Paxful was fined $4 million for anti-money laundering violations, with the U.S. Department of Justice stating that it profited from the flow of criminal funds

The U.S. Department of Justice announced that the cryptocurrency trading platform Paxful Holdings Inc. has been fined $4 million for failing to establish effective anti-money laundering controls.

Prosecutors alleged that the platform has long allowed illegal funds related to fraud, prostitution, and human trafficking to flow through it, profiting from these activities. The Department of Justice stated that Paxful was aware that some customer funds were derived from criminal activities but continued to provide services, using lax anti-money laundering regulations as a selling point to attract users. The investigation also pointed out that the platform processed cryptocurrency transactions for websites including Backpage, which is believed to have been used to post advertisements related to prostitution, involving minors. Data shows that from 2015 to 2022, approximately $17 million worth of Bitcoin flowed through Paxful wallets to related websites, with the platform earning at least $2.7 million in profits from this. The Department of Justice stated that Paxful's founder even referred to the resulting business growth as the "Backpage Effect."