Paxful, a well-established Bitcoin P2P trading platform with over 9 million users worldwide, saw its co-founder and former CTO, Artur Schaback, plead guilty yesterday, admitting to the failure of maintaining an effective anti-money laundering (AML) program during the operation of Paxful from July 2015 to June 2019.
According to a press release by the US Department of Justice, Schaback’s sentencing is scheduled for November 4th, with a maximum possible penalty of five years imprisonment, and he will resign from the Paxful board.
As per Schaback’s plea agreement, the government prosecutors have agreed to impose a $5 million fine on Schaback, which will be repaid in three installments. $1 million will be repaid on the day of his guilty plea, $3 million before his sentencing, and the remaining $1 million within the next two years.
The charging documents, submitted at the end of March, state that Schaback and a co-conspirator (referred to as the CEO of Paxful) failed to establish an effective AML program within 90 days of commencing business, as required by the Bank Secrecy Act. Additionally, during Schaback’s tenure from July 2015 to June 2019, Paxful did not implement a Know Your Customer (KYC) program, and Schaback even marketed Paxful as a “no KYC required” trading platform.
The press release by the Department of Justice further reveals that when a third party requested Paxful to provide an AML policy, Schaback and the co-conspirator provided a policy copied from another institution, knowing that it was not implemented at Paxful. The documents also indicate that the duo made exceptions to the AML and KYC policies based on Paxful customers’ trading volume and their relationship with Schaback or the co-conspirator.
Paxful briefly suspended operations in April last year. According to previous reports, on April 4th, Paxful announced the temporary suspension of its platform. At that time, CEO Ray Youssef stated in the announcement that due to core employees leaving and increasing regulatory scrutiny, they decided to shut down the platform.
Reports suggest that Youssef and Schaback were engaged in a legal dispute over control of the platform. In March, they made multiple accusations against each other, including embezzlement of company funds, money laundering, and evasion of sanctions. It is speculated that the temporary suspension of Paxful’s operations was related to their court battle.
However, Paxful quickly announced the resumption of operations in May and appointed Roshan Dharia as the new CEO.
