Paxful Hit With Criminal Penalty After DOJ Case

Paxful Holdings Inc., a peer-to-peer cryptocurrency exchange that allowed users to buy and sell Bitcoin directly with one another, has been ordered by a federal court to pay a $4 million criminal penalty. The platform operated as a marketplace for Bitcoin transactions, connecting retail users globally without traditional banking intermediaries. The penalty follows findings that the company conspired to facilitate illegal prostitution, money laundering, and violations of the Bank Secrecy Act.

The ruling concludes a case brought by the U.S. Department of Justice and the Financial Crimes Enforcement Network (FinCEN), targeting conduct that occurred between 2015 and 2022.

Authorities alleged that the peer-to-peer Bitcoin exchange knowingly operated as a financial channel for criminal enterprises while failing to implement adequate compliance safeguards.

Allegations of Facilitating Illegal Prostitution Payments

Prosecutors determined that Paxful conspired with senior executives to violate the Travel Act by promoting illegal prostitution services. The platform processed more than $15 million in transactions for Backpage.com, a website later seized by the DOJ in 2018 over sex trafficking charges.

According to court findings, Paxful created a dedicated landing page to assist Backpage users in completing payments through the exchange, strengthening its connection to the illicit activity.

AML Failures and Sanctions Exposure

In addition to facilitating illegal sex work transactions, Paxful was found to have maintained inadequate Anti-Money Laundering controls. Authorities argued that the lack of oversight was intentional and designed to attract high-risk customers.

The exchange allegedly enabled transactions linked to ransomware operators, fraud networks, and sanctioned actors, including state-sponsored cybercriminals from North Korea and Iran. Regulators stated that the company failed to file a single Suspicious Activity Report for more than four years, constituting willful violations of the Bank Secrecy Act.

FinCEN imposed a separate $3.5 million civil penalty for these compliance failures.

Reduced Penalty Reflects Financial Condition

Although the DOJ assessed that Paxful’s conduct warranted a $112.5 million criminal penalty, the fine was reduced to $4 million due to the company’s financial condition. Authorities concluded that imposing the full amount would threaten the company’s viability.

The sentencing also follows prior executive accountability actions. Former Chief Technology Officer Artur Schaback pleaded guilty in July 2024 to conspiracy charges tied to the company’s failure to maintain an effective AML program.

Operational Shutdown and Remediation

Paxful, which previously facilitated approximately $3 billion in trades, ceased its primary operations in 2023. The company is currently undergoing court-mandated remediation as it exits the U.S. market.

The case underscores heightened enforcement scrutiny on cryptocurrency platforms that fail to implement robust compliance frameworks, particularly in areas involving AML controls and financial crime reporting obligations.

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