In brief
- Paxful pleaded guilty to federal charges and will pay $7.5 million total in criminal and civil penalties for enabling money laundering and criminal activity on its Bitcoin exchange.
- The platform processed $3 billion in trades, authorities say, including $17 million to illegal prostitution sites and $500 million involving sanctioned countries like Iran and North Korea.
- Paxful deliberately avoided compliance controls and failed to identify customers or report suspicious activity, the DOJ alleged, with co-founder Artur Schaback also pleading guilty in July 2024.
Paxful Holdings Inc., the firm behind a peer-to-peer Bitcoin exchange that shuttered in 2023, has agreed to plead guilty to federal charges and pay a $4 million criminal penalty to the U.S. Department of Justice.
This comes in addition to a $3.5 million civil penalty handed down by the Financial Crimes Enforcement Network on Tuesday.
The company facilitated approximately $3 billion in trades between 2017 and 2019, earning over $29 million in revenue while knowingly enabling criminal activity, according to the Department of Justice.
Paxful operated as a peer-to-peer exchange through which users traded Bitcoin and other cryptocurrencies for fiat, prepaid cards, and gift cards.
“Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers, and purveyors of prostitution,” Acting Assistant Attorney General Matthew R. Galeotti of the Justice Department’s Criminal Division said in a statement. “The defendant attracted its criminal clientele by promoting its lack of anti-money laundering controls and its deliberate decision not to identify its customers.”
Notably, Paxful processed transactions for Backpage, an illegal prostitution advertising platform seized by the Justice Department in 2018.
Between 2015 and 2022, nearly $17 million in Bitcoin flowed from Paxful to Backpage and similar sites, generating at least $2.7 million in profits for Paxful. The company’s founders reportedly celebrated the “Backpage Effect” that fueled their business growth.
The DOJ said that the platform also facilitated transactions involving sanctioned countries, including Iran, North Korea, and Venezuela, processing over $500 million in suspicious activity.
Despite being aware of criminal conduct on its platform, Paxful failed to file required suspicious activity reports and misrepresented anti-money laundering policies to third parties.
Paxful pleaded guilty to three conspiracy charges: violating the Travel Act by promoting illegal prostitution, operating an unlicensed money transmitting business, and violating Bank Secrecy Act requirements.
While the appropriate penalty was calculated at $112.5 million under the applicable sentencing guidelines, the Justice Department determined that Paxful could reasonably pay only $4 million.
Additionally, FinCEN assessed a $3.5 million civil penalty against Paxful for willful violations of the Bank Secrecy Act.
The company received some credit for cooperating with investigators and implementing remedial measures after terminating leadership responsible for the violations. Sentencing is scheduled for February 10, 2026.
Paxful co-founder and former CTO Artur Schaback pleaded guilty in July 2024 to charges arising from the same scheme.
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