Key takeaways:
- Artur Schaback pleaded guilty on Monday to conspiring to fail to run an efficient AML program at the crypto exchange.
- The petition claimed that Paxful advertised to users that it was a platform that did not require KYC and/or that permitted purchases without identification.
Artur Schaback, a former IT head and co-founder of Paxful, pleaded guilty on Monday to conspiring to fail to run an efficient Anti-Money Laundering (AML) program at the crypto exchange. Schaback faces a maximum of five years in jail.
On July 8, the US Department of Justice announced that Schaback, the former CTO of the exchange, would step down from Paxful’s board and be sentenced on November 4.
Government prosecutors offered Schaback a $5 million fine, which he would repay in three installments: $1 million by the time he entered a guilty plea, $3 million by the time he was sentenced, and the remaining $1 million within the next two years, according to a plea deal that was submitted the same day in a California District Court.
According to an information filing from late March outlining his charges, Schaback and a co-conspirator, named only as Paxful’s “President and Chief Executive Officer,” allegedly failed to set up an efficient AML programme within 90 days of the company’s founding, as required by the Bank Secrecy Act.
In addition, he neglected to create a Know Your Customer (KYC) program that required users to provide their name, birthdate, address, and “other identifying information” in order for the exchange to function. In a statement, the Justice Department stated:
“As a result of his failure to implement AML and KYC programs, Schaback made Paxful available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution,”
In addition, the lawsuit states that Schaback and the “co-conspirator” permitted users to open and trade Paxful accounts between July 2015 and June 2019 without providing adequate identification or supporting documentation.
The petition claimed that Paxful advertised to users that it was a platform that did not require KYC and/or that permitted purchases without identification.
The complaint said that Schaback and the “co-conspirator” provided an AML policy that was “plagiarised from another institution” in response to requests for one from third parties, even though they knew it wasn’t “implemented or enforced.”
Additionally, it states that the two “made exceptions to AML and KYC policies based on Paxful customers’ trading volumes and their relationships” with either Schaback or the “co-conspirator.”
In March 2023, Schaback filed a lawsuit against his co-founder peer and former Paxful CEO Mohamad (Ray) Youssef. This led to a conflict between the two for control of the exchange, with accusations of money laundering, sanctions evasion, and embezzlement of company cash, among other things.
In an April 2022 blog post, Youssef stated that Srinivas Raju, a director at the legal firm Richards, Layton, and Finger, was named as the exchange’s custodian, and Paxful complied with the court’s ruling.
