Paxful Co-Founder Faces Five Years in Prison for AML Violations Read CoinChapter.com on Google News
NAIROBI (CoinChapter.com) — Paxful co-founder Artur Schaback has agreed to a plea deal with U.S. prosecutors. He faces up to five years in prison for conspiring to fail to maintain an effective Anti-Money Laundering (AML) program at the crypto exchange.
The United States Justice Department announced the plea on July 8, revealing that Schaback, Paxful’s former chief technology officer, would be sentenced on November 4.
Schaback’s Admission and Legal Consequences
Schaback admitted he failed to establish necessary AML protocols, leading to Paxful’s misuse for illegal activities. From July 2015 to June 2019, Schaback and an unnamed co-conspirator neglected to implement Know Your Customer (KYC) procedures.
These are critical components under the Bank Secrecy Act.
The plea agreement includes a $5 million fine, payable in three installments: $1 million at the guilty plea, $3 million by sentencing, and the final $1 million within two years. Schaback must also resign from Paxful’s board.
Undercover law enforcement opened Paxful accounts with minimal KYC. Source: CourtListener
Court documents detail how Schaback’s oversight allowed Paxful users to operate anonymously, facilitating money laundering, fraud, and other crimes.
The Justice Department emphasized that undercover officers could trade on Paxful without KYC verification. This highlighted the exchange’s vulnerability to criminal exploitation.
Additionally, Schaback and his co-conspirator allegedly presented a plagiarized AML policy to third parties, knowing it was neither implemented nor enforced. The founder also made exceptions to AML and KYC policies for high-volume traders and individuals with personal relationships with Schaback or his associate.
Paxful’s AML Lapses Expose Crypto’s Dark Side
This case underscores the crucial role of robust AML and KYC protocols in the cryptocurrency industry. Consequently, Schaback’s failure to comply with these requirements has significant repercussions for Paxful, which marketed itself as a platform without stringent KYC requirements.
The lack of enforcement allowed the exchange to become a conduit for various illicit activities.
The legal battle between Schaback and Paxful’s former CEO, Mohamad Youssef, intensified in March 2023. Schaback sued Youssef over control of the exchange, citing misappropriation of funds and other allegations.
Paxful founder pleaded guilty.
The dispute led to Paxful appointing Srinivas Raju as a court-ordered custodian and later naming Roshan Dharia as Interim CEO.
The Justice Department’s strict stance on AML compliance sends a clear message to the industry about the importance of these measures in maintaining the integrity of financial systems.
Schaback’s failure to establish AML and KYC protocols made Paxful a vehicle for money laundering, sanctions violations, and various scams.
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