Despite pleading guilty to serious AML violations, Paxful received a reduced $4 million penalty instead of the $112.5 million figure agreed by the parties.
Peer-to-peer virtual asset trading platform Paxful has been sentenced to pay a $4 million criminal penalty after pleading guilty to multiple federal offenses, according to an official press release from the US Department of Justice.
The sentence follows Paxful’s admission that it conspired to promote illegal prostitution, violated the Bank Secrecy Act, and knowingly transmitted funds derived from criminal activity.
Illicit Crypto Flows
The penalty was determined based on the company’s ability to pay. Federal authorities said Paxful profited from facilitating transactions for criminals while promoting its lack of anti-money laundering (AML) controls and failing to comply with applicable money laundering laws, despite knowing that users on its platform were engaged in crimes including fraud, extortion, prostitution, commercial sex trafficking, romance scams, and human trafficking.
Court documents revealed that Paxful operated an online virtual currency platform and money transmitting business where users traded 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 trades worth nearly $3 billion in total value and generated more than $29.7 million in revenue.
Authorities said Paxful knew that a portion of these transactions involved funds derived from criminal offenses, including fraud schemes and illegal prostitution. The company also deliberately transferred 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 minors.
According to the Justice Department, Paxful’s founders referred internally to the “Backpage Effect,” which they credited with helping the platform grow. Between December 2015 and December 2022, Paxful’s dealings with Backpage and a similar website resulted in nearly $17 million worth of 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. 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 enforced, and failed to file suspicious activity reports despite clear indicators of criminal conduct.
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DOJ Cuts Penalty
Paxful pleaded guilty to conspiring to violate the Travel Act by promoting illegal prostitution through interstate commerce, conspiring to operate an unlicensed money transmitting business, and conspiring to violate the Bank Secrecy Act’s AML requirements.
Although the parties agreed that the appropriate criminal penalty was $112.5 million, the department concluded 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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