Cryptocurrency peer-to-peer marketplace Paxful has agreed to pay a total of $7.5 million in penalties after admitting that it facilitated a massive volume of illicit financial activity, including money laundering, fraud, and illegal prostitution, via its platform.
The resolution follows coordinated enforcement efforts by the U.S. Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN). Under the agreement, Paxful will pay $4 million in criminal fines to the DOJ and $3.5 million in civil penalties to FinCEN, totaling $7.5 million.
The Department of Justice claimed that this fine acts as a warning to those with similar intentions to Paxful. The trading platform managed approximately $3 billion in trades over the period from 2017 to 2019. At this time, it generated more than $29 million in revenue while engaging in activities that were intentionally illegal.
Paxful’s illegal activities cause tension in the industry
Before shutting down its operations, Paxful served as a peer-to-peer exchange, allowing users to exchange Bitcoin and other cryptocurrencies for prepaid cards, cash, and gift cards.
Acting Assistant Attorney General Matthew R. Galeotti from the Justice Department’s Criminal Division alleged that during this time, “Paxful earned millions by intentionally moving cryptocurrency for criminals like fraudsters, extortionists, money launderers, and those involved in prostitution.”
According to Galeotti, the firm drew the attention of these criminals after it established weak anti-money laundering measures and its decision not to identify its clients.
Following this claim, sources reported that Paxful managed Backpage’s transactions. This unlawful online advertising website promoted prostitution, prompting federal authorities to seize and shut it down in April 2018.
What captured the attention of these federal authorities was the discovery that about BTC worth $17 million were transferred from Backpage and similar websites, yielding profits of at least $2.7 million for Paxful from 2015 to 2022. Reporters highlighted that the firm celebrated this “achievement”, referring to it as the “Backpage Effect,” which played a key role in expanding the business.
Additionally, the Department of Justice noted that the trading platform played a role in transactions connected to nations under sanctions. Examples of these countries include Iran, North Korea, and Venezuela. It was also accused of processing over $500 million in suspicious activities.
The relevant authorities concluded that the platform was aware of the industry’s governing rules. They drew this conclusion after reports revealed that Paxful was aware of these activities occurring on its platform but failed to submit the required report about suspicious actions. It also issued misleading details regarding its anti-money laundering policies to others.
Paxful pleads guilty to illegal activities
Regarding Paxful’s decision to plead guilty, sources reported that the platform was accused of three conspiracies. This included violating the Travel Act by promoting illegal prostitution, operating an unlicensed money transmitting business, and failing to follow Bank Secrecy Act requirements.
Considering the seriousness of the case, the sentencing guidelines highlighted that the total penalty could amount to around $112.5 million. However, the Justice Department argued that this amount was not logical, asserting that Paxful could fairly pay approximately $4 million.
Apart from this amount, FinCEN imposed an additional $3.5 million as a civil penalty on that platform for intentionally breaking the Bank Secrecy Act. Meanwhile, some individuals congratulated Paxful for complying with investigators and taking the necessary steps to address this problem. This involved holding leaders accountable for the violation.
The platform’s sentencing has been postponed to February 10, 2026. This recent case does not count as its first time since it had earlier admitted guilt in the same case. In this early case, Artur Schaback, Paxful’s CEO, was accused of being connected to the same scheme.
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Source: https://www.cryptopolitan.com/paxful-to-pay-7-5m-after-pleading-guilty/
