Paxful Fined $4M After Admitting It Profited From Criminal Activities On Its Crypto Platform

Despite pleading guilty to serious AML violations, Paxful received a reduced fine of $4 million instead of the $112.5 million agreed upon by the parties.

Peer-to-peer virtual asset trading platform Paxful has been ordered to pay $4 million in criminal fines after pleading guilty to multiple federal charges, according to an official statement from the US Department of Justice.

The sentence follows Paxful’s admission that he conspired to promote illegal prostitution, violated the Bank Secrecy Act, and knowingly transferred proceeds of crime.

Illegal Crypto Flows

The fine was determined based on the company’s ability to pay. Federal authorities said Paxful profited from facilitating criminal transactions while promoting its lack of anti-money laundering (AML) controls and failure to comply with applicable money laundering laws, despite knowing that users on its site were committing crimes including fraud, extortion, prostitution, commercial sex trafficking, and human trafficking scams.

Court documents revealed that Paxful operated an online virtual currency platform and money transfer business where users traded cryptocurrencies for cash, prepaid cards, gift cards, and other items. From January 1, 2017, to September 2, 2019, Paxful made more than 26.7 million transactions worth about $3 billion in total value and generated more than $29.7 million in revenue.

Authorities said Paxful knew that part of these transactions involved proceeds of crime, including fraud schemes and illegal sales. The company also knowingly passed virtual currency on behalf of Backpage, an online advertising platform that later admitted in criminal proceedings that it advertised and profited from illegal prostitution, including content involving children.

According to the Department of Justice, Paxful’s founders internalized the “Back Page Effect,” which they credit with helping the platform grow. Between December 2015 and December 2022, Paxful’s collaboration with Backpage and similar websites resulted in approximately 17 million worth of Bitcoin being transferred from Paxful wallets to those sites. In this case, Paxful received at least $2.7 million in profit.

The plea agreement states that from July 2015 to June 2019, Paxful marketed itself as a platform that did not require know-your-customer (KYC) information. It not only allowed users to trade without collecting sufficient KYC data but also provided third parties with AML policies that were not implemented or implemented, and failed to file suspicious activity reports despite clear indications of criminal behavior.

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DOJ Cuts Penalty

Paxful pleaded guilty to conspiracy to violate the Transportation Act by promoting illegal prostitution in interstate commerce, conspiracy to operate an unlicensed money transmission business, and conspiracy to violate the AML requirements of the Bank Secrecy Act.

Although the parties agreed that the appropriate criminal penalty was $112.5 million, the department concluded that Paxful could only pay $4 million as part of the settlement.

Paxful’s case was part of a joint settlement with the Financial Crimes Enforcement Network (FinCEN), and in July 2024, the company’s founder and former CTO, Artur Schaback, also pleaded guilty to related AML violations.