Paxful Co-Founder Pleads Guilty in AML Conspiracy Case

  • Paxful co-founder Artur Schaback pleads guilty to AML program failures, facing up to five years in prison.
  • Schaback to pay a $5 million fine in installments as part of the plea deal, with sentencing set for November 4.
  •  Schaback’s negligence allowed Paxful to be used for illegal activities, leading to significant legal and regulatory challenges for the exchange.

Artur Schaback, co-founder of the cryptocurrency exchange Paxful, has entered a plea agreement with U.S. prosecutors and now faces a potential five-year prison sentence. This plea follows his admission to conspiring to neglect implementing an effective Anti-Money Laundering (AML) program at Paxful. 

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The US Justice Department released information that Schaback pleaded guilty on July 8, admitting that he failed to establish the necessary AML program within 90 days of Paxful’s creation, which is against the Bank Secrecy Act (BSA). Schaback’s failure to create a Know Your Customer (KYC) program necessary to identify users on the platform enabled the site to be used for unlawful operations.

Schaback is anticipated to pay a $5 million fine in three installments as part of the plea agreement: $1 million on the plea date, $3 million during his sentence, and the remaining $1 million within two years. His sentence is set for November 4, and as part of the arrangement, he will resign from the Paxful board.

The Justice Department’s information filing from March revealed that between July 2015 and June 2019, Schaback and a co-conspirator, identified as Paxful’s “President and Chief Executive Officer,” allowed users to open accounts and trade without adequate identity verification, promoting illegal activities.

Schaback and his co-conspirator also made exceptions to AML and KYC customer policies based on trading volumes and personal relationships. When third parties requested Paxful’s AML policy, they presented a plagiarized document from another institution, knowing it was neither implemented nor enforced.

In March 2023, Schaback sued Paxful’s former CEO, Mohamad (Ray) Youssef, alleging misappropriation of company funds, money laundering, and sanctions evasion. In response, Paxful agreed to a court order in April 2022, appointing Srinivas Raju, Director at the law firm Richards, Layton, and Finger, as the exchange’s custodian.

Paxful also appointed Roshan Dharia as Interim CEO in late May 2023. This leadership change aims to stabilize the company amid the ongoing legal and regulatory challenges.

Artur Schaback’s guilty plea marks a significant moment in Paxful’s history, highlighting the critical importance of compliance in the cryptocurrency industry. As the company navigates through these challenges, the outcome of Schaback’s sentencing and the company’s future steps in adhering to regulatory standards will be closely watched.

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