Paxful’s Founders, Backpage Ties, and Lax Compliance
According to the plea deal signed Oct. 16, Paxful Inc. was co-founded in 2015 by Mohamed Azab Youssef and Artur Schaback, who created Paxful Holdings four years later as a parent entity. Prosecutors said customers used the exchange to shuttle proceeds from a range of criminal schemes, including fraud, prostitution, and child exploitation.
The government alleged Paxful allowed users to open accounts with minimal identifying information and marketed itself as a platform that didn’t require traditional Know Your Customer screening. A dedicated compliance officer wasn’t appointed until late 2018, and employees did not receive AML or KYC training until mid-2019.
Paxful also misrepresented to other companies that it had a robust AML program and enhanced due diligence procedures, prosecutors said.
Investigators accused Youssef, Schaback, and colleagues of coordinating with employees at Backpage.com, the now-defunct site infamous for commercial sex ads, after Backpage lost credit-card processing capabilities. Paxful allegedly promoted itself as a workaround that would allow Backpage customers to keep buying sex-ad listings using cryptocurrency.
In the agreement, prosecutors highlighted internal boasts about what Youssef called the “Backpage Effect”—Paxful’s rapid business growth linked to its partnership with the illicit advertising site.
