U.S. Court Orders Paxful to Pay $4M Over Illegal Funds and AML Case

TLDR

• Paxful must pay a $4M criminal penalty after a U.S. federal court sentencing this week.
• DOJ cut the penalty from $112M after reviewing Paxful’s limited ability to pay the fine.
• The case alleges AML and KYC failures that enabled money laundering and other crimes.
• Authorities tied Paxful transfers to Backpage-linked activity and illicit proceeds.
• Paxful also agreed to a $3.5M FinCEN civil penalty tied to Bank Secrecy Act violations.

Paxful Holdings Inc., a peer-to-peer Bitcoin exchange that shut down in 2023, must pay a $4 million criminal penalty after a U.S. federal sentencing this week. The ruling follows the company’s guilty plea to charges tied to money laundering failures and illegal financial activity. U.S. authorities said the case highlights stronger enforcement against crypto platforms that ignore compliance duties.

The U.S. Department of Justice determined that Paxful promoted illegal transactions while failing to enforce anti-money laundering safeguards. Prosecutors originally calculated a penalty exceeding $112 million. However, officials reduced the amount after reviewing the company’s finances and ability to pay. A federal judge approved the final $4 million penalty during a sentencing hearing.

Federal ruling confirms reduced $4M Paxful penalty

The DOJ stated that Paxful agreed in its plea deal that a penalty above $112 million matched the severity of its crimes. Prosecutors later conducted an independent financial review and concluded the company could not meet that figure. They recommended a reduced penalty, which the court confirmed.

U.S. Attorney Eric Grant said the sentence shows that companies cannot ignore criminal activity on their platforms. He stated that Paxful enabled money laundering and other offenses by choosing profit over compliance. Authorities stressed that crypto businesses must follow the same financial laws that apply to traditional institutions.

Court records show Paxful operated as a money transmitting business where users exchanged Bitcoin for cash, gift cards, and prepaid cards. From January 2017 through September 2019, the platform processed more than 26 million trades worth nearly $3 billion. During that period, Paxful collected close to $30 million in revenue.

AML failures and illegal trade activity shape case

Investigators found that Paxful failed to maintain an effective anti-money laundering program. The company allowed users to open accounts without sufficient identity checks and ignored suspicious transaction activity. Prosecutors said Paxful also presented compliance policies to regulators that it did not enforce in practice.

Authorities determined that the platform knowingly handled funds linked to fraud, extortion, and illegal prostitution. Paxful pleaded guilty to conspiracy charges related to the Travel Act, the Bank Secrecy Act, and operating an unlicensed money transmitting business. Officials said the platform became a vehicle for criminal transactions because it lacked oversight.

Assistant Attorney General A. Tysen Duva stated that financial crimes involving digital assets remain a priority for enforcement agencies. He said money transmitters that enable illegal trade support broader criminal networks. The department emphasized that compliance failures in crypto markets carry serious consequences.

Backpage Bitcoin transfers trigger additional penalties

Court documents linked Paxful to Bitcoin transfers connected to Backpage, a website tied to illegal prostitution. Investigators said Paxful processed nearly $17 million in Bitcoin transactions associated with Backpage and similar sites. These transfers generated millions in profit for the company.

Authorities said Paxful’s founders promoted the platform’s weak compliance standards to attract users blocked from regulated exchanges. Investigators referred to this growth driver as the “Backpage Effect.” Prosecutors argued that the company knowingly benefited from illicit trade activity.

The sentencing forms part of a coordinated resolution with the Treasury Department’s Financial Crimes Enforcement Network. Paxful also agreed to pay a $3.5 million civil penalty to FinCEN for willful violations of anti-money laundering laws. Officials stated that the joint action reinforces federal scrutiny of crypto platforms that ignore financial safeguards.

Separately, Paxful co-founder Artur Schaback pleaded guilty in 2024 to conspiracy tied to AML failures. Authorities said investigations into crypto compliance violations will continue as regulators push for stronger market accountability.

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