Nikolas Sargeant
Artur Schaback, the 36-year-old Estonian co-founder of Paxful, entered a guilty plea in a California federal court on Monday. He admitted to conspiring to run a cryptocurrency exchange platform without effective anti-money laundering policies between July 2015 and June 2019.
The U.S. Department of Justice alleges that Schaback deliberately weakened Paxful's defenses against criminal activity. This included facilitating easy account creation without proper identification, advertising the platform as requiring no ID checks, providing fake anti-money laundering policies, and ignoring suspicious user activity.
Platform Misuse and Criminal Activities
According to the DOJ, Schaback's actions transformed Paxful into a platform exploited by criminals. The lack of proper anti-money laundering and identification checks allegedly enabled various illegal activities, including money laundering, sanctions violations, fraud, romance scams, extortion, and prostitution.
Schaback admitted guilt to intentionally avoiding the implementation and maintenance of a program to combat money laundering, as required by the Bank Secrecy Act. His sentencing is scheduled for November 4, and he will step down from Paxful's board of directors.
Paxful's Operational Challenges
In April 2023, Paxful announced a suspension of operations due to uncertainties stemming from key staff departures. This decision followed concerns raised by CEO Ray Youssef about the safety of customer funds, which arose after Schaback filed a lawsuit accusing Youssef and the company of wrongful termination.
Schaback, who served as Paxful's chief operating officer until February 2022, was reportedly barred from company operations due to disagreements with Youssef over the marketplace's direction, operational practices, and concerns about undisclosed expenditures.
Recent Developments
Following these events, Youssef has turned to Jack Dorsey's crypto firm TBD to launch Civilization Kit (Civ Kit), a decentralized peer-to-peer crypto trading platform. He is also leading Noones, a financial communication app aimed at integrating the Global South into the global financial system. Meanwhile, Schaback had remained on Paxful's board until his recent guilty plea.
This case highlights the ongoing challenges in the cryptocurrency industry regarding regulatory compliance and the potential consequences of neglecting proper anti-money laundering measures.
