WASHINGTON—The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has assessed a $3,500,000 civil money penalty against Paxful, Inc. and Paxful USA, Inc. (collectively, Paxful) for willful violations of the Bank Secrecy Act (BSA), the primary U.S. anti-money laundering law that safeguards the financial system from illicit use. Paxful, a convertible virtual currency (CVC), peer-to-peer (P2P) trading platform, facilitated more than $500 million in suspicious activity involving a host of illicit actors. The company enabled transactions with countries including Iran, North Korea, and Venezuela, along with Backpage.com, a website seized by the Department of Justice in 2018 for facilitating prostitution and sex trafficking.
“For years, Paxful disregarded its BSA obligations and facilitated transactions associated with illicit activity and high-risk jurisdictions, such as Iran and North Korea,” said FinCEN Director Andrea Gacki. “FinCEN is committed to mitigating risks to the U.S. financial system while fostering responsible innovation in the virtual asset ecosystem.”
Paxful admits that it willfully violated the BSA, including failing to: (i) register with FinCEN as a money services business (MSB); (ii) develop, implement, and maintain an effective AML program; and (iii) file suspicious activity reports (SARs).
Consistent with FinCEN’s Statement on Enforcement of the BSA—and as outlined in the Consent Order—FinCEN considered a variety of factors in determining the appropriate penalty for this matter. These included mitigating factors, such as the decision by Paxful to terminate its relationship with leadership who oversaw Paxful’s operations at the time the willful violations took place and remediation efforts by the company, including conducting a review to identify and report previously unreported suspicious activity that Paxful processed during the relevant time period.
FinCEN appreciates the close collaboration with its partners from the Department of Justice’s Money Laundering, Narcotics and Forfeiture Section, the U.S. Attorney’s Office for the Eastern District of California, and Homeland Security Investigations.
Compliance Considerations
Effective AML programs can prevent financial institutions from being used to facilitate money laundering and the financing of terrorism. For new and existing financial institutions, such programs should be risk-based and commensurate with the risks posed by the location and size of, and the nature and volume of the financial products and services provided by, the institution. Businesses engaged in money transmission services should ensure that they register and maintain registration with FinCEN as an MSB.
Financial institutions dealing in virtual assets and prepaid access are reminded that the BSA obligation to identify and report suspicious activity is also applicable to transactions effected in these products that take place by, at, or through the financial institution. Financial institutions should consider the coverage of these products within their procedures to monitor for potentially suspicious activity, including the extent to which these procedures support the volume of relevant activity.
Financial institutions with obligations to verify customer identity should ensure they maintain appropriate processes to comply with this requirement. Financial institutions are also encouraged to consider the use of Internet Protocol (IP) address and geolocation data to mitigate exposure to high-risk jurisdictions and prohibited parties. Where applicable, financial institutions should similarly consider the nature of their customers’ businesses to mitigate the risk that such accounts may be engaged in illicit activities.
Lastly, this enforcement action demonstrates the value in taking appropriate and timely mitigating procedures when deficiencies are identified. Financial institutions should take appropriate action to ensure they have a robust culture of compliance, including an appropriate “tone at the top.” Further, financial institutions are encouraged to promptly remediate reporting issues when they are identified to ensure timely and accurate reporting of SARs.
For additional information regarding the facts and circumstances associated with this enforcement action, including the specific BSA violations and their underlying causes, please see the Consent Order between FinCEN and Paxful.
FinCEN Whistleblower Incentive Program
FinCEN maintains a whistleblower incentive program for violations of the BSA and certain national security laws such as the International Emergency Economic Powers Act (IEEPA). Individuals located in the United States or abroad who provide information may be eligible for awards if the information they provide leads to a successful enforcement action that results in monetary penalties exceeding $1,000,000 and the statutory requirements in 31 U.S.C. 5323 are otherwise met. FinCEN is currently accepting whistleblower tips.
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