Artur Schaback, one of the co-founders of the crypto exchange Paxful, has reached an agreement with U.S. prosecutors that could result in a five-year prison sentence for violating anti-money laundering (AML) regulations.
Let’s see all the details below.
Prison among the consequences of anti-money laundering violations for the co-founder of the Paxful exchange
As anticipated, Artur Schaback, co-founder and former chief technology officer of Paxful, is facing a maximum sentence of five years in prison.
This after pleading guilty to conspiracy for failing to maintain an effective anti-money laundering (AML) program at the criptovalute exchange.
On July 8, the United States Department of Justice (DoJ) announced that Schaback should be sentenced on November 4 and has resigned from the board of directors of Paxful.
The plea agreement, filed the same day in a district court in California, stipulates that Schaback pay a fine of 5 million dollars, to be paid in three installments.
One million dollars at the time of the guilty plea, 3 million dollars by the sentencing date, and the remaining million within the next two years.
An informative document from the end of March outlined the accusations against Schaback.
In particular highlighting that he and a co-conspirator, identified only as “President and CEO” of Paxful, failed to establish an effective anti-money laundering program within 90 days of starting operations.
Therefore, as required by the Bank Secrecy Act. Additionally, Schaback did not implement a Know Your Customer (KYC) program to verify the identity of the exchange’s users.
Factor that should have collected at least the name, date of birth, address, and other identifying information. The Department of Justice stated in a note as follows:
“Due to his inability to implement AML and KYC programs, Schaback has made Paxful a vehicle for money laundering, sanctions violations, and other criminal activities, including fraud, romantic scams, extortion schemes, and prostitution.”
The problems of Paxful in identity verification
The document also noted that, between July 2015 and June 2019, Schaback and the co-conspirator allowed users to open Paxful accounts and trade without providing sufficient information or identification documents for verification.
Paxful has also promoted itself as a platform that did not require KYC and/or that allowed purchasing without ID.
When third parties requested an anti-money laundering policy, Schaback and the co-conspirator submitted a policy “plagiarized from another institution” that they knew had not been implemented or enforced.
In March 2023, Schaback sued his co-founder and former CEO of Paxful, Mohamad (Ray) Youssef, in a dispute for control of the exchange.
Specifically accusing him of embezzlement of company funds, money laundering, and evasion of sanctions, among other charges.
Youssef stated in a blog post from April 2022 that Paxful has accepted a court order appointing Srinivas Raju, director of the law firm Richards, Layton and Finger, as the custodian of the exchange.
In May 2023, Paxful appointed Roshan Dharia as interim CEO.
