Artur Schaback, co-founder and former tech chief of crypto exchange Paxful, might be jailed for five years for Anti-Money Laundering violations.
On Monday, July 8, Schaback pleaded guilty to failing to maintain an effective AML program at Paxful and to allowing customers to transact without providing sufficient KYC information.
According to the US Department of Justice, Schaback’s sentence is due on November 4. Before that, he will resign from the exchange’s board.
Schaback Aided AML Violation at Paxful
A July 8 press release by the Office of Public Affairs of the US Department of Justice (DOJ) revealed that Paxful’s chief tech officer, Artur Schaback, pleaded guilty to AML violations.
According to the report, court documents from July 2015 to June 2019 show that Schaback, aged 36, operated an online P2P virtual currency platform, Paxful. The platform allows customers to negotiate and trade digital currency for several items, including gift cards, prepaid cards, and fiat currency.
However, Schaback allowed users to open accounts and carry out these transactions without providing sufficient Know-your-customer information. Also, he promoted Paxful as a platform where KYC is not required, presenting fake AML policies that were never implemented.
Moreover, Schaback failed to report suspicious activities even though he knew Paxful customers were carrying out suspicious and criminal activity.
Due to his failure to implement strict AML and KYC programs, Schaback made Paxful a ready medium for sanction violations, money laundering, and other criminal activity. This includes romance scams, fraud, extortion schemes, and prostitution.
The Paxful co-founder pleaded guilty to conspiracy and willfully failing to establish, implement, and effectively maintain an AML program based on the Bank Secrecy Act. He faces a five-year jail term as the maximum penalty for his crimes.
Further, a federal judge will consider the US Sentencing Guidelines and other factors to determine Schaback’s appropriate sentence.
In addition, Schaback signed a plea agreement with US prosecutors on Monday. The plea agreement filed in a California District Court shows Schaback would pay a $5 million fine in three installments.
He was expected to pay the first installment of $1 million on the day of his guilty plea. He will pay another $3 million on his sentencing day, November 4, and the remaining $1 million within two years.
More Events Surrounding Paxful and Its Shutdown
A March filing detailing Schaback’s charges said he conspired with someone identified as the President and CEO of Paxful to violate the AML rules. According to the information, Schaback and his co-conspirator exempted some customers from the KYC and AML policies based on their trading volumes and relationships.
In March 2023, Schaback sued Mohamad Youssef, one of Paxful’s co-founders and former CEO. The lawsuit stems from disputes over the exchange’s control, fund misappropriation, sanction evasion, money laundering, etc.
In April 2022, Youssef said in a blog post that Paxful agreed to a court order to appoint Richards law firm’s Srinivanus Rajuas as its custodian. In May 2023, Paxful appointed Roshan Dharia as interim CEO.
Following many struggles, Paxful shut down its operation in April 2023. In an April 4 blog, the company’s CEO, Ray (Mohamad) Youssef, cited key staff departures and regulatory loggerheads as factors behind the closure.
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
Our Editorial Process
The Tech Report editorial policy is centered on providing helpful, accurate content that offers real value to our readers. We only work with experienced writers who have specific knowledge in the topics they cover, including latest developments in technology, online privacy, cryptocurrencies, software, and more. Our editorial policy ensures that each topic is researched and curated by our in-house editors. We maintain rigorous journalistic standards, and every article is 100% written by real authors.
