Paxful Ordered to Pay $4M Penalty After Guilty Plea in U.S. Money Laundering Case

Paxful Holdings, once a leading peer-to-peer bitcoin marketplace, has been sentenced to pay a $4 million penalty after pleading guilty to charges brought by U.S. authorities. The crypto trading platform admitted it fostered illegal prostitution-related activity, violated anti-money laundering laws, and knowingly processed criminal proceeds. The fine is significantly lower than the originally proposed $112 million penalty due to the company’s limited ability to pay.

According to federal prosecutors, Paxful facilitated billions of dollars in cryptocurrency transactions between 2017 and 2019. During that period, the platform processed as much as $3 billion in crypto trades, including transactions linked to Backpage, an online advertising platform associated with illicit sex work. Authorities said Paxful failed to implement adequate compliance measures required under the Bank Secrecy Act (BSA), allowing unlawful financial activity to occur on its platform.

U.S. Attorney Eric Grant for the Eastern District of California stated that the sentencing sends a strong warning to digital asset companies. He emphasized that businesses operating in the cryptocurrency sector must comply with U.S. regulations and cannot ignore criminal conduct taking place through their services.

Paxful, which was particularly popular in African markets, shut down operations in 2023. The platform enabled users to trade bitcoin and other digital assets directly with one another in exchange for cash, gift cards, prepaid cards, and other payment methods. Prosecutors alleged that the company’s founders even promoted the platform as a way to circumvent anti-money laundering requirements.

The reduced fine reflects the company’s current financial condition, as authorities determined Paxful could not afford a larger penalty. The case highlights increased regulatory scrutiny of crypto exchanges and peer-to-peer marketplaces, reinforcing the importance of compliance programs, transaction monitoring, and adherence to federal financial laws within the digital asset industry.