Bitcoin Exchange Paxful Faces $4 Million Fine for Conspiring to Promote Illegal Prostitution
Paxful, once one of the largest Peer‑to-peer (P2P) Bitcoin marketplaces, has agreed to pay a $4 million criminal fine after pleading guilty to multiple federal charges, the US Department of Justice (DOJ) announced on Wednesday.
The charges include conspiracy to promote illegal prostitution, operating an illegal money transmission business, violating the Bank Secrecy Act, and knowingly transferring proceeds of crime.
Paxful’s Failure to Comply
Prosecutors said the company knew that some customers were using the platform to launder the proceeds of crime, including fraud schemes and illegal prostitution.
Among the most important examples cited was Paxful’s relationship with Backpage, a defunct online privacy site whose owners admitted in criminal proceedings that it profited from illegal prostitution, including ads involving children.
The Justice Department said that between December 2015 and December 2022, Paxful’s cooperation with Backpage and related copycat sites resulted in nearly $17 million in revenue. Bitcoin sent to Paxful wallets on those platforms.
The settlement agreement reveals a broad pattern of noncompliance. From July 2015 to June 2019, Paxful and its founders marketed the exchange as not requiring your customer information (KYC) verification. Customers are allowed to open accounts and make transactions without adequate identity checks.
The company also offers to third parties anti-money laundering policies that prosecutors say are not actually used or enforced. In addition, Paxful failed to file reports of suspicious activity despite noticing illegal behavior on the platform.
As a result, authorities concluded that this exchange became a tool for various criminal activities, including prostitution, fraud, romance scams, extortion schemes, hacking allegedly carried out by bad state actors, and even the distribution of child sexual abuse literature.
Cooperation Earns a Reduced Sentence
In determining the decision, the Department of Justice considered the seriousness of the cases, which involved processing millions of dollars illegal transactions.
Although Paxful did not voluntarily disclose wrongdoing in a timely manner, he received credit for cooperating with investigators, which he did including gathering and producing extensive documentation, providing updates from its internal investigations, and taking significant corrective actions.
Less than- plea agreementPaxful agreed that the appropriate criminal penalty under the law would be $112.5 million. However, after conducting an independent financial audit, the Department of Justice determined that the company did not have the ability to pay that amount. As a result, the fine was reduced to $4 million.
The case also caught the company’s leadership. On July 8, 2024, Paxful’s founder and former chief technology officer Artur Schaback pleaded guilty to conspiracy to fail to maintain an effective anti-money laundering program regarding similar conduct.
Featured image from OpenArt, chart from TradingView.com
Planning process because bitcoinist focuses on delivering well-researched, accurate, and unbiased content. We maintain strict sourcing standards, and each page is diligently reviewed by our team of senior technical experts and experienced editors. This process ensures the integrity, relevance, and value of our content to our readers.
