FinCEN Imposes $3.5M Fine on Paxful for Enabling Illicit Transactions
By the 91pornWhistleblower Team
On December 9, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced it imposed a $3.5 million civil penalty on Paxful, Inc. and Paxful USA, Inc. for willfully violating the Bank Secrecy Act (BSA), the key U.S. anti-money laundering law. Paxful, a peer-to-peer convertible virtual currency trading platform, facilitated over $500 million in suspicious activities involving illicit actors. FinCEN found that the platform enabled transactions with countries such as Iran, North Korea, and Venezuela, and with Backpage.com, which was seized by the Department of Justice in 2018 for facilitating sex trafficking and prostitution.[1]
How Did Paxful Willfully Violate the BSA?
Paxful admitted that it willfully violated the BSA by 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).”[2]
According to FinCEN’s Director Andrea Gacki, “For years, Paxful disregarded its BSA obligations and facilitated transactions associated with illicit activity and high-risk jurisdictions, such as Iran and North Korea. FinCEN is committed to mitigating risks to the U.S. financial system while fostering responsible innovation in the virtual asset ecosystem.”[3]
How FinCEN Determined the Penalty
In line with FinCEN’s Statement on Enforcement of the BSA and as detailed in the Consent Order, FinCEN evaluated several factors to determine the penalty. These included mitigating factors such as Paxful’s decision to replace its senior leadership during the period of violations and its efforts to address the issues, including reviewing and reporting previously unreported suspicious activities.[4]
Why Are AML Programs Important?
Efficient AML programs are crucial for preventing financial institutions from being exploited for money laundering and terrorist financing. In new and existing institutions, these programs should be risk-based, aligning with the risks related to the institution’s location, size, and the nature and volume of its financial products and services. Businesses involved in money transmission must ensure they register and maintain their registration with FinCEN as a Money Services Business (MSB).
What is the AML Whistleblower Program?
Whistleblowers may earn rewards for reporting violations of the BSA[5]. Under the AML Whistleblower Program, an eligible whistleblower can receive a reward of up to 30% of monetary sanctions over $1,000,000 the government imposes based on the information provided by the whistleblower.
While it is unknown whether whistleblowers were involved in this case, whistleblowers can play an important role when bringing information forward.
91pornpartner Marlene Koury commented: “FinCEN’s enforcement action underscores the consequences of failing to implement effective AML controls. When companies disregard these obligations, they create pathways for illicit activity. Whistleblowers are often the first to identify these breakdowns and are essential to protecting the integrity of the financial system.”
Our Firm Helps AML Whistleblowers
For questions about the AML whistleblower process or to discuss a potential matter, please contact Constantine Cannon’s Whistleblower Team for a free and confidential consultation.
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Sources:
[1] See
[2] See
[3] Id.
[4] Id.
Tagged in: Money Laundering,