Paxful Pleads Guilty to Money Laundering, Fined $7.5M

According to the Department of Justice, Paxful operated between 2017 and 2019 as a peer-to-peer exchange where users traded Bitcoin and other cryptocurrencies for fiat currency, prepaid cards, and gift cards. During this period, the platform processed approximately $3 billion in trades, generating over $29 million in revenue. The core of the government’s case, however, was that this revenue was earned “in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers, and purveyors of prostitution,” as stated by Acting Assistant Attorney General Matthew R. Galeotti.

The DOJ alleged that Paxful deliberately attracted a criminal clientele by promoting its lack of anti-money laundering (AML) controls and its conscious decision not to identify its customers. The company failed to file required suspicious activity reports and misrepresented its AML policies to third parties, creating an environment where illicit finance could thrive unchecked. This systematic avoidance of compliance was not an oversight but a foundational business strategy.

The scale of the criminal activity facilitated by Paxful is detailed in the charges. Notably, the platform 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 the exchange. Internal communications revealed that Paxful’s founders reportedly celebrated the “Backpage Effect” that fueled their business growth, directly linking profitability to illegal activity.

Beyond illegal prostitution, Paxful’s compliance failures had geopolitical ramifications. The DOJ stated that the platform facilitated over $500 million in transactions involving sanctioned countries, including Iran, North Korea, and Venezuela. By processing these funds, Paxful undermined U.S. national security and foreign policy objectives, enabling economic activity for regimes under strict international sanctions.

Paxful pleaded guilty to three federal conspiracy charges: violating the Travel Act by promoting illegal prostitution, operating an unlicensed money transmitting business, and willfully violating Bank Secrecy Act requirements. Co-founder and former CTO Artur Schaback pleaded guilty to related charges in July 2024. The Financial Crimes Enforcement Network (FinCEN) separately assessed a $3.5 million civil penalty against Paxful for willful Bank Secrecy Act violations.

The financial penalty reveals a significant reduction from what sentencing guidelines recommended. The appropriate penalty was calculated at $112.5 million, but the Justice Department determined Paxful could reasonably pay only $4 million as a criminal penalty, bringing the total to $7.5 million with FinCEN’s fine. This reduction was granted because the company received credit for cooperating with investigators and implementing remedial measures after terminating the leadership responsible for the violations. Sentencing for the corporate entity is scheduled for February 10, 2026.

This case serves as a stark warning to the cryptocurrency industry. The DOJ and FinCEN have demonstrated they will pursue exchanges that treat compliance as optional, even if those platforms have shuttered operations. The prosecution of Paxful and its co-founder Artur Schaback highlights that individuals, not just corporations, face personal liability for enabling financial crime on a massive scale through digital asset platforms.