REGULATION | Paxful Co-Founder Pleads Guilty to Accusations of Deception and Shoddy Anti Money Laundering Practices

Artur Schaback, the Co-Founder and former Chief Technology Officer (CTO) of Paxful, has pleaded guilty to federal crimes in the United States.

On July 8 2024, the U.S. Department of Justice (DOJ), announced that Schaback pleaded guilty to charges of conspiracy for failing to establish and maintain an effective anti-money laundering (AML) program overseeing the company’s peer-to-peer (P2P) cryptocurrency trading platform between July 2015 and June 2019.

According to court documents, Schaback permitted users to create accounts and conduct trades without obtaining the required identification. Additionally, Schaback falsely portrayed the Paxful platform as not needing KYC compliance and presented fraudulent AML policies to third parties, according to the DOJ.

“Schaback allowed customers to open accounts and trade on Paxful without gathering sufficient [KYC] information; marketed Paxful as a platform that did not require KYC; presented fake AML policies to third parties that he knew were not, in fact, implemented or enforced at Paxful; and failed to file a single suspicious activity report, despite knowing that Paxful users were perpetrating suspicious and criminal activity,” the DoJ said.

“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 Justice Department said.

Schaback faces up to five years in prison and is scheduled for sentencing on November 4 2024. As part of his plea, Schaback will also resign from Paxful Inc.’s Board of Directors.

In January 2023, Schaback filed a lawsuit against Ray Youssef, Paxful’s Co-Founder and CEO, accusing him of misappropriating company funds, money laundering, and evading U.S. sanctions against Russia.

The platform announced it was shutting down in April 2023, according to a statement by Youssef citing ‘regulatory challenges and key staff departures.’ However, a month later the firm announced a resumption of operations.

The firm is currently under CEO, Roshan Dharia.

At one point, Paxful was one of the leading P2P crypto exchanges in Africa with Nigerians have traded more than $1.16 billion in bitcoin on Paxful between January 2021 and June 2022 amidst the Central Bank of Nigeria (CBN) ban on trading cryptocurrencies.

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