Peer-to-peer crypto exchange Paxful has been fined $4 million after admitting it knowingly benefited from criminal activity conducted through its platform, citing inadequate anti-money laundering (AML) controls.
The US Justice Department announced Wednesday that Paxful was ordered to pay the penalty after pleading guilty in December to charges including conspiracy to promote illegal prostitution, knowingly transmitting criminal proceeds, and failing to comply with AML requirements.
“Paxful profited from moving money for criminals it attracted by advertising its lack of anti-money laundering controls and its failure to comply with applicable laws,” said Andrew Tysen Duva, assistant attorney general of the Justice Department’s Criminal Division. He added that the company was aware that some users were involved in fraud, extortion, prostitution, and commercial sex trafficking.
Prosecutors said that between January 2017 and September 2019, Paxful facilitated more than 26 million trades totaling nearly $3 billion in value, generating over $29.7 million in revenue.
The Justice Department said Paxful agreed that an appropriate criminal penalty would be $112.5 million, but prosecutors concluded the company was unable to pay more than $4 million.
Paxful earned millions tied to illegal prostitution ads
According to the Justice Department, Paxful promoted itself as a platform that did not require customer identification and maintained anti-money laundering (AML) policies that it knew were neither properly implemented nor enforced.
Prosecutors said one of Paxful’s clients was Backpage, the classified advertising website that authorities later shut down for hosting illegal prostitution ads.
“Paxful’s founders touted the ‘Backpage Effect’ as a driver of the company’s growth,” the Justice Department said. Between 2015 and 2022, Paxful’s dealings with Backpage and a similar platform generated approximately $2.7 million in profits for the crypto exchange.
Paxful ceased operations in November. In a now-deleted blog post published in October, the company attributed the shutdown to “the lasting impact of historic misconduct by former co-founders Ray Youssef and Artur Schaback prior to 2023, combined with unsustainable operational costs from extensive compliance remediation efforts.”
Youssef responded publicly, saying the company “should have closed down when I left the company two years ago.”
Schaback, Paxful’s former chief technology officer, pleaded guilty in July 2024 to conspiracy to fail to maintain an effective anti-money laundering program. He is awaiting sentencing after a California judge agreed in December to postpone his hearing from January to May. Prosecutors said Schaback continues to cooperate with the government’s investigation into Paxful, which could influence sentencing recommendations.
US authorities have not publicly named or charged Youssef in connection with the case.
