Virtual Asset Platform Sentenced for Travel Act and Federal Violations
Paxful Holdings Inc., a virtual asset platform, has been sentenced to pay a $4 million criminal penalty. This ruling comes after the company pleaded guilty to several serious violations, including promoting illegal prostitution and failing to comply with the Bank Secrecy Act.
Paxful’s Criminal Activity
The Justice Department revealed that Paxful knowingly facilitated substantial criminal transactions. The company attracted users by explicitly advertising its lack of anti-money laundering measures. Assistant Attorney General A. Tysen Duva emphasized that such online platforms enabling criminal activity would be held accountable.
Details of the Violations
- Promotion of illegal prostitution through interstate commerce.
- Operating an unlicensed money transmitting business.
- Failure to implement an effective anti-money laundering program.
Paxful’s operations, from January 1, 2017, to September 2, 2019, involved more than 26.7 million trades, amounting to nearly $3 billion. This contributed to illicit activities, including fraud schemes and sex trafficking.
Partnership with Criminal Entities
During its operations, Paxful collaborated with Backpage, a now-defunct site known for advertising illegal prostitution. This relationship enabled approximately $17 million in Bitcoin transactions to be transferred to Backpage. Notably, Paxful generated about $2.7 million from this partnership.
Company Accountability
Paxful’s failures extended to not gathering necessary customer verification information. The company misrepresented its anti-money laundering policies and did not report suspicious activities, fostering a platform for fraud, extortion, and human trafficking.
Court Resolution and Future Implications
The Justice Department based its resolution on various factors, assessing the seriousness of Paxful’s offenses. Ultimately, the court found that Paxful could only pay a penalty of $4 million, significantly lower than the potential $112.5 million maximum sanction.
Ongoing Investigations and Legal Actions
Paxful’s co-founder, Artur Schaback, has also pled guilty to similar charges. The case involves extensive investigations by agencies including HSI and the IRS Criminal Investigation division. Prosecutors from the Money Laundering, Narcotics and Forfeiture Section continue to pursue justice against financial misconduct.
This case serves as a warning: companies prioritizing profits over compliance with legal standards will face significant repercussions under U.S. law.
