Paxful Co-Founder Faces Charges for AML Violations Under Bank Secrecy Act

Artur Schaback, the co-founder and former CTO of the crypto peer-to-peer network Paxful, is facing charges for violating the anti-money laundering (AML) requirements stipulated by the Bank Secrecy Act (BSA). The Department of Justice announced Monday that Schaback, an Estonian national, pled guilty to one count of conspiring “to willfully fail to establish, develop, implement, and maintain an effective [AML] program as required by the Bank Secrecy Act.”

From 2015 to 2019, Schaback operated Paxful, a virtual currency platform and money transmitting business, enabling customers to trade virtual currency for various items, including fiat currency, prepaid cards, and gift cards. The DOJ alleged that Schaback marketed Paxful as a platform without know your customer (KYC) requirements and presented plagiarized AML policies to third parties, which he “knew were not, in fact, implemented or enforced.”

“As a result of his failure to implement AML and KYC programs, Schaback made Paxful available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution,” the DOJ stated.

Schaback faces a potential sentence of up to five years in prison and a fine of up to $250,000 at his sentencing hearing scheduled for November 4.

The DOJ’s complaint, filed in the U.S. District Court for the Eastern District of California, detailed that Schaback and Paxful’s unnamed chief executive registered Paxful as a money-transmitting business (MSB) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in 2015. This registration obligated Paxful to comply with the BSA, which requires registered entities to:

- Develop an AML program with internal policies, procedures, and controls;

- Designate a compliance officer to oversee the program;

- Conduct ongoing employee training on AML responsibilities; and

- Install an independent audit function to test the program’s effectiveness.

Prosecutors alleged that Schaback failed to establish policies and procedures to monitor transactions for money laundering, terrorism funding, and other criminal activities. He facilitated fund transfers to other institutions without conducting KYC processes and did not file a single suspicious activity report (SAR) with FinCEN despite being aware of suspicious and criminal activities on Paxful’s platform.

The complaint further alleged that Schaback did not designate a BSA compliance officer for Paxful until November 2018 and did not conduct employee training on AML responsibilities until June 2019. Additionally, the company never established an audit function to test the effectiveness of its AML program. Paxful allowed its FinCEN registration to lapse from 2017 to 2019 but has continued to operate.

The company did not immediately respond to a request for comment.

By fLEXI tEAM