Paxful Co-Founder Pleads Guilty to AML Failures, Faces 5-Year Prison Sentence

Artur Schaback, co-founder and former chief technology officer of cryptocurrency exchange Paxful, has pleaded guilty to conspiracy charges for failing to maintain an effective anti-money laundering (AML) program. The U.S. Department of Justice announced on July 8, 2024, that Schaback faces a maximum sentence of five years in prison.

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. He also marketed the platform as not requiring KYC compliance and presented fraudulent AML policies to third parties.

The Justice Department stated that Schaback’s negligence made Paxful “available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution.”

As part of a plea agreement, Schaback has agreed to pay a $5 million fine in three installments: $1 million by the date of his guilty plea, $3 million by his sentencing, and the final $1 million within the next two years. He will also resign from Paxful’s Board of Directors.

The case is being investigated by Homeland Security Investigations (HSI) and the IRS Criminal Investigation (IRS-CI). Schaback is scheduled for sentencing on November 4, 2024.

This development comes after a period of turmoil for Paxful. In January 2023, Schaback sued Ray Youssef, Paxful’s other co-founder and CEO, accusing him of misappropriating company funds, engaging in money laundering, and evading U.S. sanctions against Russia. The platform faced temporary closure in April 2023 amid legal disputes over company control and Youssef’s resignation.

The guilty plea highlights the increasing scrutiny of cryptocurrency platforms by U.S. authorities and the importance of implementing robust AML and KYC procedures in the crypto industry. It serves as a stark reminder to crypto businesses of the legal consequences of failing to comply with financial regulations.