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Paxful’s Artur Schaback Admits to AML Negligence, Faces Up to Five Years Behind Bars

Last Updated July 9, 2024 2:45 PM
Teuta Franjkovic
Last Updated July 9, 2024 2:45 PM
By Teuta Franjkovic
Verified by Insha Zia

Key Takeaways

  • Paxful co-founder Artur Schaback was charged for lax AML policies. 
  • Schaback has pleaded guilty to several regulatory violations.
  • The Paxful co-founder risks five years in prison. 

Paxful co-founder Artur Schaback has pleaded guilty  to operating a crypto exchange platform without implementing effective anti-money laundering policies.

Schaback entered his plea in a California federal court on July 8 and faces up to five years in prison. 

Paxful Co-Founder Enabled Criminal Activities by Neglecting AML

The US Department of Justice reports that Schaback managed Paxful from July 2015 to June 2019.

During his tenure, he allegedly compromised Paxful’s defenses against criminal activities by allowing easy account creation without proper identification, promoting the platform as not requiring ID checks, providing fake anti-money laundering policies, and ignoring suspicious user activities.

The DoJ claimed that Schaback transformed Paxful into a haven for criminals by failing to implement proper anti-money laundering and identification checks. This negligence facilitated money laundering, sanctions violations, and other illegal activities such as fraud, romance scams, extortion, and prostitution.

According to  the DoJ:

“Schaback allowed customers to open accounts and trade on Paxful without gathering sufficient know-your-customer (KYC) information; marketed Paxful as a platform that did not require KYC; presented fake AML policies to third parties that he knew were not, in fact, implemented or enforced at Paxful; and failed to file a single suspicious activity report, despite knowing that Paxful users were perpetrating suspicious and criminal activity.”

Major Regulator Violations

Schaback admitted to neglecting to establish, develop, implement, and maintain an effective anti-money laundering (AML) program as required by the Bank Secrecy Act and could now face a maximum penalty of five years. The Paxful co-founder was caught red-handed after undercover law enforcement officers could trade on the platform without any KYC verification.

When questioned about their AML policies, Schaback and his accomplice allegedly provided a copied policy from another institution, fully aware that it was not being implemented or enforced.

Additionally, they reportedly bypassed AML and KYC requirements for certain customers based on their trading volumes and personal connections.

A federal district court judge will now determine the sentence, taking into account the US Sentencing Guidelines and other statutory factors. Additionally, Schaback will resign from Paxful Inc.’s Board of Directors.

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