Paxful Holdings Inc., a worldwide peer-to-peer virtual currency trading platform, has admitted guilt to several federal criminal charges that claim the company knowingly facilitated illegal activities—including money laundering, fraud schemes, and unlawful prostitution—by functioning for years with almost no anti-money-laundering measures in place.
The company submitted its plea on Tuesday in the Eastern District of California and consented to a $4 million criminal fine, a figure that the Justice Department indicated reflects Paxful’s limited financial capacity to pay, despite the extent of its misconduct. Initially, prosecutors had estimated a suitable penalty of $112.5 million based on federal sentencing guidelines.
“Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers and purveyors of prostitution,” said Acting Assistant Attorney General Matthew R. Galeotti. “This conviction shows that no matter the means, the Criminal Division will hold criminals accountable for knowingly engaging in illicit finance.”
U.S. Attorney Eric Grant for the Eastern District of California said the company’s “calculated lack of controls” allowed it to become a vehicle for “money laundering, sanctions violations, and other criminal activity,” adding that platforms that “turn a blind eye” will face consequences.
FinCEN Director Andrea Gacki said Paxful “disregarded its Bank Secrecy Act obligations” by facilitating high-risk transactions involving countries such as Iran and North Korea. IRS Criminal Investigation officials said the company profited while enabling fraud, extortion, and illegal prostitution.
Platform Became Hub for Criminal Transactions
Court documents reveal that Paxful enabled over 26.7 million trades, amassing nearly $3 billion in value between 2017 and 2019, while generating close to $30 million in revenue. The founders of the platform allegedly marketed Paxful as a venue for trading without the need for know-your-customer information and misrepresented anti-money-laundering policies to their partners.
The plea agreement indicates that Paxful was aware its platform was being used to facilitate the transfer of criminal proceeds associated with fraud, romance scams, extortion, and prostitution. Furthermore, the company knowingly transferred virtual currency for Backpage, the infamous online advertising platform that has acknowledged profiting from illegal prostitution, including cases involving minors. Between 2015 and 2022, Paxful transferred almost $17 million in bitcoin to Backpage and a similar site, reaping at least $2.7 million in profits from these transactions. Reports suggest that Paxful’s founders celebrated the so-called “Backpage Effect” as a significant factor in their growth.
Three Federal Conspiracy Charges
Paxful pleaded guilty to three conspiracies:
- Conspiring to violate the Travel Act by promoting illegal prostitution across state and national lines.
- Conspiring to operate an unlicensed money transmitting business by knowingly moving funds derived from criminal activity.
- Conspiring to violate the Bank Secrecy Act by failing to maintain an effective anti-money-laundering program.
As a result of its conduct, prosecutors said Paxful’s platform was used to move proceeds of fraud, illegal prostitution, hacks by hostile state actors, and child sexual abuse material.
Cooperation Earns Reduced Penalty
Although Paxful did not voluntarily disclose its misconduct, the Justice Department said the company received credit for substantial cooperation, including providing extensive internal data and implementing remedial measures.
Paxful is scheduled for sentencing on Feb. 10, 2025.
