Paxful Hit with $4 Million Penalty Over Illegal Transactions and Crimes

TLDR

• Paxful has been sentenced to pay a $4 million fine after pleading guilty to money laundering and prostitution charges.
• The company processed over $3 billion in crypto trades between 2017 and 2019, including transactions linked to Backpage.
• The U.S. Department of Justice initially sought a $112 million penalty but reduced it to $4 million based on Paxful’s financial situation.
• Paxful also agreed to pay a separate $3.5 million civil penalty to the Financial Crimes Enforcement Network.
• The case highlights the legal risks faced by cryptocurrency exchanges involved in facilitating illegal activities.

Paxful Holdings, a peer-to-peer Bitcoin marketplace, has been sentenced to pay a $4 million fine after pleading guilty to charges of fostering illegal prostitution, violating money-laundering laws, and knowingly handling criminal proceeds. The company, which ceased operations in 2023, processed over $3 billion in crypto trades between 2017 and 2019. U.S. authorities also revealed that Paxful had facilitated transactions linked to Backpage, a platform notorious for promoting illicit sex work.

Paxful Pleads Guilty to Criminal Charges

Paxful entered a plea agreement with U.S. authorities in December, admitting to its involvement in illegal activities. The peer-to-peer exchange knowingly transferred Bitcoin for customers linked to criminal schemes, including money laundering and fraud. During this period, Paxful made substantial profits, collecting approximately $30 million from its operations.

The Justice Department emphasized that Paxful’s actions allowed illegal transactions to take place undisturbed. “By putting profit over compliance, the company enabled money laundering and other crimes,” said Eric Grant, U.S. Attorney for the Eastern District of California. The company also processed Bitcoin for Backpage, a platform heavily involved in prostitution and trafficking, further complicating its legal standing.

Impact of the $4 Million Fine on Paxful

Originally, the Justice Department had sought a fine exceeding $112 million. However, the company’s inability to pay that amount led to a drastically reduced penalty. After considering Paxful’s financial situation, the final fine was set at $4 million, which a federal judge affirmed during a sentencing hearing.

In addition to the criminal fine, Paxful agreed to pay a separate $3.5 million civil penalty to the Financial Crimes Enforcement Network (FinCEN). The company’s founders were also implicated, with Artur Schaback, Paxful’s co-founder from Estonia, pleading guilty to violating anti-money laundering laws in 2024. Paxful’s operations and marketing strategies were scrutinized, with the company once boasting about the “Backpage Effect” in boosting its business.

The court’s ruling reflects a broader commitment to holding companies accountable for facilitating illegal activity. U.S. Attorney Eric Grant emphasized that the sentence serves as a clear warning. Companies that fail to prevent criminal activities on their platforms will face severe legal consequences under U.S. law. Paxful’s plea deal marks a pivotal moment in the ongoing effort to regulate cryptocurrency exchanges and curb illegal use.

The $4 million fine, while a fraction of the initial demand, underscores the seriousness of the charges and Paxful’s role in criminal networks. This case serves as a reminder of the legal and financial risks faced by cryptocurrency exchanges that fail to comply with U.S. laws.