Office of Public Affairs | Digital Asset Buying and selling Platform Sentenced for Violating the Travel Act and Different Federal Criminal Charges

Paxful Holdings Inc., a web-based digital forex buying and selling platform, was sentenced yesterday to pay a felony penalty of $4 million based mostly on its means to pay following its responsible plea to conspiracies to advertise unlawful prostitution, violate the Bank Secrecy Act, and knowingly transmit funds derived from felony offenses.

“Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution and commercial sex trafficking,” stated Assistant Attorney General A. Tysen Duva of the Justice Department’s Criminal Division. “Crimes like this are a high priority for the Criminal Division because criminal money transmitters facilitate so many other crimes like money laundering, prostitution, fraud, romance scams, extortion and human trafficking. This sentence shows that companies will be held accountable when they create safe havens for criminal activity.”

“This sentence holds the company accountable for knowingly allowing its platform to facilitate serious criminal conduct,” stated U.S. Attorney Eric Grant for the Eastern District of California. “By putting profit over compliance, the company enabled money laundering and other crimes. This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The U.S. Attorney’s Office will continue to protect victims and ensure that the cryptocurrency ecosystem is not exploited by criminals.”

“This sentencing underscores IRS Criminal Investigation’s (IRS-CI) unwavering commitment to holding accountable those who exploit financial systems to facilitate criminal activity,” stated Special Agent in Charge Linda Nguyen of the IRS-CI Oakland Field Office. “Paxful’s deliberate disregard for anti-money laundering requirements and its role in promoting illegal prostitution and other criminal schemes enabled the movement of illicit funds at scale. This case sends a clear message: platforms that choose profit over compliance will face serious consequences and be brought to justice.”

According to courtroom paperwork, Paxful Inc., and later, Paxful Holdings Inc. (collectively Paxful), owned and operated a web-based peer-to-peer digital forex platform and cash transmitting enterprise (MTB) the place prospects negotiated for and traded digital forex for quite a lot of different gadgets, together with forex like money, pre-paid playing cards and present playing cards. Paxful knew that its prospects transmitted funds from felony offenses, together with fraud schemes and unlawful prostitution. From Jan. 1, 2017, to Sept. 2, 2019, Paxful facilitated greater than 26.7 million trades, totaling almost $3 billion in worth, and picked up greater than $29.7 million in income.

Paxful knowingly transferred digital forex on behalf of its prospects, together with Backpage, a web-based promoting platform for illicit prostitution and related websites. In varied felony proceedings, Backpage and its homeowners and operators admitted that Backpage marketed and profited from unlawful prostitution, together with unlawful intercourse work depicting minors. Paxful’s founders boasted in regards to the “Backpage Effect,” which enabled the enterprise to develop. Between December 2015 and December 2022, Paxful’s collaboration with Backpage and the same website precipitated almost $17 million price of bitcoin to be transferred from the Paxful pockets to Backpage and the copycat website from which Paxful obtained a minimum of $2.7 million in earnings.

As described within the plea settlement, from July 2015 to June 2019, Paxful and its founders marketed Paxful as a platform that didn’t require know-your-customer (KYC) info; allowed prospects to open accounts and commerce on the Paxful platform with out gathering enough KYC info; introduced to 3rd events faux AML insurance policies that they knew weren’t carried out or enforced; and did not file suspicious exercise reviews, regardless of figuring out that Paxful customers have been engaged in suspicious and felony exercise. As a outcome, Paxful knew it was used as a automobile for prostitution, fraud, romance scams and extortion schemes.

Paxful pleaded responsible to conspiring to violate the Travel Act by selling unlawful prostitution by means of interstate commerce; conspiring to function an unlicensed MTB by knowingly transmitting funds derived from felony offenses or supporting illegal exercise, together with unlawful prostitution and fraud schemes; and conspiring to violate the Bank Secrecy Act’s (BSA) anti-money laundering (AML) program requirement. As a results of its unlawful conduct, the digital forex platform was used to switch the proceeds of fraud schemes, unlawful prostitution, hacks by malign state actors and distribution of kid sexual abuse materials.

The Justice Department reached its decision with Paxful based mostly on a number of elements, together with the character and seriousness of the offenses, which concerned Paxful’s processing of hundreds of thousands of {dollars} of illicit transactions. Paxful didn’t make a well timed and voluntary disclosure of wrongdoing, however it acquired credit score for its cooperation with the division’s investigation, together with amongst different issues, accumulating, analyzing and producing voluminous info, offering well timed updates on info realized throughout its inside investigation and interesting in in depth and well timed remedial measures. According to courtroom paperwork, Paxful agreed that the suitable felony penalty based mostly on the legislation and the info in its case is $112,500,000. Based on the Justice Department’s impartial evaluation, it decided that Paxful didn’t have the flexibility to pay a felony penalty better than $4 million.

On July 8, 2024, Paxful’s co-founder and former chief know-how officer, Artur Schaback, pleaded responsible to conspiracy to fail to take care of an efficient AML program in relation to the identical scheme.

Paxful’s responsible plea was a part of a coordinated decision with FinCEN.

HSI and IRS-CI are investigating the case.

Bank Integrity Unit Deputy Chief Kevin Mosley and Trial Attorneys Emily Cohen, Caylee Campbell and Katherine Nielsen of the Criminal Division’s Money Laundering, Narcotics and Forfeiture Section and Assistant U.S. Attorney Matthew Thuesen for the Eastern District of California are prosecuting the case.

The Money Laundering, Narcotics and Forfeiture Section’s Bank Integrity Unit investigates and prosecutes banks and different monetary establishments, together with their officers, managers and workers whose actions threaten the integrity of the person establishment or the broader monetary system.