back to article Vice squad cuffs vice chairman of Bitcoin Foundation in $1m money-laundering probe

The Bitcoin Foundation is shy a vice chairman today: US money-laundering investigators have arrested and charged Charlie Shrem, the 24-year-old CEO of one-time Bitcoin exchange BitInstant. Also arrested and charged is Bitcoin trader Robert Faiella, 52, who operated as BTCKing on the underground e-bazaar Silk Road before it was …

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  1. Anonymous Coward
    Anonymous Coward

    The FBI and NSA hate anything....

    they cannot control. IE Bitcoin

    1. Roo
      Black Helicopters

      Re: The FBI and NSA hate anything....

      "they cannot control. IE Bitcoin"

      ... Looks like they are controlling it just fine.

      I suspect they would not show their hand unless they had reason to be confident that they are a step ahead. Cue Black Helicopter.

    2. Anonymous Coward
      Anonymous Coward

      Re: The FBI and NSA hate anything....

      Yes, I'm sure a bitcoin exchange running on Silk Road is a totally legitimate exchange and has nothing to do with any sort of crime.

      Before accusing conspiracy theory, maybe consider the most likely explanation first.

      1. Crisp Silver badge

        Re: The FBI and NSA hate anything....

        And I'm sure that the HSBC have totally stopped laundering money for drug cartels.

        What's your point?

        1. Anonymous Coward
          Anonymous Coward

          Re: The FBI and NSA hate anything....

          HSBC has nothing to do with a silk road bitcoin exchange and they are/have been punished fir what they have done, what's your point?

          1. Crisp Silver badge

            Re: The FBI and NSA hate anything....

            My point is that HSBC got away with a paltry fine for their criminal behaviour. I think it's a fair bet that Charlie Shrem wont get such favourable treatment.

  2. James 51 Silver badge

    It's going to be the. Interesting see how they prove criminal intend when anonymity is one of bitcoin's strengths. Or is this another case of US customs nabbing someone who did something legal in another country and they don't like and they're harassing people into submission?

    1. John Lilburne

      Criminal intent is pretty easy to establish when the cops have recorded chattering about illegal activities by the principals involved.

      1. James 51 Silver badge

        You're assuming that they have that, though with the NSA who can say what they have. Just reminds me a lot of the exective of a gambling company that was based in the UK, it's servers were in the UK and everything it was doing was legal in the UK but because a handful of people from Texas were able to use the site that executive was arrested when the plane he was on landed in the US.

    2. Charles Manning

      Criminal intent

      According to TFA, it seems these people were potentially operating an illegal money transmitting facility.

      In USA the following applies:

      http://www.law.cornell.edu/uscode/text/31/5330

      http://www.law.cornell.edu/uscode/text/31/5313

      One of the requirements is that "When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes. A participant acting for another person shall make the report as the agent or bailee of the person and identify the person for whom the transaction is being made. "

      These laws were put in place to control money laundering.

      That pretty much forbids any anonymous transactions, whether for drugs or legal products. While they cannot nail the anonymous people, they can nail the people providing the service.

      It might not be morally right to cuff them, but the law is the law and at this stage it looks like they might have broken it.

      If this is run through the courts as a test case, it could potentially break Bitcoin in USA.

      1. Anonymous Coward
        Anonymous Coward

        Re: Criminal intent

        Money laundering laws are global, bitcoin's anonymous nature has always had it square in the sights of law enforcement, it has just been a matter of time. If I can't withdraw £5k over the counter without a reason, why should I be able to shift unlimited amounts anonymously and globally?

        1. James 51 Silver badge

          Re: Criminal intent

          No, but the bank is not responsible if you withdraw 5k and use it in a transaction involving something illegal or perform the transfer on line. If they suspect something dodgy is going on they have to report it but if they don't know who you are, don't know who the recipient is or what transfer of good/services are involved, it’s going to rely on wiretap evidence to prove the ‘bank’ knew the transaction involved something dodgy and they choose not to report it.

