Paxful co-founder Shabak admits to 5 years in prison for AML failure
Paxful founder and former chief technology officer Arthur Shabak faces a maximum of five years in prison after pleading guilty on Monday to conspiring to maintain an effective anti-money laundering (AML) program at the crypto exchange.
The US Department of Justice announced on July 8 that Shabak, the exchange's former chief technology officer, will be fined on November 4 and resign from Paxful's board.
A plea agreement filed the same day in a California district court shows state prosecutors have agreed to a $5 million fine, which Shabak will pay in three installments — $1 million on the day of the guilty plea, $3 million at sentencing and $1 million over the next two years. .
According to filings outlining the lawsuit from late March, Shabak and Co. — known as Paxful's “president and CEO” — failed to establish an effective AML program within 90 days of starting the business under bank secrecy laws. .
It also failed to implement a Know Your Customer (KYC) program to verify people before using the exchange, which should have collected at least name, date of birth, address and “other identifying information,” prosecutors said.
“Due to its failure to implement AML and KYC programs, Shabak provided Paxful as a vehicle for money laundering, sanctions violations and other criminal activities, including fraud, romance scams, extortion schemes, and prostitution,” the Department of Justice said. In the description.
Between July 2015 and June 2019, Shabak and “affiliates” allowed users to open Paxful accounts and trade without providing “sufficient identification information or documents,” the lawsuit added.
Paxful markets itself as a “platform that does not require KYC and/or allows shopping without ID” to customers.
When third parties requested an AML policy, Shabak and its “affiliate” provided one “withdrawn from another institution” that they knew was “not implemented or implemented.”
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The pair also made exceptions to the AML and KYC policies of Paxful customers based on their “transaction volume and relationship with Shabak or its ‘affiliate'.”
In March 2023, Shabak sued Paxful co-founder and former CEO Mohammad (Ray) Yousef, alleging misappropriation of company funds, money laundering, and embezzlement in controlling the exchange.
In an April 2022 blog post, Yusuf agreed to a court order appointing Paxful Srinivas Raju law firm Richards, Leighton & Finger as the exchange's custodian.
At the end of May 2023, Paxful said it has appointed Roshan Daria to take over as interim CEO.
Shabak did not immediately return requests for comment via email and LinkedIn message.
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