Author: Jesse Coghlan, CoinTelegraph; Compiler: Deng Tong, Golden Finance
Paxful co-founder and former technical director Artur Schaback admitted on Monday to failing to maintain an effective anti-money laundering (AML) program at the cryptocurrency exchange and faces up to five years in prison.
The U.S. Department of Justice said on July 8 that Schaback, the exchange's former chief technology officer, is scheduled to be sentenced on November 4 and will resign from the Paxful board of directors.
A plea agreement filed the same day in California district court showed that government prosecutors agreed to a $5 million fine, which Schaback will repay in three installments — $1 million on the date of his guilty plea, $3 million at sentencing and the final $1 million over the next two years.
An information document in late March detailing its charges said Schaback and a co-conspirator — identified only as Paxful’s “President and CEO” — failed to establish an effective anti-money laundering program within 90 days of starting their business, as required by the Bank Secrecy Act.
He also failed to develop a Know Your Customer (KYC) program to verify people before they use the exchange, which would have required collecting, at a minimum, name, date of birth, address and “other identifying information,” prosecutors’ filings said.
“By failing to implement anti-money laundering and KYC programs, Schaback enabled Paxful to become a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion, and prostitution,” the Justice Department said in a statement.
The filings also allege that between July 2015 and June 2019, Schaback and “co-conspirators” allowed users to open Paxful accounts and conduct trades without providing “sufficient identifying information or documentation” to verify their identities.
Paxful also marketed itself to customers “as a platform that does not require KYC and/or allows purchases without ID,” the filings said.
Undercover law enforcement said they traded through Paxful accounts without KYC. Source: CourtListener
When a third party requested an AML policy, Schaback and "co-conspirators" proposed a policy "plagiarized from other institutions" that they knew was not "implemented or enforced," the document states.
The two also "made exceptions to the AML and KYC policies based on the trading volume of Paxful customers and their relationship to Schaback or "co-conspirators," the company added.
Schaback sued his co-founder and former Paxful CEO Mohamad (Ray) Youssef in March 2023, embroiling them in a dispute over control of the exchange, accusing them of misappropriation of company funds, money laundering and sanctions evasion, among other charges.
Youssef said in an April 2022 blog post that Paxful agreed to a court order appointing Srinivas Raju, a director at the law firm Richards, Layton & Finger, as the exchange's custodian.
In late May 2023, Paxful said it had appointed Roshan Dharia to take over as interim CEO.
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