Virtual currency platform Paxful Holdings Inc. was sentenced to pay $4 million after pleading guilty to enabling prostitution, money laundering, and fraud on its platform.
Federal prosecutors said Paxful facilitated nearly $3 billion in trades between 2017 and 2019 while knowingly serving criminals. The platform collected $29.7 million in revenue during that period.
“Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution and commercial sex trafficking,” said Assistant Attorney General A. Tysen Duva.
The company’s most notorious client was Backpage, an online advertising platform for illegal prostitution. Paxful’s founders even boasted about the “Backpage Effect” that helped grow their business.
Between December 2015 and December 2022, Paxful transferred nearly $17 million worth of bitcoin to Backpage and similar sites. The company earned at least $2.7 million in profits from these transactions.
Court documents revealed that Paxful actively marketed itself as a platform requiring no customer verification. The company presented fake anti-money laundering policies to third parties while failing to implement basic safeguards.
“This sentence holds the company accountable for knowingly allowing its platform to facilitate serious criminal conduct,” said U.S. Attorney Eric Grant.
Paxful pleaded guilty to three federal charges: conspiracy to violate the Travel Act by promoting illegal prostitution, operating an unlicensed money transmitting business, and violating Bank Secrecy Act requirements.
The platform was used to transfer proceeds from various crimes, including fraud schemes, illegal prostitution, hacks by state actors, and the distribution of child sexual abuse material.
While prosecutors calculated the appropriate penalty at $112.5 million, they accepted a $4 million settlement given Paxful’s limited ability to pay. The company received credit for cooperating with investigators and implementing remedial measures.
Paxful co-founder Artur Schaback previously pleaded guilty in July 2024 to conspiracy charges related to the scheme.
“This case sends a clear message: platforms that choose profit over compliance will face serious consequences and be brought to justice,” said IRS Criminal Investigation Special Agent Linda Nguyen.
The investigation involved Homeland Security Investigations and IRS Criminal Investigation, with prosecution by the Justice Department’s Money Laundering Section and the Eastern District of California.