          1. John Lilburne

            Re: Criminal intent

            The indictment lists emails where the two discussed ways of disguising transactions so as not to trigger "suspicious activity reports" to the government.

      2. James 51 Silver badge

        Re: Criminal intent

        "United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes),"

        Does bitcoin fit this description? If it does, does that mean that they can only charge him if one of the parties (okay and/or the servers hosting the transaction) was in the USA at the time?

        If he was money laundering, by all means throw the book at him but it's a short step from not liking bad people to people we don't like being bad. If officals bend the law to achieve their ends, then merely being law abiding isn't enough to protect you anymore.

        1. Tom 13

          Re: Criminal intent

          Are you really that dense? Or just being argumentatively obtuse?

          Charlie Shrem was arrested because they have records of him exchanging bit coins for cash deposits in excess of the amount specified by the US Treasury Secretary. Therefore he broke the law. This really isn't difficult.

          Now, if the DEA was also wiretapping Silk Road exchange rooms were deals between Shrem's clients and advertised drug traffickers were doing business, they may also have him on drug running charges. Establish a pattern and we're now talking RICO. But these are additional links beyond the basic money laundering charge.

      3. Tom 13

        Re: Criminal intent

        It doesn't necessarily break bitcoin, all it does is specify that any agency exchanging dollars for bitcoin has to comply with the US disclosure laws. The threshold on these things is set fairly high compared to a typical citizen: $10,000 on a single transaction the last time I dealt with it. Corporations run into them all the time, hence an assigned senior executive to deal with it. All the agency has to do is file the paperwork and they are free and clear. Assuming of course they aren't actually actively part of the money laundering scheme. I handled larger sums, in cash, and it never bothered me. In fact, the largest likely cash corporations that have these reports filed on them are the local grocery store/supermarket in the US.

    3. CommanderGalaxian
      Flame

      >>Interesting see how they prove criminal intend when anonymity is one of bitcoin's strengths.

      Bitcoin is NOT fucking anonymous. How many fucking times...

      http://bitcoin.org/en/protect-your-privacy

      https://en.bitcoin.it/wiki/Anonymity

      etc

  3. Luke Worm

    Silently contemplating over the numerous HSBC executives that were handcuffed and arrested for laundering BILLIONS of drug money ...

    1. Roo
      FAIL

      "Silently contemplating over the numerous HSBC executives that were handcuffed and arrested for laundering BILLIONS of drug money ..."

      That's OK, the branches are compensating by telling people they can't have their money back (and asking them what they are planning to use it for). Worst case scenario, the stories spook customers and they start closing their accounts.

      1. Tom 13

        Re: spook customers and they start closing their accounts.

        Yeah I read those reports. I'd be working on closing out my account with them if I had one. If I take out $10,000 from my account I expect you to just file the damn paperwork with the Dept of Treasury. Not that I've had $10,000 in my checking account for a long time. In fact, the last time I had anywhere near that much money to my name was as a teenager after my grandmother died and my mother put the inheritance money in my name and my brother's name with the expectation we'd use it to pay for college or other schooling. Which we both did.

  4. Destroy All Monsters Silver badge
    Holmes

    Thou shalt have no currency along the truly papery one!

    Yep, state doesn't like much competition.

    This was all just a matter of time.

    "We define what money laundering is, and you did it."

    1. Anonymous Coward
      Anonymous Coward

      Re: Thou shalt have no currency along the truly papery one! @Destroy All Monsters

      ' "We define what money laundering is, and you did it." '

      For right or wrong, that's how pretty much any crime and accusation works. If you break the letter of the law you've broken it. The thing to do is make sure that the laws are right. Of course, "right", or "just" or whatever is the best word tends to be subjective. so I can't see anything being even near-perfect soon.

      1. Tom 13

        Re: "right", or "just" or whatever is the best word tends to be subjective

        That's why the US was originally set up under the ordered liberty (negative freedom vs positive freedom in philosophy classes) concept.

