Despite pleading guilty to serious AML violations, Paxful received a reduced fine of $4 million instead of the $112.5 million amount agreed upon by the parties.
Peer-to-peer virtual asset trading platform Paxful has been ordered to pay a $4 million criminal fine after pleading guilty to multiple federal violations, according to an official press release from the U.S. Department of Justice.
The verdict follows Paxful’s admission that she conspired to promote illegal prostitution, violated the Bank Secrecy Act and knowingly transferred funds derived from criminal activity.
Illegal crypto flows
The fine was determined based on the company’s ability to pay. Federal authorities said Paxful profited from facilitating transactions for criminals while simultaneously promoting its lack of anti-money laundering (AML) controls and failing to comply with applicable money laundering laws, despite knowing that users on the platform were involved in crimes such as fraud, extortion, prostitution, commercial sex trafficking, romance scams and human trafficking.
Court documents revealed that Paxful operated an online virtual currency platform and money transmission business where users exchanged cryptocurrency for cash, prepaid cards, gift cards and other items. From January 1, 2017 to September 2, 2019, Paxful facilitated more than 26.7 million transactions with a total value of nearly $3 billion and generated more than $29.7 million in revenue.
Authorities said Paxful knew some of these transactions involved money derived from criminal acts, including fraud schemes and illegal prostitution. The company also intentionally transferred virtual currency on behalf of Backpage, an online advertising platform that later admitted in criminal proceedings that it promoted and profited from illegal prostitution, including content involving minors.
According to the Justice Department, Paxful’s founders internally referred to the “Backpage Effect,” which they say has fueled the platform’s growth. Between December 2015 and December 2022, Paxful’s dealings with Backpage and a similar website resulted in nearly $17 million in Bitcoin being transferred from Paxful wallets to those sites. From this, Paxful earned at least $2.7 million in profits.
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. Not only did it allow users to trade without collecting sufficient KYC data, but it also provided third parties with AML policies that were not implemented or enforced, and failed to file suspicious activity reports despite clear indicators of criminal behavior.
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DOJ reduces the sentence
Paxful pleaded guilty to conspiracy to violate the Travel Act by promoting illegal prostitution through 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 resolution.
Paxful’s guilty plea was part of a coordinated resolution with the Financial Crimes Enforcement Network (FinCEN), and in July 2024, the company’s co-founder and former CTO Artur Schaback also pleaded guilty to related AML violations.
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