Paxful co-founder and former Chief Technology Officer Artur Schaback faces up to five years in prison after pleading guilty to conspiring to neglect Anti-Money Laundering (AML) compliance at the cryptocurrency exchange.
On Monday, July 8, 2024, the United States Department of Justice announced that Schaback’s sentencing is scheduled for November 4 and that He will also step down from Paxful’s board.
The plea agreement filed in a California District Court revealed that prosecutors recommended a $5 million fine, which Schaback will pay in three instalments: $1 million upon his guilty plea, $3 million by his sentencing, and the final $1 million within two years.
According to court documents, the federal agency accused Schaback and an unnamed co-conspirator, identified as Paxful’s President and CEO, of failing to establish an effective AML program within 90 days of starting the business, as mandated by the Bank Secrecy Act.
Schaback also allegedly did not implement a Know Your Customer (KYC) program to verify user identities, which is required to collect essential information like name, birth date, and address.
According to the filing, between July 2015 and June 2019, Schaback and his co-conspirator allowed users to open accounts and trade without adequate verification.
Paxful promoted itself as a platform that didn’t require KYC. When third parties asked for an AML policy, Schaback and his co-conspirator provided a plagiarized one from another institution. According to the filing, they knew that this policy was neither implemented nor enforced.
The agency also claimed that exceptions to AML and KYC policies were based on customers’ trading volumes and their relationships with Schaback or the co-conspirator.
The Justice Department stated that this failure enabled Paxful to become a conduit for money laundering, sanctions violations, and various criminal activities, including fraud and extortion.
Schaback’s legal troubles echo the broader regulatory pressures in the crypto industry, exemplified by Binance.US’s ongoing legal battle with the U.S. SEC. A federal judge recently upheld most charges against Binance.US, including allegations of offering unregistered investment products and anti-fraud violations. As a result the SEC’s case against Binance founder Changpeng Zhao will also proceed.
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