Paxful Faces $4 Million Fine Over Crypto Crime Connections

The U.S. Justice Department has ordered Paxful, a peer‑to‑peer crypto exchange, to pay $4 million after the company admitted it knowingly helped criminals move money.

Key Points

• December Plea: Paxful pleaded guilty to conspiring in illegal prostitution, sending funds from crime, and violating anti‑money laundering rules.
• Attracting Bad Actors: Prosecutors claimed Paxful lured criminals by falsely claiming no customer checks and fabricated AML policies.
• Volume of Trade: From 2017‑2019, Paxful handled over 26 million trades, totaling nearly $3 billion and generating more than $29.7 million in revenue.
• Penalty: The government sought a $112.5 million fine, but Paxful could only afford $4 million.
• Backpage Connection: Paxful’s marketing boasted the “Backpage Effect.” Backpage, a shut‑down site for illegal prostitution ads, was one of Paxful’s clients. Between 2015‑2022, Paxful earned $2.7 million from this partnership.
• Shutdown: The company shut down operations in November, citing past misconduct by former co‑founders and high compliance costs.
• CTO Plea: A former chief technology officer pleaded guilty in July 2024 to failing to maintain an effective AML program and is awaiting sentencing.

Implications

• Crypto Platforms & Crime: The case illustrates how crypto platforms can facilitate crime when they skip proper checks.
• Financial Accountability: It highlights the difficulty of holding companies financially accountable when their profits are tied to illicit activity.