Despite pleading guilty to serious AML violations, Paxful received a reduced fine of $4 million instead of the $112.5 million figure agreed to 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 offenses, according to an official press release from the U.S. Department of Justice.
The conviction follows Paxful’s admission that the company 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, even though it knew its platform users were involved 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 transfer business where users exchanged cryptocurrencies for cash, prepaid cards, gift cards and other items. From January 1, 2017 to September 2, 2019, Paxful facilitated over 26.7 million transactions with a total value of nearly $3 billion and generated over $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 Department of Justice, Paxful’s founders have discussed internally the “Backpage effect”, which they attribute to the development of the platform. Between December 2015 and December 2022, Paxful’s dealings with Backpage and a similar website resulted in the transfer of nearly $17 million worth of Bitcoin from Paxful wallets to these sites. Through this, Paxful made at least $2.7 million in profit.
The plea agreement states that from July 2015 to June 2019, Paxful presented itself as a platform that did not require know your customer (KYC) information. Not only did it allow users to transact without collecting sufficient KYC data, but it also provided third parties with AML policies that were neither implemented nor enforced, and failed to file suspicious activity reports despite clear indicators of criminal conduct.
You might also like:
DOJ reduces penalties
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 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 under 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 AML-related violations.
SECRET PARTNERSHIP BONUS for CryptoPotato readers: Use this link to sign up and unlock $1,500 in exclusive BingX Exchange rewards (limited time offer).
