Paxful co-founder and former CTO, Artur Schaback, is facing a maximum of five years in prison after pleading guilty to conspiring to neglect implementing an effective Anti-Money Laundering (AML) program at the cryptocurrency exchange. Schaback’s sentencing is scheduled for November 4.
The U.S. Justice Department announced on July 8 that Schaback, who also served as Paxful’s Chief Technology Officer, has agreed to pay a $5 million fine in three installments. The plea agreement, filed in a California District Court, stipulates $1 million to be paid by the date of the plea, $3 million by sentencing, and the remaining $1 million within the next two years.
Prosecutors detailed that Schaback, along with an unidentified co-conspirator referred to as Paxful’s “President and CEO,” failed to establish a compliant AML program within 90 days of the company’s launch, violating the Bank Secrecy Act. Schaback also neglected to implement a Know Your Customer (KYC) program, crucial for verifying users’ identities.
According to the Justice Department, Schaback’s failure to enforce AML and KYC protocols enabled Paxful to be used for money laundering, sanctions violations, and various criminal activities including fraud and extortion. Between July 2015 and June 2019, Schaback and his co-conspirator allowed users to open accounts and trade without sufficient verification, promoting Paxful as a platform that did not require KYC checks.
When third parties inquired about Paxful’s AML policy, Schaback and the co-conspirator presented a plagiarized policy from another institution, which they knew was not enforced. They also made exceptions to AML and KYC policies for high-volume traders and those with personal relationships with them.
In March 2023, Schaback sued Paxful’s former CEO Mohamad (Ray) Youssef, sparking a dispute over control of the exchange with allegations of misappropriation of company funds and money laundering. Following a court order, Srinivas Raju was appointed as the exchange’s custodian. In May 2023, Paxful appointed Roshan Dharia as Interim CEO.
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