Paxful Holdings Inc., an online platform for trading virtual currency, has agreed to plead guilty to federal criminal charges in the Eastern District of California. The company will pay a $4 million criminal penalty, reflecting its ability to pay.
“Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers and purveyors of prostitution,” said Acting Assistant Attorney General Matthew R. Galeotti of the Justice Department’s Criminal Division. “The defendant attracted its criminal clientele by promoting its lack of anti-money laundering controls and its deliberate decision not to identify its customers. This conviction shows that no matter the means, the Criminal Division will hold criminals accountable for knowingly engaging in illicit finance to further dangerous criminal activity.”
U.S. Attorney Eric Grant for the Eastern District of California stated: “Yesterday’s guilty plea by Paxful Holdings holds the company accountable for knowingly facilitating serious criminal conduct in the United States and elsewhere. Through its calculated lack of controls, the company made itself available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution. This resolution sends a clear message: those who deliberately turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The Department of Justice remains committed to protecting victims and ensuring that the financial system, including the cryptocurrency ecosystem, is not exploited.”
“For years, Paxful disregarded its Bank Secrecy Act obligations and facilitated transactions associated with illicit activity and high-risk jurisdictions, such as Iran and North Korea,” said Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki. “FinCEN is committed to mitigating risks to the U.S. financial system while fostering responsible innovation in the virtual asset ecosystem.”
Special Agent in Charge Linda Nguyen of IRS Criminal Investigation (IRS-CI) Oakland Field Office added: “Paxful Holdings, Inc. knowingly enabled its platform to serve as a conduit for criminal activity — including fraud and illegal prostitution. By willfully disregarding anti-money laundering laws and failing to report suspicious activity, Paxful profited in illicit trades while facilitating crimes with serious harm and consequences. IRS-CI remains steadfast in its mission to hold virtual currency platforms accountable when they are used to conceal and enable criminal conduct.”
Court documents show that from January 2017 through September 2019, Paxful operated a peer-to-peer virtual currency platform where users traded digital assets for items like fiat currency or gift cards. During this period it facilitated over 26 million trades totaling nearly $3 billion in value.
Paxful was aware that some customers used its services for activities linked to crime—including fraud schemes and illegal prostitution—and transferred funds on behalf of clients such as Backpage.com. Backpage has previously admitted it advertised illegal sex work involving minors; Paxful’s collaboration resulted in nearly $17 million worth of bitcoin being sent from Paxful wallets to Backpage or similar sites between December 2015 and December 2022.
From July 2015 through June 2019, according to court filings, Paxful promoted itself as not requiring know-your-customer information (KYC), allowed anonymous account creation without sufficient KYC checks, presented fake anti-money-laundering policies externally while not enforcing them internally, and failed to file suspicious activity reports despite knowledge of user misconduct.
As part of its plea agreement with authorities—including FinCEN—Paxful admitted conspiring both to violate the Travel Act by promoting illegal prostitution across state lines; operating an unlicensed money transmitting business; and violating Bank Secrecy Act requirements regarding anti-money-laundering programs.
The Justice Department noted several factors influencing their resolution with Paxful: seriousness of offenses involving millions in illicit transactions; failure by Paxful at first voluntarily disclose wrongdoing; but later cooperation during investigation earned them reduced penalties—a 25% reduction off guideline fines—with final penalty set at $4 million due to inability-to-pay analysis.
Sentencing is scheduled for February 10th next year.
On July 8th this year Artur Schaback—co-founder and former chief technology officer—also pleaded guilty related to failing effective AML program oversight within this scheme.
Investigations were conducted by ICE Homeland Security Investigations (HSI) alongside IRS-CI agents; prosecution was handled by attorneys from DOJ’s Money Laundering section together with Assistant U.S Attorney Matthew Thuesen.
