- Paxful ordered to pay $4M after pleading guilty to federal charges tied to prostitution and AML violations.
- Platform processed nearly $3B in trades while failing to enforce effective AML and KYC controls.
- Nearly $17M in Bitcoin moved to Backpage-linked accounts, generating at least $2.7M in profits.
Paxful Holdings Inc., the operator of an online peer-to-peer virtual currency trading platform, has been ordered to pay a $4 million criminal penalty after pleading guilty to multiple federal offenses, including conspiracies to promote illegal prostitution, operate an unlicensed money transmitting business, and violate anti-money laundering requirements under the Bank Secrecy Act.
The sentence follows a Justice Department determination that the company lacked the financial capacity to pay a higher penalty, despite agreeing that the appropriate criminal fine based on the facts and applicable law was $112.5 million.
Guilty Plea Covers Travel Act, Bank Secrecy Act Violations
According to court documents, Paxful admitted to conspiring to violate the Travel Act by promoting illegal prostitution through interstate commerce. The company also pleaded guilty to conspiring to operate an unlicensed money transmitting business by knowingly transmitting funds derived from criminal offenses, including fraud schemes and illegal prostitution. In addition, Paxful admitted to conspiring to violate the Bank Secrecy Act’s anti-money laundering program requirements.
Federal prosecutors stated that between Jan. 1, 2017, and Sept. 2, 2019, Paxful allowed more than 26.7 million trades valued at nearly $3 billion and raised over $29.7 million in revenue. The platform enabled customers to exchange virtual currency for cash, prepaid cards, and gift cards. Authorities said Paxful was aware that some users were transmitting funds connected to criminal conduct.
Transfers Linked to Backpage and Compliance Failures
Court filings detail Paxful’s role in transferring virtual currency on behalf of customers, including Backpage, an online platform whose owners previously admitted to profiting from illegal prostitution, including activity involving minors.
Between December 2015 and December 2022, nearly $17 million in Bitcoin was transferred from Paxful wallets to Backpage and a related site. Paxful earned at least $2.7 million in profits from that collaboration.
From July 2015 to June 2019, Paxful marketed its platform as not requiring know-your-customer information and allowed users to trade without collecting sufficient identity data. Prosecutors said the company presented anti-money laundering policies to third parties that were not implemented and failed to file suspicious activity reports despite knowledge of criminal use of the platform.
Related: Paxful Loses Trust in Crypto’s Future in the US; Says CEO
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
