The DoJ alleges that Schaback failed to file any related reports, despite being aware that Paxful users were engaging in suspicious and criminal activities.
Artur Schaback, the co-founder of the peer-to-peer crypto trading platform Paxful, has reached a plea agreement with US prosecutors over his failure to maintain an effective anti-money laundering (AML) program, as required by the Bank Secrecy Act.
Schaback is set to be sentenced on November 4, and he faces a potential maximum penalty of five years in prison. Additionally, as part of the plea agreement, he will step down from Paxful’s Board of Directors.
The plea agreement, filed in a California District Court, states that Schaback will pay a $5 million fine in three installments: $1 million at the time of his guilty plea, $3 million by his sentencing date, and the remaining $1 million within the following two years. The sentencing will be determined by a federal district court judge, who will consider the US Sentencing Guidelines and other statutory factors.
Charges on Schaback
According to the Department of Justice (DoJ), Schaback pleaded guilty to allowing users to open accounts and trade on Paxful without collecting adequate know-your-customer (KYC) information between July 2015 and June 2019. Furthermore, Schaback and an unnamed co-conspirator made exceptions to AML and KYC policies based on customers’ trading volumes and their relationships with them.
Notably, the executive also marketed Paxful as a platform that did not require KYC and presented fake AML policies to third parties. The DoJ alleges that Schaback failed to file any related reports, despite being aware that Paxful users were engaging in suspicious and criminal activities.
It states that Schaback’s actions turned Paxful into a vehicle for money laundering, sanctions violations, and other criminal activities, including fraud, romance scams, extortion schemes, and prostitution.
Background
Schaback sued his co-founder and Paxful’s former CEO, Mohamad (Ray) Youssef, in March 2023. He alleged that Youssef misappropriated company funds and was involved in money laundering and sanctions evasion.
These internal conflicts, combined with regulatory pressure, led to Paxful temporarily suspending all activities in April 2023. However, the platform resumed operations the following month.
Paxful has made several leadership changes. In April 2022, Youssef announced that the company had agreed to a court order appointing Srinivas Raju, a Director at the law firm Richards, Layton, and Finger, as the exchange’s custodian. Raju now serves as a director alongside Schaback and Youssef. Moreover, in late May 2023, the trading platform appointed Roshan Dharia as its Interim CEO.
Artur Schaback is just another name under the ongoing regulatory scrutiny of crypto platforms. In November, Changpeng Zhao, the founder of the world’s largest crypto exchange Binance, also pleaded guilty for failing to implement AML policies.
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