Paxful Inc. co-founder Artur Schaback has pleaded guilty to charges of failing to establish and maintain an effective anti-money laundering (AML) program on the company’s peer-to-peer crypto trading platform, the U.S. Department of Justice (DoJ) announced.
Schaback, who served as the company’s chief technology officer, operated the Paxful platform from July 2015 to June 2019 without collecting adequate know-your-customer (KYC) information and misled users by claiming that the platform did not require KYC. Paxful allowed users to trade cryptocurrencies for various items, including fiat currency and gift cards.
The DoJ statement indicated that Schaback knowingly provided false AML policies to third parties and failed to report suspicious activities. This negligence turned Paxful into a hub for money laundering, sanctions violations, fraud, and romance scams, among other criminal activities.
Schaback, who is facing up to five years in prison, is scheduled to be sentenced on November 4. The 36-year-old Estonian citizen will also resign from Paxful Inc.’s board of directors as part of his plea agreement.
In a court filing from March, the DoJ noted that Schaback conspired with a co-conspirator, identified as the President and CEO of Paxful Inc., to neglect the establishment of AML programs. However, this co-conspirator was not mentioned in the latest statement.
Schaback held the position of chief operating officer at Paxful until February 2022. The platform temporarily shut down in April last year amid a legal dispute between Schaback and CEO Ray Youssef over control of the company.
The DoJ’s national security division has been investigating whether crypto firms or its executives violated US sanctions related to Russia’s annexation of Crimea and interference in Ukraine. This probe is separate from an ongoing inquiry by the DOJ’s criminal division into these firms’ compliance with anti-money laundering and tax laws.
Most crypto exchanges, including Binance, initially rejected calls for a blanket ban on all Russian users to stop their platforms from being used as a way round Western sanctions. Ultimately, however, they had to comply with sanctions that forbid Russian individuals and companies from the use of cryptocurrencies.
