Paxful, the peer-to-peer cryptocurrency trading platform, has been ordered to pay a $4 million penalty after admitting to serious violations of anti-money laundering (AML) laws. This decision comes after the company pleaded guilty to multiple federal offenses, as stated in a press release from the US Department of Justice.
The fine represents a significant reduction from the initially agreed amount of $112.5 million, reflecting the company”s ability to pay. According to federal authorities, Paxful profited from facilitating transactions that were linked to criminal activities, including fraud, extortion, and illegal prostitution, while neglecting to implement adequate AML controls.
From January 2017 to September 2019, Paxful enabled over 26.7 million trades valued at nearly $3 billion, generating more than $29.7 million in revenue. Authorities noted that Paxful was aware that many transactions involved funds from illegal activities, including fraud schemes and prostitution.
Moreover, Paxful engaged in transferring virtual currency on behalf of Backpage, an online advertising platform that has been implicated in promoting illegal prostitution. Internal communications among Paxful”s founders referred to the “Backpage Effect,” which they credited for the platform”s growth. Between December 2015 and December 2022, Paxful”s transactions with Backpage and a similar website accounted for nearly $17 million worth of Bitcoin being transferred from its wallets to those sites, with Paxful reportedly earning at least $2.7 million in profits from these dealings.
Furthermore, the plea agreement revealed that from July 2015 to June 2019, Paxful marketed itself as a platform that did not require know-your-customer (KYC) information. The company not only allowed users to trade without collecting adequate KYC data but also provided third-party AML policies that were not enforced. Paxful failed to file suspicious activity reports, despite clear signs of criminal conduct occurring on its platform.
Paxful”s guilty plea was part of a coordinated resolution with the Financial Crimes Enforcement Network. In July 2024, Artur Schaback, the company”s co-founder and former CTO, is also expected to face repercussions related to this case.
As the cryptocurrency landscape evolves, regulatory scrutiny continues to increase, addressing compliance failures that could undermine the integrity of digital asset platforms.
