TLDR

  • After a U.S. federal court sentencing this week, Paxful has to pay a $4M criminal penalty.
  • The DOJ reduced the penalty from $112M after assessing Paxful’s limited capacity to pay the fine.
  • The case alleges failures in AML and KYC which enabled money laundering and other crimes.
  • Authorities linked Paxful transfers to activities related to Backpage and illicit proceeds.
  • Paxful also consented to a $3.5M civil penalty to FinCEN due to violations of the Bank Secrecy Act.

Paxful Holdings Inc., a peer-to-peer Bitcoin exchange that closed in 2023, must pay a $4 million criminal penalty following a U.S. federal sentencing this week. This comes after the company pleaded guilty to charges related to money laundering failures and illegal financial activity. U.S. authorities said the case emphasizes stronger enforcement against crypto platforms that neglect compliance duties.

The U.S. Department of Justice determined that Paxful promoted illegal transactions while failing to enforce anti-money laundering safeguards. Prosecutors initially calculated a penalty exceeding $112 million. However, officials lowered the amount after examining the company’s finances and ability to pay. A federal judge approved the final $4 million penalty during a sentencing hearing.

Federal ruling confirms reduced $4M Paxful penalty

The stated that Paxful agreed in its plea deal that a penalty above $112 million was in line with the severity of its crimes. Prosecutors later conducted an independent financial review and concluded that the company couldn’t reach that figure. They recommended a reduced penalty, which the court confirmed.

U.S. Attorney Eric Grant said the sentence shows that companies cannot overlook criminal activity on their platforms. He stated that Paxful enabled money laundering and other offenses by choosing profit over compliance. Authorities stressed that crypto businesses must follow the same financial laws applicable to traditional institutions.

Court records show Paxful operated as a money transmitting business where users exchanged Bitcoin for cash, gift cards, and prepaid cards. From January 2017 through September 2019, the platform processed over 26 million trades worth nearly $3 billion. During that period, Paxful collected nearly $30 million in revenue.

AML failures and illegal trade activity shape case

Investigators found that Paxful failed to maintain an effective anti-money laundering program. The company allowed users to open accounts without adequate identity checks and ignored suspicious transaction activity. Prosecutors said Paxful also presented compliance policies to regulators that it didn’t enforce in actuality.

Authorities determined that the platform knowingly handled funds linked to fraud, extortion, and illegal prostitution. pleaded guilty to conspiracy charges related to the Travel Act, the Bank Secrecy Act, and operating an unlicensed money transmitting business. Officials said the platform became a means for criminal transactions because it lacked oversight.

Assistant Attorney General A. Tysen Duva stated that financial crimes involving digital assets remain a priority for enforcement agencies. He said money transmitters that enable illegal trade support broader criminal networks. The department emphasized that compliance failures in crypto markets have serious consequences.

Backpage Bitcoin transfers trigger additional penalties

Court documents connected Paxful to Bitcoin transfers related to Backpage, a website associated with illegal prostitution. Investigators said Paxful processed nearly $17 million in Bitcoin transactions linked to Backpage and similar sites. These transfers generated millions in profit for the company.

Authorities said Paxful’s founders promoted the platform’s weak compliance standards to attract users blocked from regulated exchanges. Investigators referred to this growth driver as the “Backpage Effect.” Prosecutors argued that the company knowingly benefited from illicit trade activity.

The sentencing is part of a coordinated resolution with the Treasury Department’s Financial Crimes Enforcement Network. also agreed to pay a $3.5 million civil penalty to FinCEN for willful violations of anti-money laundering laws. Officials stated that the joint action strengthens federal scrutiny of crypto platforms that ignore financial safeguards.

Separately, Paxful co-founder Artur Schaback pleaded guilty in 2024 to conspiracy related to AML failures. Authorities said investigations into crypto compliance violations will continue as regulators push for stronger market accountability.