Paxful crypto platform fined $4 million after prosecutors say it 'profited from moving money for criminals'

Paxful Holdings Inc. has been ordered to pay a $4 million criminal penalty after U.S. prosecutors concluded the crypto trading platform knowingly facilitated the movement of illicit funds linked to fraud, prostitution and sex trafficking.

The U.S. Department of Justice announced the sentence Wednesday. Paxful had pleaded guilty in December to charges related to operating without an effective anti-money laundering (AML) program. Federal prosecutors said the company benefited from its own compliance failures and attracted criminal customers by advertising that it did not enforce AML rules.

Assistant Attorney General A. Tysen Duva of the DOJ's criminal division said in a statement that Paxful made money from moving funds for criminals engaged in fraud, extortion, prostitution and commercial sex trafficking while knowing the source of those funds. He also said Paxful touted its lack of AML controls and its failure to comply with money-laundering laws.

Backpage-linked bitcoin flows

Prosecutors said Paxful knew it was processing bitcoin transfers for customers including Backpage, a website commonly used by traffickers to advertise prostitution services, sometimes involving minors. From 2015 through 2022, about $17 million in bitcoin moved from a Paxful wallet to Backpage and another similar website, according to the DOJ. Paxful earned at least $2.7 million in profits from that activity. The company's founders reportedly referred to growth from such business as the "Backpage Effect."

The case also involved Paxful co-founder Artur Schaback. Last year, Schaback pleaded guilty to deliberately failing to establish and maintain an effective AML program and to falsely telling users that the platform did not require know-your-customer (KYC) checks.

The DOJ noted that Paxful had originally faced a penalty exceeding $112 million. After conducting an independent analysis, however, the Justice Department determined that Paxful could not pay more than $4 million, leading to the reduced sentence. The company suspended its operations in 2019.