TLDR
- Artur Schaback, co-founder of Paxful, pleaded guilty to conspiracy to fail to maintain an effective anti-money laundering (AML) program.
- Schaback faces up to 5 years in prison and is scheduled for sentencing on November 4, 2024.
- The charges allege Schaback neglected know-your-customer (KYC) and AML processes, allowing criminal activity on the platform.
- Paxful was reportedly used for money laundering, fraud, romance scams, extortion, and other illegal activities.
- Schaback has agreed to pay a $5 million fine and resign from Paxful’s board of directors.
Artur Schaback, co-founder and former chief technology officer of cryptocurrency exchange Paxful, has pleaded guilty to conspiracy charges related to failing to maintain an effective anti-money laundering (AML) program.
The plea was entered in a California federal court on July 8, 2024, marking a significant development in the ongoing scrutiny of cryptocurrency platforms.
According to the U.S. Department of Justice, Schaback, 36, managed Paxful between July 2015 and June 2019. During this time, he allegedly weakened the platform’s defenses against criminal activity.
The charges state that Schaback allowed customers to open accounts and trade on Paxful without gathering sufficient know-your-customer (KYC) information.
He also marketed Paxful as a platform that did not require KYC, presented fake AML policies to third parties, and failed to file suspicious activity reports despite knowing about criminal activity on the platform.
The Justice Department claims that Schaback’s actions made Paxful vulnerable to various illegal activities. These included money laundering, sanctions violations, fraud, romance scams, extortion schemes, and prostitution. By neglecting to implement proper KYC and AML procedures, Schaback effectively turned Paxful into a vehicle for criminal transactions.
Schaback faces a maximum sentence of five years in prison. He is scheduled to be sentenced on November 4, 2024, by a federal district court judge who will consider the U.S. Sentencing Guidelines and other statutory factors.
As part of a plea agreement, Schaback has agreed to pay a $5 million fine in three installments: $1 million by the date of his guilty plea, $3 million by his sentencing, and the final $1 million within the next two years.
Schaback will resign from Paxful’s board of directors. This move comes after a tumultuous period for the company. In April 2023, Paxful temporarily suspended operations due to key staff departures and concerns about the safety of customer funds. These issues arose following a lawsuit filed by Schaback against Paxful’s CEO, Ray Youssef, alleging wrongful termination and other grievances.
The Bank Secrecy Act requires financial institutions, including cryptocurrency exchanges, to establish AML programs within 90 days of starting operations.
These programs should include KYC procedures to verify user identities and detect suspicious activities. Schaback’s failure to implement these measures at Paxful led to the criminal charges.
