Michele Beckwith Acting U.S. Attorney | U.S. Attorney for the Eastern District of California
Paxful Holdings, Inc., an online platform for trading virtual currency, has been sentenced to pay a $4 million criminal penalty after pleading guilty to federal charges including promoting illegal prostitution, violating the Bank Secrecy Act, and knowingly transmitting funds from criminal activities.
According to the Department of Justice, Paxful marketed itself as a platform with minimal anti-money laundering (AML) controls. Assistant Attorney General A. Tysen Duva stated, “Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution and commercial sex trafficking.” Duva added that prosecuting such crimes is a priority because platforms like Paxful facilitate other offenses such as romance scams and human trafficking. “This sentence shows that companies will be held accountable when they create safe havens for criminal activity.”
U.S. Attorney Eric Grant for the Eastern District of California commented on the sentencing: “This sentence holds the company accountable for knowingly allowing its platform to facilitate serious criminal conduct. By putting profit over compliance, the company enabled money laundering and other crimes. This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The U.S. Attorney’s Office will continue to protect victims and ensure that the cryptocurrency ecosystem is not exploited by criminals.”
Special Agent in Charge Linda Nguyen of IRS Criminal Investigation's Oakland Field Office also emphasized enforcement efforts: “This sentencing underscores IRS Criminal Investigation’s (IRS-CI) unwavering commitment to holding accountable those who exploit financial systems to facilitate criminal activity,” she said. “Paxful’s deliberate disregard for anti-money laundering requirements and its role in promoting illegal prostitution and other criminal schemes enabled the movement of illicit funds at scale. This case sends a clear message: platforms that choose profit over compliance will face serious consequences and be brought to justice.”
Court documents show Paxful operated as an online peer-to-peer virtual currency exchange where customers could trade digital assets for cash or gift cards among other items. From January 2017 through September 2019, more than 26 million trades totaling nearly $3 billion were facilitated through Paxful's system.
The documents further reveal that Paxful knowingly processed transactions connected with Backpage—a site whose operators have admitted profiting from illegal prostitution involving minors—and similar websites. Between December 2015 and December 2022, about $17 million worth of bitcoin was transferred from Paxful wallets to Backpage or similar sites; this generated at least $2.7 million in profits for Paxful.
As detailed in court filings, between July 2015 and June 2019 Paxful advertised itself as not requiring know-your-customer information (KYC), allowed users to open accounts without sufficient KYC checks, presented false AML policies externally while failing internally to enforce them or file suspicious activity reports despite awareness of ongoing illicit use.
The plea agreement covers conspiracy charges related to violating the Travel Act by promoting illegal prostitution across state lines; operating an unlicensed money transmitting business by processing funds tied to unlawful activities; and conspiring against BSA AML program requirements.
While court records note that the appropriate penalty based on facts would have been $112.5 million, prosecutors determined—after reviewing financial records—that Paxful was unable to pay more than $4 million.
In July 2024 Artur Schaback—co-founder and former chief technology officer—pleaded guilty separately regarding failures around AML programs tied into this same scheme.
The resolution involved coordination with FinCEN authorities; Homeland Security Investigations (HSI) along with IRS-CI led investigations into these matters.
Prosecution was handled by members of both national DOJ units focused on financial crime as well as local assistant U.S attorneys from California's Eastern District.
