Paxful hit with $4M fine for transmitting funds from criminal offenses

Paxful Holdings has been mandated by a judge to pay a $4 million fine after the company deliberately invited criminals onto its platform and turned a blind eye to their illegal activities. 

The company ignored anti-money laundering controls such as KYC programs and suspicious activity reports and marketed the lack of security on its platform in order to attract bad actors. 

Paxful fined and sentenced following years of criminal facilitation

A federal court sentenced Paxful Holdings Inc. to pay a $4 million criminal penalty after the company pleaded guilty to several serious charges, including conspiracy to promote illegal prostitution, violating the Bank Secrecy Act, and knowingly transmitting funds stolen or gained through criminal acts.

According to court documents, the Department of Justice originally calculated that the appropriate penalty should have been $112,500,000, but an independent analysis of the company’s finances revealed that it could not afford more than $4 million. 

The penalty is a small amount when compared to BitMEX’s $100 million fine from January 2025 for failing to maintain adequate KYC and anti-money laundering programs or the $297 million penalty that KuCoin had to pay later that month for similar failures.  

Paxful originally operated as a peer-to-peer virtual currency trading platform that allowed people to trade Bitcoin and other digital assets for cash, gift cards, and prepaid cards. Between January 2017 and September 2019, the platform handled more than 26.7 million trades. The total value of these trades was nearly $3 billion, and Paxful earned over $29.7 million in revenue.

Assistant Attorney General A. Tysen Duva explained that Paxful “profited from moving money for criminals.” The company deliberately attracted these users by bragging that it did not have strict anti-money laundering controls. Because of this, the platform became a favorite tool for people involved in fraud, romance scams, extortion, and human trafficking.

One of the most serious parts of the case involved Backpage, a website used for illegal prostitution and sex trafficking, including the exploitation of minors. Paxful’s founders reportedly celebrated the “Backpage Effect,” which helped their company grow quickly. 

Between 2015 and 2022, Paxful helped move nearly $17 million worth of Bitcoin to Backpage and similar websites. From these specific transactions, Paxful made at least $2.7 million in profit.

Paxful moved millions of dollars for criminals

Under the Bank Secrecy Act, money-transmitting businesses must have “Know Your Customer” (KYC) programs in order to verify the identity of their users to prevent money laundering. Paxful chose to ignore these rules for a long time.

In fact, Paxful and its founders marketed the lack of verification on the platform as a plus, and when the company had to show its policies to third parties, it presented fake anti-money laundering rules. 

Furthermore, Paxful failed to file “Suspicious Activity Reports” which are documents that financial institutions must send to the government when they see signs of a crime. 

Even though Paxful knew its users were involved in romance scams and extortion, they did not report the activity. Their silence about the illegal activities and allowance of it caused the platform to be used for hacking and distributing child sexual abuse material.

On July 8, 2024, Artur Schaback, who was a co-founder and the former Chief Technology Officer at the company, pleaded guilty to conspiracy. He admitted that he failed to maintain an effective anti-money laundering program. 

As part of his plea deal, Schaback resigned from the company’s board of directors and faced up to five years in prison.

The other co-founder, Ray Youssef, left the company in 2023 after a legal battle with Schaback. Youssef went on to launch a new platform called “Noones,” which focuses on markets in the Global South. 

Paxful announced on October 1, 2025, that it would wind down all operations. It officially ceased trading on November 1, 2025. 

In its farewell message, Paxful blamed its closure on the “historic misconduct” of its founders. The company stated that the costs of legal fees and trying to fix its compliance issues were simply too high to continue. They encouraged their 14 million users to withdraw their funds before the platform became inaccessible.

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