Paxful Co-Founder Artur Schaback Faces Prison Time for AML Violations

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As a researcher with a background in finance and experience in following the cryptocurrency industry, I find Schaback’s situation deeply concerning. It is disheartening to see yet another high-profile crypto executive facing charges related to money laundering and failure to comply with regulatory requirements. Schaback’s actions not only put Paxful at risk but also contributed to the negative perception of the entire cryptocurrency industry, making it an easy target for those who wish to exploit its vulnerabilities.

Co-founder of the decentralized cryptocurrency exchange Paxful, Artur Schaback, has struck a deal with American authorities after being charged with not adequately implementing an anti-money laundering (AML) scheme as mandated by the Bank Secrecy Act.

On November 4, Schaback is scheduled to receive his sentence, with a possible maximum term of incarceration being five years. In accordance with the plea bargain, he will relinquish his position on Paxful’s Board of Directors.

In accordance with a plea deal submitted to a California District Court, Schaback is obliged to pay a fine of $5 million in three distinct installments. The first payment, which amounts to $1 million, is due at the time of his guilty plea. The second and third payments, each worth $3 million, are expected to be made by the sentencing date and within the subsequent two years, respectively. The exact sentencing will be decided by a federal district court judge based on the US Sentencing Guidelines as well as other pertinent statutory considerations.

Charges on Schaback

The Department of Justice (DoJ) states that Schaback admitted to letting users sign up and conduct transactions on Paxful without properly verifying their identities or gathering required KYC information from July 2015 through June 2019. Additionally, Schaback, along with an unidentified accomplice, granted special privileges in bypassing AML (Anti-Money Laundering) and KYC (Know Your Customer) regulations for certain customers based on their trading activity and personal connections.

Significantly, the executive in question marketed Paxful as a no-KYC platform and falsely represented its AML policies to external parties. According to the DoJ, Schaback neglected to file any reports related to such activities despite being aware that Paxful users were involved in suspicious and illicit transactions.

As a crypto investor, I’ve come across concerning allegations regarding the role of Schaback in transforming Paxful into a platform facilitating money laundering, breaches of sanctions, and other illicit activities. These alleged activities encompassed fraudulent schemes, romance scams, extortion plots, and even prostitution rings.

Background

In March 2023, I found myself in a disappointing predicament. My co-founder and former CEO of Paxful, Mohamad (Ray) Youssef, was being sued by me. The allegations were grave – he had misused company funds and was reportedly involved in money laundering and sanctions evasion activities.

As an analyst, I would describe it this way: In April 2023, I encountered internal conflicts and faced regulatory pressure that forced me to halt all operations on Paxful temporarily. Nevertheless, I regained my composure and resumed functioning in May 2023.

Paxful underwent some leadership shifts. In April 2022, a court order led to Srinivas Raju, a lawyer from Richards, Layton, and Finger, being designated as the company’s custodian. He now works alongside Schaback and Youssef on the board. Additionally, Roshan Dharia took over as Interim CEO in late May 2023.

Artur Schaback is currently facing regulatory examination by crypto markets, while Changpeng Zhao, Binance‘s founder, admitted to breaching Anti-Money Laundering (AML) regulations in November.

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2024-07-09 13:54