Bitcoin Exchange CEO Arrested For Laundering Drug Money With Bitcoins

[Steven Bogos]

Bitcoin Exchange CEO Arrested For Laundering Drug Money With Bitcoins

BitInstant CEO Charlie Shrem has been charged with laundering money for customers of online drug bazaar Silk Road.

U.S. government agents have arrested BitInstant CEO Charlie Shrem on charges that he used his prominent Bitcoin exchange to launder money for customers of the online drug bazaar: Silk Road. Shrem's exchange, based in New York City, lets people buy bitcoins locally at more than 700,000 locations in the United States, as well as Brazil, Russia and elsewhere. He is also vice chairman of the Bitcoin Foundation, one of the currency's biggest advocates.

The police state that Shrem helped a man called Robert Faiella sell more than $1 million worth of Bitcoins to Silk Road customers. Faiella allegedly ran an underground Bitcoin exchange using the alias BTCKing.

Both have been arrested and are charged with conspiracy to launder money and operating an unlicensed money transmitting business. Additionally, Shrem faces a charge for not tipping off the feds to what was allegedly going on.

Cameron and Tyler Winklevoss, who invested $1.5 million in BitInstant last year to help it get off the ground, said in a joint statement: "When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws - including money laundering laws - and we expected nothing less."

The official BitInstant website [http://www.bitinstant.com/] has been brought down, and it is uncertain how this ruling will affect its customers.

Source: CNN [http://money.cnn.com/2014/01/27/technology/security/bitcoin-arrest/index.html?hpt=hp_t3]

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[InsanityRequiem]

Not just the customers, but the bit coins themselves. I would not be surprised if bitcoin values will be negatively affected by this. Probably a month or two maybe, before it bounces back up.

 

[Redlin5_v1legacy]

I'm not terribly surprised by this. Bitcoins always just screamed SCAM to me so having a CEO busted for laundering drug money using the mostly unregulated new way of transferring funds was just a matter of time.

 

[Rufus Shinra]

Bitcoins continue to be a bad taste joke. News at 11.

 

[Remus]

Did anyone else almost misread the guy's name as Charlie Sheen? Oh hey look, it's the exact same kind of operation that was the topic of the last new episode of "Person of Interest". Funny that.

 

[Kuala BangoDango]

Now if only they'd arrest the Real World bank executives that knowingly and willingly launder drug cartel money. Too bad our government has already officially announced that bank execs are "Too Rich to Jail" (ie. arresting bank execs would negatively affect the economy so we're not gonna do it).

I'm guessing the only reason why these Bitcoin guys got arrested was because they weren't giving the proper bribes and kickbacks to the correct law enforcement/government officials.

 

[CpT_x_Killsteal]

Now if only they'd arrest the Real World bank executives that knowingly and willingly launder drug cartel money. Too bad our government has already officially announced that bank execs are "Too Rich to Jail" (ie. arresting bank execs would negatively affect the economy so we're not gonna do it).

I'm guessing the only reason why these Bitcoin guys got arrested was because they weren't giving the proper bribes and kickbacks to the correct law enforcement/government officials.

This^

People laugh and joke about Bitcoins, but the thing they call "actual money" still traces back to the real criminals.

(real criminals by comparison, money laundering is bad no matter who does it, don't reply to me about that etc, etc,)

 

[Olas]

I can't believe it hasn't occurred to me until now just how ideal cryptocurrency is for money laundering. You can almost guarantee there will be more stories like this if the concept continues to catch on, welcome to the twenty first century I guess.

 

[Yopaz]

So a crypto currency with the intention of being untraceable is used for money laundering.

Is anyone honestly surprised by this?

I'm guessing the only reason why these Bitcoin guys got arrested was because they weren't giving the proper bribes and kickbacks to the correct law enforcement/government officials.

Either that or the fact that this means it's easier for people to avoid taxes which makes tax dodging something even poor people can do. That right is reserved for the wealthy people.

 

[FalloutJack]

So, in short: The man in charge takes your money, returns absolutely nothing of value, AND buys drugs with what he essentially stole from you. Man, this is almost like ENRON!

 

[Strazdas]

Now, if only they arrested CEOs of fiat banks that do the same and not be hypocrites....

So, in short: The man in charge takes your money, returns absolutely nothing of value, AND buys drugs with what he essentially stole from you. Man, this is almost like ENRON!

no. a "man1" takes your dollars and gives you euros. then "man2" takes his dollars and gives him euros. then the "man2" buys drugs with the money from you. now, "man1" is a money launderer.

 

[Rufus Shinra]

I can't believe it hasn't occurred to me until now just how ideal cryptocurrency is for money laundering. You can almost guarantee there will be more stories like this if the concept continues to catch on, welcome to the twenty first century I guess.

Well, duh. Most of the uses of the Bitcoin is for money laundering or drug trafficking. The amount of legitimate transactions is laughably small.

The Silk Road was the eBay of drugs, illegal weapons and the occasional hitman contract.

