Artur Schaback, co-founder of the cryptocurrency exchange Paxful, has entered a plea agreement that may result in a five-year prison sentence.
The agreement highlights serious compliance failures within the company.
This development follows Schaback's admission of guilt regarding the lack of a robust Anti-Money Laundering (AML) program, a key requirement for financial platforms under U.S. law.
As a once-leading figure at Paxful, his case sheds light on the significant legal responsibilities that tech executives hold in the crypto industry.
The U.S. Department of Justice announced on July 8 that Schaback's sentencing is scheduled for November 4, after which he will also resign from Paxful’s board.
The plea deal also includes a substantial financial penalty, with Schaback agreeing to pay a $5 million fine in staged payments, reflecting the severity of the compliance breaches.
The report read: “Schaback pleaded guilty to conspiracy to willfully fail to establish, develop, implement, and maintain an effective AML program as required by the Bank Secrecy Act.
“He is scheduled to be sentenced on Nov. 4 and faces a maximum penalty of five years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
“Schaback will also resign from Paxful Inc.’s Board of Directors.”
The Details of the Compliance Breakdown
Schaback's legal troubles stem from actions dating back to the early days of Paxful. According to court documents, he and an unidentified co-conspirator presumed to be the CEO failed to establish effective AML and Know Your Customer (KYC) protocols shortly after the exchange's inception.
This oversight directly contradicted the mandates of the Bank Secrecy Act, which requires financial entities to initiate such measures within 90 days of starting operations.
The consequences of these omissions were quite significant. Paxful reportedly became a conduit for various illicit activities, ranging from “money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution,” the report revealed.
The report added that from July 2015 to June 2019, the platform allowed users to engage in transactions without sufficient identity verification, offering a veil of anonymity that facilitated these activities.
The prosecutors noted that Paxful falsely marketed itself as a KYC-free platform, appealing to those looking to evade regulatory oversight.
Further complicating Schaback's position, internal documents revealed that the AML policies presented to third parties were not only plagiarized but also largely unenforced.
This practice was particularly “egregious” as it made exceptions to the few existing AML and KYC policies based on users’ trading volumes and connections with Paxful’s leadership.
