Paxful Holdings, Inc., an online platform for trading virtual currency, was sentenced to pay a $4 million criminal penalty after pleading guilty to several federal charges. The company admitted to conspiring to promote illegal prostitution, violating the Bank Secrecy Act, and knowingly transmitting funds derived from criminal activity.
According to court documents, Paxful operated a peer-to-peer virtual currency exchange where users could trade digital assets for cash, pre-paid cards, and gift cards. Between January 2017 and September 2019, the platform facilitated over 26.7 million trades worth nearly $3 billion and earned more than $29.7 million in revenue. During this period, Paxful was aware that its services were being used by customers involved in criminal activities such as fraud schemes and illegal prostitution.
The Justice Department stated that Paxful transferred virtual currency on behalf of clients including Backpage—an online advertising site known for illicit prostitution—and similar platforms. Backpage’s operators have previously admitted in court to profiting from illegal sex work involving minors. The relationship between Paxful and these sites resulted in almost $17 million in bitcoin being moved from Paxful wallets to Backpage and related sites between December 2015 and December 2022; Paxful made at least $2.7 million in profits from these transactions.
Assistant Attorney General A. 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… This sentence shows that companies will be held accountable when they create safe havens for criminal activity.”
U.S. Attorney Eric Grant for the Eastern District of California added: “This sentence holds the company accountable for knowingly allowing its platform to facilitate serious criminal conduct… This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law.”
Special Agent in Charge Linda Nguyen of IRS-CI Oakland Field Office commented: “This sentencing underscores IRS Criminal Investigation’s (IRS-CI) unwavering commitment to holding accountable those who exploit financial systems to facilitate criminal activity… This case sends a clear message: platforms that choose profit over compliance will face serious consequences and be brought to justice.”
From July 2015 through June 2019, Paxful promoted itself as not requiring know-your-customer (KYC) information or enforcing anti-money laundering (AML) policies despite presenting fake AML procedures externally. The company also failed to file suspicious activity reports even when aware of illicit use on its platform.
As part of its plea agreement, Paxful acknowledged using its service as a vehicle for various crimes including romance scams, extortion schemes, hacks by state actors, distribution of child sexual abuse material, as well as facilitating proceeds from fraud schemes and illegal prostitution.
The resolution with the Justice Department took into account the seriousness of offenses involving millions of dollars in illicit transactions processed by Paxful. Although the appropriate penalty based on legal guidelines was calculated at $112.5 million, an independent analysis determined the company could only pay up to $4 million due to financial limitations.
On July 8, 2024, Artur Schaback—Paxful’s co-founder and former chief technology officer—pleaded guilty separately regarding failure to maintain an effective AML program connected with this scheme.
The case is being investigated by Homeland Security Investigations (HSI) along with IRS Criminal Investigation (IRS-CI). Prosecutors include members from both the Justice Department’s Money Laundering Section Bank Integrity Unit and the U.S. Attorney’s Office for the Eastern District of California.
