Paxful Co-Founder Faces Up to Five Years in Prison for Violating AML Regulations
CoinChapter.com, a reputable news source in the cryptocurrency industry, reported that Artur Schaback, the co-founder of Paxful, has reached a plea deal with U.S. prosecutors. As a result of his involvement in conspiring to neglect an effective Anti-Money Laundering (AML) program at the crypto exchange, Schaback could potentially spend five years behind bars. The United States Justice Department made the announcement on July 8 and confirmed that Schaback, who previously served as Paxful’s chief technology officer, will receive his sentence on November 4.
Schaback openly admitted that he failed to establish the necessary AML protocols, which ultimately allowed Paxful to be misused for illicit activities. Between July 2015 and June 2019, Schaback and an unidentified accomplice neglected to implement the crucial Know Your Customer (KYC) procedures, which are integral elements of the Bank Secrecy Act.
The plea agreement includes a substantial fine of $5 million, which will be paid in three installments: $1 million upon the guilty plea, $3 million by the time of sentencing, and the final $1 million within two years. Additionally, as part of the agreement, Schaback is required to resign from Paxful’s board.
Court documents revealed that Schaback’s failure to oversee proper AML measures allowed Paxful users to operate anonymously, leading to money laundering, fraud, and various other criminal activities. The Justice Department also highlighted the fact that undercover law enforcement officers were able to trade on the platform without undergoing KYC verification, exposing the exchange’s vulnerability to exploitation by criminals.
Furthermore, it was alleged that Schaback and his co-conspirator presented a plagiarized AML policy to third parties, fully aware that it was never implemented or enforced. Schaback also made exceptions to AML and KYC policies for high-volume traders and individuals who had personal relationships with him or his associate.
This case emphasizes the critical role that robust AML and KYC protocols play in the cryptocurrency industry. Schaback’s failure to comply with these requirements has severe consequences for Paxful, as the platform had marketed itself as one without stringent KYC requirements. The lack of enforcement allowed the exchange to become a hub for illicit activities.
The legal battle between Schaback and Paxful’s former CEO, Mohamad Youssef, escalated in March 2023. Schaback filed a lawsuit against Youssef, accusing him of misappropriating funds and other misconduct in relation to the exchange. As a result, Paxful appointed Srinivas Raju as a court-ordered custodian and later named Roshan Dharia as the Interim CEO.
The Justice Department’s firm stance on AML compliance sends a clear message to the industry about the importance of these measures in upholding the integrity of financial systems. Schaback’s failure to establish adequate AML and KYC protocols turned Paxful into a platform that facilitated money laundering, sanctions violations, and various scams.