112.5 million, the company’s ability to pay was limited. After review, it was sentenced to $4 million, reflecting what it could reasonably afford.
Investigations and Enforcement Actions
This case was part of a coordinated effort between multiple federal agencies, including the Department of Justice’s Criminal Division, IRS Criminal Investigation (IRS-CI), Homeland Security Investigations (HSI), and FinCEN.
Officials involved in the case included Assistant Attorney General A. Tysen Duva, U.S. Attorney Eric Grant, and Special Agent in Charge Linda Nguyen. Legal proceedings were prosecuted by a team of DOJ attorneys, including Kevin Mosley, Emily Cohen, Caylee Campbell, Katherine Nielsen, and Matthew Thuesen.
Authorities emphasized that the case shows how some companies exploit virtual currency systems to facilitate crimes like money laundering, scams, and human trafficking. Prosecutors said Paxful deliberately ignored rules that could have stopped illegal activity and prioritized profits over compliance.
The legal actions included both the company and its former executives. Officials stressed that platforms like Paxful will face serious consequences under U.S. law if they fail to stop criminal activity on their systems.