Photo credit: Artur Schaback/X

Artur Schaback, co-founder and former chief technology officer of cryptocurrency exchange Paxful, pleaded guilty to conspiring to fail to maintain an effective anti-money laundering (AML) program, the US Department of Justice said in a statement on July 8.

The guilty plea, entered in a California federal court, could result in up to five years in prison for the executive.

According to the Justice Department, Schaback, who managed Paxful between July 2015 and June 2019, deliberately weakened the platform’s defenses against criminal activity. This included failing to establish a Know Your Customer (KYC) program within 90 days of starting the business, as required by the Bank Secrecy Act.

Schaback also admitted to misleading users by marketing Paxful as a platform that did not require KYC and providing fake AML policies to third parties.

“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 DOJ statement said.

The filing further alleges that Schaback and a co-conspirator, identified as Paxful’s former chief executive, allowed users to open accounts and trade without providing sufficient identifying information.

Schaback has agreed to pay a $5 million fine in installments and resign from Paxful’s board of directors. He is scheduled to be sentenced on Nov. 4, 2024.

Schaback served as Paxful’s chief operating officer until February 2022. The platform temporarily shut down in April 2023 due to a legal battle between Schaback and CEO Ray Youssef over control of the company.

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