US Department of Justice strikes again! Co-founder of early P2P cryptocurrency exchange Paxful admits to conspiracy to commit money laundering

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Overview of Guilty Plea

Established in 2015, Paxful Inc., a P2P cryptocurrency platform with over 350 payment methods and more than 10 million users, faces enforcement actions. Co-founder and former Chief Technology Officer (CTO) of Paxful Inc., Artur Schaback, has pleaded guilty to conspiring to commit crimes by failing to maintain an effective anti-money laundering (AML) program. The case of Paxful Inc. demonstrates the U.S. Department of Justice's ability to enforce regulations retrospectively during a period of unclear regulations.

Background of Paxful's Violations

From July 2015 to June 2019, the 36-year-old Estonian, Schaback, operated a peer-to-peer (P2P) virtual currency platform through Paxful Inc. Paxful allowed customers to trade various items with cryptocurrencies, including fiat currencies, prepaid cards, and gift cards. During this period, Schaback allowed users to open accounts and conduct transactions without sufficient Know Your Customer (KYC) information and marketed the platform as KYC-free, providing false Anti-Money Laundering (AML) policies to third parties. Despite knowing that Paxful users were engaged in suspicious and criminal activities, he failed to submit any suspicious activity reports.

Consequences of Paxful's Early Lack of Effective AML Measures

The lack of effective AML and KYC programs made Paxful a hub for various criminal activities, including money laundering, sanctions violations, fraud, romance scams, extortion, and prostitution. Schaback's actions exposed the platform and its users to significant legal and financial risks.

Consequences and Sentencing After Paxful's Violations

Schaback has admitted to conspiring to willfully fail to establish, develop, implement, and maintain an effective AML program, as required under the Bank Secrecy Act. He will be sentenced on November 4 and faces up to five years in prison. The federal district court judge will determine the sentence based on the U.S. Sentencing Guidelines and other statutory factors. Additionally, Schaback will resign from the board of Paxful Inc.

Law Enforcement Team Prosecuting Paxful

The prosecution team includes Kevin Mosley, Deputy Chief of the Bank Integrity Unit and Deputy Director of the National Cryptocurrency Enforcement Team, Emily Cohen, Victor Salgado, and Caylee Campbell from the Criminal Division's Money Laundering and Asset Recovery Section (MLARS), as well as Assistant U.S. Attorney Matthew Thuesen from the Eastern District of California. The Bank Integrity Unit of MLARS focuses on investigating and prosecuting financial institutions, including banks and their employees.

Participation of OCDETF

This prosecution is part of the Organized Crime Drug Enforcement Task Forces (OCDETF) investigation. OCDETF aims to identify, disrupt, and dismantle high-level drug traffickers, money launderers, gangs, and transnational criminal organizations that pose a threat to the United States. The task force employs a prosecutor-led, intelligence-driven, multi-agency approach to effectively combat these criminal networks.

This case also illustrates the complexity and diversity of criminal activities conducted using cryptocurrencies. With technological advancements, collaborative efforts among law enforcement agencies are essential to enhance investigative and enforcement capabilities.