Paxful co-founder pleads guilty to intentionally neglecting AML protocols


Paxful
Inc.
co-founder
and
former
CTO
Artur
Schaback
pleaded
guilty
to
conspiracy
charges
related
to
failing
to
maintain
an
effective
anti-money
laundering
(AML)
program
on
July
8,
according
to
a
Department
of
Justice
press
release.

The
DOJ
said
that Schaback’s
negligence
turned
Paxful
into
a
hub
for
money
laundering,
sanctions
violations,
fraud,
romance
scams,
extortion
schemes,
and
prostitution.
His
actions
allowed
criminal
activities
to
proliferate
unchecked,
jeopardizing
the
integrity
of
the
financial
system.

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Schaback
pleaded
guilty
to
conspiracy
to
willfully
fail
to
establish,
develop,
implement,
and
maintain
an
effective
AML
program
as
required
by
the
Bank
Secrecy
Act.
He
faces
a
maximum
penalty
of
five
years
in
prison
and
will
be
sentenced
on
Nov.
4.

Schaback
will
also
resign
from
Paxful’s
Board
of
Directors.
A
federal
district
court
judge
will
determine
the
sentence
after
considering
the
US
Sentencing
Guidelines
and
other
statutory
factors.

Willful
failures

According
to
court
documents,
Schaback
operated
Paxful,
an
online
peer-to-peer
virtual
currency
platform,
between
July
2015
and
June
2019.
The
exchange
allowed
customers
to
trade
virtual
currency
for
various
items,
including
fiat
currency,
pre-paid
cards,
and
gift
cards.

During
this
period,
Schaback
permitted
customers
to
open
accounts
and
trade
without
sufficient
know-your-customer
(KYC)
information,
marketed
Paxful
as
a
platform
that
did
not
require
KYC,
and
presented
fake
AML
policies
to
third
parties.

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He
also
failed
to
file
a
single
suspicious
activity
report
despite
being
aware
of
suspicious
and
criminal
activities
by
Paxful
users.

DOJ
investigation

The
prosecution
is
part
of
an
Organized
Crime
Drug
Enforcement
Task
Forces
(OCDETF)
investigation,
which
targets
high-level
criminal
networks
through
a
collaborative,
multi-agency
approach.

The
DOJ
said
its
investigation
into
Paxful
also
revealed
deeper
conflicts
within
the
firm.
Co-founders
Schaback
and

Ray
Youssef
have
been
embroiled
in
legal
disputes,
which
have
included
allegations
of
misappropriation
of
funds,
money
laundering,
and
evasion
of
US
sanctions
against
Russia.

These
conflicts
led
to
a

temporary
suspension
of
Paxful’s
operations
in
April
2023,
with
the
marketplace
resuming
limited
functions
in
May. During
the
shutdown,
former
CEO
Youssef
warned
users
to

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avoid
the
platform
amid
a
spate
of
scams.

In
May
2023,
Paxful
appointed
Roshan
Dharia
as
interim
CEO
to

stabilize
operations
and
explore
strategic
alternatives.

Mentioned
in
this
article

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Author: Assad Jafri


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