Paxful Holdings Inc., a virtual currency trading platform, has agreed to plead guilty to three federal criminal charges in the Eastern District of California. The company will pay a $4 million criminal penalty, which was determined based on its ability to pay.
“Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers and purveyors of prostitution,” said Acting Assistant Attorney General Matthew R. Galeotti of the Justice Department’s Criminal Division. “The defendant attracted its criminal clientele by promoting its lack of anti-money laundering controls and its deliberate decision not to identify its customers. This conviction shows that no matter the means, the Criminal Division will hold criminals accountable for knowingly engaging in illicit finance to further dangerous criminal activity.”
“Yesterday’s guilty plea by Paxful Holdings holds the company accountable for knowingly facilitating serious criminal conduct in the United States and elsewhere,” said U.S. Attorney Eric Grant for the Eastern District of California. “Through its calculated lack of controls, the company made itself available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution. This resolution sends a clear message: those who deliberately turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The Department of Justice remains committed to protecting victims and ensuring that the financial system, including the cryptocurrency ecosystem, is not exploited.”
“For years, Paxful disregarded its Bank Secrecy Act obligations and facilitated transactions associated with illicit activity and high-risk jurisdictions, such as Iran and North Korea,” said Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki. “FinCEN is committed to mitigating risks to the U.S. financial system while fostering responsible innovation in the virtual asset ecosystem.”
“Paxful Holdings, Inc. knowingly enabled its platform to serve as a conduit for criminal activity — including fraud and illegal prostitution,” said Special Agent in Charge Linda Nguyen of the IRS Criminal Investigation (IRS-CI) Oakland Field Office. “By willfully disregarding anti-money laundering laws and failing to report suspicious activity, Paxful profited in illicit trades while facilitating crimes with serious harm and consequences. IRS-CI remains steadfast in its mission to hold virtual currency platforms accountable when they are used to conceal and enable criminal conduct.”
Court documents show that Paxful operated an online peer-to-peer virtual currency platform where users traded digital assets for items like fiat currency or gift cards. From January 2017 through September 2019, Paxful facilitated more than 26 million trades worth nearly $3 billion and collected over $29 million in revenue.
Paxful transferred virtual currency on behalf of customers involved with Backpage—an online advertising site known for illegal prostitution—and similar sites. Backpage’s owners have previously admitted that it advertised illegal sex work involving minors.
Between December 2015 and December 2022, almost $17 million worth of bitcoin was transferred from Paxful wallets to Backpage or similar sites; Paxful gained at least $2.7 million from these activities.
From July 2015 through June 2019, court documents indicate that Paxful promoted itself as not requiring know-your-customer information (KYC), allowed account creation without sufficient KYC checks, presented fake anti-money-laundering policies externally but did not enforce them internally, and failed to file suspicious activity reports despite knowledge of ongoing suspicious behavior.
As part of their plea agreement with prosecutors—including conspiracy charges related to violating the Travel Act by promoting illegal prostitution via interstate commerce—Paxful acknowledged using their platform for transferring proceeds from various crimes such as fraud schemes and distribution of child sexual abuse material.
Although Paxful did not voluntarily disclose wrongdoing initially, it received credit during sentencing for cooperating with investigators by producing extensive documentation during internal investigations as well as taking remedial actions after being contacted by authorities; this cooperation resulted in a reduction off potential fines according to U.S. sentencing guidelines.
On July 8th last year co-founder Artur Schaback pleaded guilty regarding failure related AML programs tied into this case.
The investigation was conducted jointly by Immigrations and Customs Enforcement Homeland Security Investigations (ICE HSI) along with IRS‑CI agents; prosecution is being handled by attorneys from both DOJ’s Money Laundering section & Assistant U.S Attorney Matthew Thuesen representing California’s Eastern District office.
