Paxful, a prominent peer-to-peer Bitcoin exchange that ceased operations in 2023, has pleaded guilty to federal charges, culminating in a financial penalty of $7.5 million. This penalty comprises a $4 million criminal fine imposed by the U.S. Department of Justice (DOJ) and an additional $3.5 million civil penalty from the Financial Crimes Enforcement Network (FinCEN).
Between 2017 and 2019, Paxful facilitated approximately $3 billion in cryptocurrency trades, accruing more than $29 million in revenue while allegedly enabling various criminal activities. Authorities reported that the platform processed about $17 million in transactions related to illegal prostitution websites and an estimated $500 million in activities involving sanctioned nations, including Iran, North Korea, and Venezuela.
According to the DOJ, Paxful actively circumvented compliance controls, failing to adequately identify its customers or report suspicious transactions. Acting Assistant Attorney General Matthew R. Galeotti emphasized the platform’s reliance on its lack of anti-money laundering measures to attract criminal clientele. Notably, Paxful processed trades for Backpage, an illicit advertising service for prostitution that was seized by federal authorities in 2018. Between 2015 and 2022, nearly $17 million in Bitcoin transactions were linked to Backpage and similar websites, resulting in significant profits for Paxful, a situation its founders reportedly referred to as the “Backpage Effect.”
The DOJ’s findings revealed that despite being aware of the illegal activities conducted via its platform, Paxful did not file the required suspicious activity reports and misrepresented its anti-money laundering policies to external parties. As part of the charges, Paxful pleaded guilty to three counts of conspiracy: violating the Travel Act by promoting illegal prostitution, operating an unlicensed money transmitting business, and breaching Bank Secrecy Act requirements.
Although the calculated penalty under sentencing guidelines amounted to $112.5 million, the Justice Department determined that Paxful could only afford a penalty of $4 million. The $3.5 million civil penalty from FinCEN stems from willful violations of the Bank Secrecy Act, for which Paxful received some leniency due to its cooperation with investigations and the implementation of corrective measures, including the removal of leadership responsible for the violations.
In a related development, Paxful’s co-founder and former CTO, Artur Schaback, also pleaded guilty in July 2024 to charges linked to the same criminal scheme. Sentencing for Paxful is scheduled for February 10, 2026.
