Paxful, a peer-to-peer cryptocurrency exchange, has been sentenced to pay a $4 million fine after pleading guilty to federal charges. The U.S. Department of Justice found the company knowingly profited from criminal activity by failing to implement anti-money laundering controls, including facilitating transactions for illegal prostitution advertising.
The Department of Justice stated that Paxful pleaded guilty to conspiring to promote illegal prostitution, transmitting funds from criminal activity, and violating anti-money laundering laws. Prosecutors said the company admitted to operating without proper controls from January 2017 to September 2019, a period during which it facilitated over 26 million trades worth nearly $3 billion.
Assistant Attorney General Andrew Tysen Duva said, “Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution and commercial sex trafficking.” The company earned more than $29.7 million in revenue during that timeframe.
A significant portion of this profit, $2.7 million, came from collaboration with the classified advertising site Backpage, which authorities shut down for hosting ads for illegal prostitution. The Justice Department said Paxful’s founders boasted about the “Backpage Effect,” which helped grow the business by serving such clients.
Former Paxful CTO Artur Schaback pleaded guilty in July 2024 to conspiring to fail to maintain an effective anti-money laundering program. He is cooperating with the ongoing investigation and his sentencing hearing has been moved to May. Paxful ceased operations in November, citing the lasting impact of historic misconduct by former co-founders.
