Paxful CEO Pleads Guilty to Failing to Maintain Effective AML Program

Last week, Artur Schaback, the co-founder and former chief technology officer of Paxful pleaded guilty today to conspiracy to fail to maintain an effective anti-money laundering (AML) program.

Paxful is a peer-to-peer (P2P) cryptocurrency marketplace that allows users to buy and sell cryptocurrencies directly with each other for a variety of other items, including fiat currency, prepaid cards, and gift cards.

This case was investigated by Homeland Security Investigations (HSI) and IRS-Criminal Investigation. TRM is proud to have supported law enforcement in this investigation.

According to court documents, from July 2015 to June 2019, Schaback allowed customers to open accounts and trade on Paxful without gathering sufficient know-your-customer (KYC) information; marketed Paxful as a platform that did not require KYC; presented fake AML policies to third parties that he knew were not, in fact, implemented or enforced at Paxful; and failed to file a single suspicious activity report, despite knowing that Paxful users were perpetrating suspicious and criminal activity.

Cryptocurrency exchanges and other businesses are considered Money Services Businesses (MSBs) for purposes of the Bank Secrecy Act (BSA) - the US anti-money laundering regime. Under the BSA, the Financial Crimes Enforcement Network (FinCEN) classifies entities that deal in the exchange, transfer, or storage of virtual currencies as MSBs, specifically as "money transmitters." This classification imposes regulatory obligations on these businesses including registration, maintaining AML programs, recordkeeping, and reporting requirements. TRM works with crypto businesses – from large exchanges to DeFi protocols – to ensure compliance with the BSA and other AML regimes.

As a result of his failure to implement AML and KYC programs, Schaback made Paxful available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution.

This case is the product of an investigation by HSI and IRS-CI. Bank Integrity Unit Deputy Chief and National Cryptocurrency Enforcement Team Deputy Director Kevin Mosley and Trial Attorneys Emily Cohen, Victor Salgado, and Caylee Campbell of the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), and Assistant U.S. Attorney Matthew Thuesen for the Eastern District of California are prosecuting the case. This prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) investigation.