        To pass a law you had to have at least half the House and half the Senate adopt the law, then have the President sign it. Or if they both pass it and the President vetoes it, have 2/3rds votes to override it. In all cases you wind up with a good bit more than 50% of the population thinking the law is right or just. The more people who agree, the better you're able to maintain justice. For starters, you have fewer people who are likely to break the law. Where we've run into trouble is that we've moved away from that fundamental concept and now substitute SCOTUS decisions or worse, some unelected group of 12 making an executive ruling.

  5. Paul Dx
    Meh

    Am I missing something here ?

    Surely if it's an "unlicensed money transmitting business" then he's not covered by the Bank Secrecy Act ?

    1. Charles Manning

      Re: Am I missing something here ?

      "Surely if it's an "unlicensed money transmitting business" then he's not covered by the Bank Secrecy Act ?"

      Nope. It is the same principle that requires you to pay taxes on ill-gotten gains. If you don't declare your drug dealings, you can get hammered by IRS (as well as on drug charges).

      What makes it hard for these blokes is that due toe the BC anonymity they don't have the info they have to provide even if they want to. Forcing people to identify themselves to cash in, or buy, BC is going to take away a lot of reason to use it.

      Wells Fargo would be up against the same charges if they executed wire transfers without asking for Id.

    2. Kunari

      Re: Am I missing something here ?

      Money laundering is still illegal.

    3. P. Lee Silver badge

      Re: Am I missing something here ?

      and also begs the question, are bitcoins money?

      There can be only one... fiat-currency-issuing private organisation on these American shores.

      1. Anonymous Coward
        Anonymous Coward

        Re: Am I missing something here ?

        It doesn't matter if bitcoins are money or not, there are always non-money steps in money laundering, that's kind of a key requirement.

      2. Tom 13

        @P. Lee

        Nope. I can carry fiat currency from any number of non-US organizations and not get into trouble with the law. Getting a vendor in the US to accept it is a whole other matter. And when I decide to exchange it for US fiat currency in the US, if the amount I exchange exceeds $10,000 that exchange has to file the appropriate paperwork, regardless of my citizenship status. I believe international treaties in practice extend this to banks and money exchanges in other countries, particularly the EU, Japan, and our usual trading partners.

  6. Mark 85 Silver badge

    Is this an error or what?

    First: The exchange shut down in August last year.

    Then: The criminal complaint against Shrem and Faiella today alleges that the illegal transactions took place between December 2011 and October 2013

    So if the exchange was shut down in August, how the hell did they get charged with transactions taking place after that?

    This is getting even more bizarre....

    1. diodesign (Written by Reg staff) Silver badge

      Re: Is this an error or what?

      "So if the exchange was shut down in August, how the hell did they get charged with transactions taking place after that?"

      Silk Road remained open until October 2013.

      C.

  7. Anonymous Coward
    Anonymous Coward

    Hmm

    Err, I would somehow think the US dollar is used a hell of a lot more to buy Illicit substances and armaments. Maybe we should capture the vice head of the US treasury too.

    1. phuzz Silver badge
      Holmes

      Re: Hmm

      The guys are being charged with deliberately selling BTC *knowing* that they would then be used to buy illegal drugs.

      Now I know I should assume they're innocent until proven guilty, but given that they were selling the BTC on the SilkRoad forums, my guess is that they did indeed know full well what they were doing. The question is, can the prosecutors prove it? What's the odds these two left a chat transcript somewhere which makes their involvement clear?

      1. Tom 13

        Re: being charged with deliberately selling BTC *knowing*

        No, the first charge is failing to comply with anti-money laundering charges. Those are the ones where any exchange in excess of $10,000 gets reported to the US Treasury. There are additional charges for the drug trafficking angle. While the latter may be sexier for news reports, the fundamental charge is the first one. The first also makes it easier to justify the warrants and wiretaps to prove the additional charges.

  8. Jess--

    "The criminal complaint against Faiella today alleges he "sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site" between December 2011 and October 2013."

    What next... going after ISP's because they sold internet access - the only way to access silk road - to users seeking to buy illegal drugs on the site?

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