Paxful Faces $4 Million Fine for Processing Illicit Funds and Breaching Anti-Money Laundering Laws

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TLDR

  • Paxful has agreed to a $4 million fine after admitting to charges including facilitating illegal prostitution, transmitting criminal funds, and violating anti-money laundering laws.
  • The cryptocurrency exchange processed approximately $3 billion in transactions between 2017 and 2019, knowingly serving illicit customers, including the illegal prostitution website Backpage.
  • Prosecutors initially sought a $112.5 million penalty, but reduced it to $4 million based on Paxful’s financial capacity.
  • Paxful promoted itself as a platform not requiring Know Your Customer (KYC) verification and falsely claimed to have anti-money laundering policies that were not enforced.
  • The peer-to-peer exchange ceased operations in November 2023, having generated $2.7 million in profits from illegal prostitution sites.

The US Department of Justice announced on Wednesday that crypto exchange Paxful has been ordered to pay $4 million after pleading guilty to several criminal charges. The peer-to-peer platform acknowledged its role in conspiring to promote illegal prostitution, knowingly transmitting funds derived from criminal activities, and failing to comply with anti-money laundering regulations.

According to prosecutors, Paxful was operational from January 2017 to September 2019 and facilitated over 26 million trades valued at nearly $3 billion. During this period, the company earned more than $29.7 million in revenue while knowingly engaging with criminal clientele.

The Justice Department stated that Paxful intentionally marketed itself as a platform that did not require customer identification. The company also presented anti-money laundering policies that it was aware were never implemented or enforced.

“profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls,” stated Andrew Tysen Duva, assistant attorney general of the Justice Department’s Criminal Division. The criminals utilizing the platform were involved in fraud, extortion, prostitution, and commercial sex trafficking.

A significant customer of Paxful was Backpage, a classified advertising website that was shut down by authorities for hosting advertisements for illegal prostitution. The Justice Department revealed that Paxful’s founders had openly discussed the “Backpage Effect” and its contribution to their business growth.

Profiting from Illegal Activity

Between 2015 and 2022, Paxful’s association with Backpage and a similar website resulted in $2.7 million in profits for the crypto platform. This relationship became a key element in the criminal case against the company.

Prosecutors determined that the appropriate criminal penalty for Paxful should have been $112.5 million. However, they reduced the fine to $4 million after evaluating the company’s financial standing and concluding it could not afford the higher sum.

“This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under US law,” said US Attorney Eric Grant for the Eastern District of California. The reduced penalty reflects Paxful’s current financial condition.

Platform Shutdown and Fallout

Paxful ceased its operations in November 2023. In a blog post from October, the company attributed the closure to the lingering effects of misconduct by former co-founders Ray Youssef and Artur Schaback prior to 2023.

The company also cited the substantial operational costs associated with extensive compliance remediation efforts. This blog post has since been removed from Paxful’s website.

Youssef commented on the shutdown announcement, stating that the company “should have closed down when I left the company two years ago.” His departure occurred before the criminal charges were filed.

The Paxful platform enabled users to exchange digital assets for cash, prepaid cards, and gift cards. Founders promoted the site as a method to circumvent Bank Secrecy Act anti-money laundering requirements.

This case is among several enforcement actions taken by federal prosecutors against crypto platforms accused of facilitating illegal activities. Paxful entered a guilty plea to the charges in December 2024, prior to receiving its sentence in February 2026.