 

[Smooth Operator]

I thought people knew this is why Bitcoin got so popular, pretty much any place that took it as legit payment was running deals you didn't want authorities to know, most of it was small fries that but this is just an inevitability.

The only surprising part is they actually have enough evidence to convict someone on this basis, well if they have it anyway, US agencies aren't exactly known to follow a legal process (theirs or that of other governments).

 

[Albino Boo]

no. a "man1" takes your dollars and gives you euros. then "man2" takes his dollars and gives him euros. then the "man2" buys drugs with the money from you. now, "man1" is a money launderer.

You are making an error of fact. Man1 takes your dollars and gives you euros below $10000, who then gives to third person who buys drugs, no offence has been committed. Man1 takes your dollars and gives you euros above $10000 without asking questions that are required under the money laundering regulations and carrying out due diligence on the answers, who then gives to third person who buys drugs, then you are liable for a fine under the anti money laundering regulations. Man1 who helps Man 2 with full knowledge of the source of the money is liable to be charged the criminal law for entering into a criminal conspiracy to launder money.

 

[Calcium]

Oh boy. At the end of last year TotalBiscuit hosted an event between two of the highest regarded 'foreign' Starcraft 2 players, which had a massive prize pool in bitcoins. The pool was raised by BitCoin enthusiasts, and they had given him a promotional video explaining bitcoin that he played between a match... which honestly gave drugs as an example of what you could use bitcoin to buy. So basically I'm not in the least surprised when the marketting material is so brazen about it.

 

[TheSYLOH]

Remember Kids!
If you launder money, you get arrested!
Unless you are HSBC and are too big to fail, then all you get is docked a month's pay.

 

[FalloutJack]

Now, if only they arrested CEOs of fiat banks that do the same and not be hypocrites....

So, in short: The man in charge takes your money, returns absolutely nothing of value, AND buys drugs with what he essentially stole from you. Man, this is almost like ENRON!

no. a "man1" takes your dollars and gives you euros. then "man2" takes his dollars and gives him euros. then the "man2" buys drugs with the money from you. now, "man1" is a money launderer.

I don't view bitcoins as an asset with value. They are not true money. MONEY is true money. Bitcoins are play-money, like MMORPG money. If you want to use your money electronically, you should use your bank account like everyone else.

So anyway, Man A is a money-landerer and Man B is a drug-runner. Okay, that makes sense.

 

[Eldritch Warlord]

Now, if only they arrested CEOs of fiat banks that do the same and not be hypocrites....

So, in short: The man in charge takes your money, returns absolutely nothing of value, AND buys drugs with what he essentially stole from you. Man, this is almost like ENRON!

no. a "man1" takes your dollars and gives you euros. then "man2" takes his dollars and gives him euros. then the "man2" buys drugs with the money from you. now, "man1" is a money launderer.

I don't view bitcoins as an asset with value. They are not true money. MONEY is true money. Bitcoins are play-money, like MMORPG money. If you want to use your money electronically, you should use your bank account like everyone else.

So anyway, Man A is a money-landerer and Man B is a drug-runner. Okay, that makes sense.

Money is only valuable because people agree that it is. No money is more "true" than any other, just more trusted.

 

[Kuala BangoDango]

I don't view bitcoins as an asset with value. They are not true money. MONEY is true money. Bitcoins are play-money, like MMORPG money. If you want to use your money electronically, you should use your bank account like everyone else.

So anyway, Man A is a money-landerer and Man B is a drug-runner. Okay, that makes sense.

Even Monopoly money can be "true money" and have value as long as there are at least 2 people who believe it has value. It's all just scraps of paper with ink on it. The dollar bill is essentially the same as a post-it note with the grocery list written on it. The only reason we can buy and sell things with the dollar bill is because we believe we can, so the system works. No one believes they can buy and sell with a post-it note so that currency doesn't work.

That's the reason why in pretty much every post-apocolyptic setting there is no paper money being used because scraps of paper won't keep you alive therefore it has no value to anyone. What you DO see dollar bills used for in those settings is to wipe your butt or fuel for a fire because, as a scrap of paper, that's all it's really good for.

As another example, during the Civil War the North was using the "regular" money while the South created their own new money (since they saw themselves as a new separate country). When the South lost the war their money became worthless overnight simply because Southerners stopped believing in it. If they had kept using it as an alternate currency then it'd probably still be around today and the US would have 2 currencies.

So since Bitcoin is believed to have value by a group of people on the internet it DOES have value and it works as a currency. If those people ever lose faith in Bitcoin then it will immediately have no value and thus not be a currency.

 

[Mik Sunrider]

I'm guessing the only reason why these Bitcoin guys got arrested was because they weren't giving the proper bribes and kickbacks to the correct law enforcement/government officials.

Uh uh uh ... those are not bribes, they are called Campaign Contributions. Government officials really hate it when you call them bribes.

My guess it will take two to three years to go to trial, found guilty, pay a small fine and get probation for the rest of their lives. So it will be waste millions of real dollars and real man hours to prove nothing. 'Yeah?'