Paxful co-founder pleads guilty to intentionally neglecting AML protocols

    2024.07.10 | exchangesranking | 114onlookers
    Paxful Inc. co-founder and former CTO Artur Schaback pleaded guilty to conspiracy charges related to failing to maintain an effective anti-money laundering (AML) program on July 8, according to a Department of Justice press release.

    The DOJ said that Schaback’s negligence turned Paxful into a hub for money laundering, sanctions violations, fraud, romance scams, extortion schemes, and prostitution. His actions allowed criminal activities to proliferate unchecked, jeopardizing the integrity of the financial system.

    Schaback pleaded guilty to conspiracy to willfully fail to establish, develop, implement, and maintain an effective AML program as required by the Bank Secrecy Act. He faces a maximum penalty of five years in prison and will be sentenced on Nov. 4.

    Schaback will also resign from Paxful’s Board of Directors. A federal district court judge will determine the sentence after considering the US Sentencing Guidelines and other statutory factors.

    Willful failures

    According to court documents, Schaback operated Paxful, an online peer-to-peer virtual currency platform, between July 2015 and June 2019. The exchange allowed customers to trade virtual currency for various items, including fiat currency, pre-paid cards, and gift cards.

    During this period, Schaback permitted customers to open accounts and trade without sufficient know-your-customer (KYC) information, marketed Paxful as a platform that did not require KYC, and presented fake AML policies to third parties.

    He also failed to file a single suspicious activity report despite being aware of suspicious and criminal activities by Paxful users.

    DOJ investigation

    The prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) investigation, which targets high-level criminal networks through a collaborative, multi-agency approach.

    The DOJ said its investigation into Paxful also revealed deeper conflicts within the firm. Co-founders Schaback and Ray Youssef have been embroiled in legal disputes, which have included allegations of misappropriation of funds, money laundering, and evasion of US sanctions against Russia.

    These conflicts led to a temporary suspension of Paxful’s operations in April 2023, with the marketplace resuming limited functions in May. During the shutdown, former CEO Youssef warned users to avoid the platform amid a spate of scams.

    In May 2023, Paxful appointed Roshan Dharia as interim CEO to stabilize operations and explore strategic alternatives.

    Mentioned in this article
    Paxful Ray Youssef
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