Paxful Sentenced to Pay $4 Million Over AML Failures Linked to Criminal Activity

Paxful Holdings Inc. has been ordered to pay $4 million after US prosecutors concluded that the crypto trading platform failed to implement adequate anti-money laundering controls, allowing illicit funds tied to fraud, prostitution, and sex trafficking to flow through its system.

In a statement released Wednesday, the Department of Justice said Paxful knowingly processed transactions connected to criminal activity and actively attracted users by promoting its lack of AML safeguards and non-compliance with applicable money laundering laws.

"Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls," said Assistant Attorney General A. Tysen Duva of the DOJ's Criminal Division, adding that the company was aware its customers were engaged in serious crimes.

According to prosecutors, Paxful processed cryptocurrency transfers for users linked to Backpage, a now-defunct website widely associated with prostitution and sex trafficking, including cases involving minors. The DOJ said Paxful knew it was facilitating transactions for customers connected to Backpage and a related platform.

Between 2015 and 2022, approximately $17 million worth of bitcoin was transferred from Paxful wallets to Backpage and associated services. Prosecutors said the platform earned at least $2.7 million in fees from that activity.

The DOJ also cited internal communications in which Paxful's founders allegedly referred to growth linked to such activity as the "Backpage Effect," a detail prosecutors used to argue that company leadership was aware of the source of certain transaction flows.

While prosecutors initially indicated that Paxful could face penalties exceeding $112 million, the final criminal payment was reduced to $4 million. The Justice Department said the lower amount reflected the company's financial condition and limited ability to pay.

"Based on the Justice Department's independent analysis, it determined that Paxful did not have the ability to pay a criminal penalty greater than $4 million," the statement said.

The case follows earlier action against Paxful co-founder Artur Schaback, who pleaded guilty last year to deliberately failing to establish and maintain an effective AML program and to misleading users about the platform's know-your-customer requirements.

Paxful itself pleaded guilty in December. The company had suspended operations in 2019.

The enforcement action adds to a growing list of cases targeting crypto platforms that operated with weak or nonexistent AML frameworks during the industry's early growth phase. US authorities have increasingly signaled that platforms may face criminal consequences not only for direct misconduct, but also for compliance failures that enable third-party criminal activity.