The U.S. Department of Justice (DOJ) ordered Paxful to pay $4 million after the company admitted to conspiring to promote illegal prostitution and funnel proceeds from criminal activity.
According to court documents, Paxful failed to enforce basic know-your-customer and anti-money laundering rules and ignored obvious signs of criminal activity on its platform. The company also submitted false compliance policies to regulators.
Investigators found that Paxful activated approximately $17 million in Bitcoin transfers linked to Backpage and similar sites widely known for hosting illegal prostitution advertisements, including cases involving minors, and facilitated millions of illegal transactions over several years.
These activities have generated significant profits for the company. From 2015 to 2023, the platform processed more than 50 million transactions worth more than $3 billion.
Federal investigators determined that the company processed more than $500 million in suspicious transactions involving ransomware attacks, darknet marketplaces, and sanctioned entities.
Prosecutors said Paxful’s cooperation during the investigation helped reduce the penalty, but the case highlighted increased scrutiny of cryptocurrency platforms linked to financial crimes.
The ruling follows a long-running federal investigation into the platform founded by Ray Youssef and Artur Schaback in 2015 as a “People’s Marketplace” targeting underbanked individuals in emerging markets.
Operating primarily as a peer-to-peer Bitcoin marketplace, Paxful’s rapid growth has been fueled in part by the “Backpage effect,” attracting users blocked from other services due to lax KYC requirements.
By 2023, disputes between the founders had escalated into lawsuits and public accusations of misconduct, leading to an abrupt suspension of operations in April 2023, with the company later reopening under court supervision.
Schaback pleaded guilty in July 2024 to conspiracy to fail to maintain an effective anti-money laundering program.