The peer-to-peer crypto platform Paxful just got slammed by the U.S. Justice Department after admitting they turned a blind eye to trafficking and fraud by virtue of profits from serious criminals.
Back in December, Paxful pleaded guilty to charges including conspiring to push illegal prostitution, handling dirty money from crimes, and blowing off anti-money laundering rules.
Prosecutors say this wasn’t some accident. Paxful openly bragged about skipping proper checks, drawing in people deep in trafficking and fraud schemes, along with extortion and commercial sex trafficking.
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How did the trafficking and fraud activities take place?
As one Justice Department official put it, Paxful made profits by moving funds for crooks who relied on the platform’s deliberate lack of controls, while fully aware the money came from trafficking and fraud activities that hurt real victims.
Between 2017 and 2019 alone, Paxful handled over 26 million trades worth nearly $3 billion, pocketing more than $29.7 million in fees. A big chunk of that came from turning the other way on illegal activity, including links to sites notorious for prostitution ads.
The platform even cashed in on what it called the “Backpage Effect,” teaming up with shady classifieds that led to $2.7 million in extra profits from 2015 to 2022.
In the end, Paxful agreed the full penalty should hit $112.5 million based on the scale of the wrongdoing, but investigators decided the company couldn’t swing more than $4 million without collapsing.
This whole mess ties directly to Paxful’s shutdown back in November, blamed on fallout from past leadership and massive compliance headaches.
Former Paxful execs faced their heat, where one pleaded guilty to failing at anti-money laundering, while the other has stayed out of formal charges so far.
The case shines a harsh light on how some crypto platforms have enabled trafficking and fraud by dodging basic safeguards.
