Paxful co-founder pleads guilty to AML conspiracy charges, faces prison time

Artur Schaback, co-founder and former chief technology officer of Paxful Inc., has pleaded guilty to conspiracy charges related to failures in maintaining an effective anti-money laundering (AML) program, the United States Department of Justice announced on Monday.

Details

• Schaback, 36, admitted to allowing customers to trade on Paxful without proper know-your-customer (KYC) checks from 2015 to 2019.
• He faces a maximum penalty of five years in prison, with sentencing scheduled for November 4.
• Schaback has resigned from Paxful Inc.’s Board of Directors, finalizing his separation from the company.

Zoom in

According to court documents, Schaback:

• Marketed Paxful as a platform that didn’t require KYC
• Presented fake AML policies to third parties
• Failed to file any suspicious activity reports despite knowledge of criminal activities on the platform

Telling quote

• The DOJ reads:

“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.”

Paxful’s response

In a July 9 press release, Paxful announced Schaback’s resignation as a director at Paxful Holdings, Inc. and its affiliates. The company stated:

• Schaback has had no role in Paxful’s day-to-day operations for over a year.
• A new management team and employees now operate the company.
• Paxful has tripled in size in the last twelve months, with a global team of nearly 100.
• Significant improvements have been made to compliance processes, including KYC, monitoring, reporting, and sanctions screening.

The scoop

Mariblock asked Paxful for comments on how Schaback’s guilty plea affects its operations and steps taken to become more compliant.

• A company representative said in an email:

Paxful hired and continues to grow a dedicated compliance team, implemented identity verification (KYC), blockchain analytics and transaction monitoring — among numerous other initiatives. These efforts have greatly reduced identity theft, restricted money movements from high-risk wallets as well as sanctioned individuals or jurisdictions. AML-related work is never finished and the team continues to grow and improve via talent and technology with full support from senior leadership.

Mariblock also contacted former Paxful CEO Ray Youssef for comments, particularly on Paxful’s AML practices while leading the company.

• He said:

“I am aware of recent developments regarding the legal issues faced by the co-founder of my previous company, Paxful. However, I have no involvement with the matters in question and remain entirely focused on my current role as CEO of NoOnes. I have no further comments to offer on this topic.”

Zoom out

This guilty plea and resignation mark the latest chapter in Paxful’s tumultuous recent history.

• In April 2023, Paxful suspended its marketplace operations, citing regulatory challenges and key staff departures.
• CEO Ray Youssef stepped down later that month.
• The platform resumed operations in May 2023 after a month-long hiatus.
• In June 2023, Roshan Dharia was appointed as the new CEO, initially in an interim capacity. Dharia, formerly a senior executive at TrustToken, has since been confirmed as the permanent CEO.

What they’re saying

• The DOJ press release reads:

“This prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) investigation. OCDETF identifies, disrupts, and dismantles the highest-level drug traffickers, money launderers, gangs, and transnational criminal organizations that threaten the United States by using a prosecutor-led, intelligence-driven, multi-agency approach that leverages the strengths of federal, state, and local law enforcement agencies against criminal networks.”

What we don’t know

• How this guilty plea will affect Paxful’s current operations and regulatory standing
• Whether other former Paxful executives will face similar charges

Asked if this development affects Paxful’s current operations, the representative added:

“This event has no bearing on Paxful today, as Mr. Schaback has no role at the company. We continue to focus on building the best marketplace in crypto while playing by the rules.”