Bank

United

April

Paxful co-founder and former tech chief Artur Schaback is facing a maximum of five years in jail after pleading guilty on Monday to conspiring to fail to maintain an effective Anti-Money Laundering (AML) program at the crypto exchange.
The United States Justice Department <a href="https://www.justice.gov/opa/pr/paxful-inc-co-founder-pleads-guilty-conspiracy-fail-maintain-effective-anti-money-laundering" target="_blank" rel="noopener nofollow">said</a> on July 8 that Schaback, the exchange’s former chief technology officer, was scheduled to be sentenced on Nov. 4 and would resign from Paxful’s board.
A plea agreement filed the same day in a California District Court shows government prosecutors agreed to pitch a $5 million fine, which Schaback would pay back in three installments — $1 million by the date of his guilty plea, $3 million by his sentencing and the final $1 million within the next two years.
An information <a href="https://www.courtlistener.com/docket/68415343/1/united-states-v-schaback/" target="_blank" rel="noopener nofollow">filing</a> from late March detailing his charges said Schaback and a co-conspirator — identified only as Paxful’s “President and Chief Executive Officer” — failed to establish an effective <a href="https://cointelegraph.com/learn/crypto-travel-rule">AML program</a> within 90 days of starting the business as required under the <a href="https://cointelegraph.com/news/digitex-ceo-pleads-guilty-bank-secrecy-act">Bank Secrecy Act</a>.
He also failed to make a Know Your Customer (<a href="https://cointelegraph.com/learn/what-is-kyc-and-why-do-crypto-exchanges-require-it">KYC</a>) program to verify people before they used the exchange, which <a href="https://cointelegraph.com/news/hidden-road-bitfinex-bybit-restriction">needed to collect</a> at least the name, birth date, address and “other identifying information,” the prosecutors filing said.
“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,” the Justice Department said in a statement.
The filing adds that between July 2015 and June 2019, Schaback and the “co-conspirator” allowed users to open Paxful accounts and trade without giving “sufficient identifying information or documents” that could verify them.
Paxful also marketed itself to customers “as a platform that did not require KYC and/or that allowed buying without ID,’” the filing said.
<figure>
 <img src="https://s3.cointelegraph.com/uploads/2024-07/86b8a9d3-dd7d-42d9-b5a0-2f935e864bcd.png" alt="Paxful co-founder Schaback faces 5 years jail, admits AML failure">
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 Undercover law enforcement officers said they made trades from Paxful accounts that required no KYC. Source: CourtListener
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</figure>
When third parties asked for an AML policy, Schaback and the “co-conspirator” presented one “plagiarized from another institution” that they knew wasn’t “implemented or enforced,” the filing stated.
Related: <a href="https://cointelegraph.com/news/united-states-fbi-reward-onecoin-cryptoqueen">US State Dept offers $5M reward for OneCoin ’Cryptoqueen’</a>
The pair also “made exceptions to AML and KYC policies based on Paxful customers’ trading volumes and their relationships” with Schaback or the “co-conspirator,” it adds.
Schaback <a href="https://cointelegraph.com/news/paxful-co-founders-litigation-cites-misappropriation-of-funds-money-laundering-u-s-sanctions-evasion">sued his co-founder peer</a> and Paxful’s former CEO Mohamad (Ray) Youssef in March 2023, which locked them into a dispute over control of the exchange with allegations of misappropriation of company funds, money laundering and sanctions evasions, among others.
Youssef said in an April 2022 blog <a href="https://raycivkit.medium.com/ray-youssef-my-promise-to-make-paxful-users-whole-through-a-public-trust-65cacdf493d0" target="_blank" rel="noopener nofollow">post</a> that Paxful agreed to a court order appointing Srinivas Raju, Director at the law firm Richards, Layton, and Finger as the exchange’s custodian.
In late May 2023, Paxful <a href="https://medium.com/@paxful/paxful-appoints-roshan-dharia-as-new-interim-ceo-c8ee50cd9f4c" target="_blank" rel="noopener nofollow">said</a> it appointed Roshan Dharia to take over as Interim CEO.
Schaback did not immediately return requests for comment sent via email and a LinkedIn message.
Deposit risk: <a href="https://cointelegraph.com/magazine/deposit-risk-crypto-exchanges-money/">What do crypto exchanges really do with your money?</a>

Paxful co-founder Schaback faces 5 years jail, admits AML failure

Cointelegraph

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