Paxful Co-Founder Confesses to Anti-Money Laundering Oversight Issues

Paxful co-founder Artur Schaback pled guilty to conspiring to operate a crypto exchange platform without effective anti-money laundering policies.

He entered his plea in a California federal court on Monday, potentially facing up to five years in prison as a maximum penalty.

According to the US Department of Justice, 36-year-old Schaback from Estonia managed Paxful between July 2015 to June 2019.

During this time, Schaback allegedly weakened Paxful’s defenses against criminal activity. He made it easy to open accounts without proper identification, advertised Paxful as needing no ID checks, provided fake anti-money laundering policies, and ignored suspicious activity by users, the DoJ said.

Paxful Inc. Co-Founder Pleads Guilty to Conspiracy to Fail to Maintain Effective Anti-Money Laundering Program

: https://t.co/B3DCa5DFQY pic.twitter.com/Zbkgi90dEr

— Criminal Division (@DOJCrimDiv) July 8, 2024

Paxful Co-Founder Pleads Guilty in Money Laundering Scheme, Platform Used for Crime, DOJ Says

According to the department, Schaback turned Paxful into a platform for criminals as it did not have proper anti-money laundering and identification checks. This allowed money laundering, breaking sanctions, and other illegal activities like fraud, romance scams, extortion, and prostitution.

Schaback admitted guilt in a conspiracy to intentionally avoid setting up, creating, running, and keeping up-to-date a program to fight money laundering, as mandated under the Bank Secrecy Act. His sentencing is set for Nov 4. He’ll also be stepping down from Paxful’s board of directors.

Paxful Paused Operations Amid CEO Concerns, Legal Battles

In April 2023, Paxful announced it would suspend operations. This decision stemmed from uncertainties about whether operations could resume due to key staff departures.

Prior to the suspension, CEO Ray Youssef voiced concerns about the safety of customer funds. These concerns arose following a lawsuit from Schaback, who accused Youssef and the company of wrongful termination among other issues.

Schaback served as Paxful’s chief operating officer until February 2022. He was reportedly barred from involvement in the company’s operations due to disagreements with Youssef. These disagreements revolved around the marketplace’s future direction, operational practices, and concerns over undisclosed expenditures to external entities.

However, one month later, the exchange resumed its operations.

Youssef turned to Jack Dorsey’s crypto firm TBD to launch Civilization Kit (Civ Kit), a decentralized peer-to-peer (P2P) crypto trading platform. He also leads Noones, a financial communication app aimed at integrating the Global South into the global financial system.

Meanwhile, Schaback stayed on as a board member.

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