Paxful Holdings Inc., a peer-to-peer virtual currency trading platform, was ordered to pay a $4-million criminal penalty after pleading guilty to conspiracies tied to illegal prostitution, anti-money-laundering failures and the transmission of illicit proceeds.
U.S. Justice Department prosecutors said Paxful operated an online platform and money transmitting business that let customers trade virtual currency for cash and other items such as prepaid and gift cards. From January 2017 to September 2019, the platform facilitated more than 26.7-million trades worth nearly $3 billion and collected more than $29.7 million in revenue, according to court documents.
The company admitted it knew customers were transmitting funds derived from criminal offenses, including fraud schemes and illegal prostitution, and that it knowingly transferred virtual currency on behalf of customers including Backpage, a now-shuttered online advertising site used by sex traffickers.
According to the Justice Department, Paxful marketed itself for years as a platform that did not require know-your-customer information, allowed trading without gathering sufficient KYC data, showed third parties anti-money-laundering policies that were not implemented or enforced, and failed to file suspicious activity reports despite knowing users were engaged in criminal conduct.
The platform was ultimately used to transmit funds linked to fraud, cybercrime, sex trafficking, and child sexual abuse.
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 by knowingly transmitting funds derived from criminal offenses or supporting unlawful activity, and conspiring to violate the Bank Secrecy Act.
The company’s co-founder and former chief technology officer Artur Schaback, of Tallinn, Estonia, pleaded guilty in July 2024 to conspiring to willfully fail to maintain an effective AML program.
Read more at the U.S. Justice Department