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Expect Attitude - Walking On The Fine Line Since 2012 | October 20, 2017

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Bitcoin Start-Up Founder Caught Money Laundering

Bitcoin Start-Up Founder Caught Money Laundering

More Fallout From Black Market Website “Silk Road”

There are multiple levels to fucking up in life these days. You can fuck up bad, you can fuck up royal, and you can fuck up big time. I’m sure there are more, and that’s only a few but that is neither here nor there. Interested what it looks like to fuck up royal? Just twelve short months after raising $1.5 million in capital for a Bitcoin exchange start-up called BitInstant, the 24 year old CEO of the company Charlie Shrem has been charged with money laundering by United States prosecutors. He is being accused of knowingly facilitating illegal purchases on the now shuttered underground black marketplace website called Silk Road. Talk about getting yourself into a shitload of trouble… Whoops! I hate when that happens!

expect_attitude_bitcoin2Shrem has been charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. The criminal complaint also accused Shrem of using Silk Road to purchase drugs. He was arrested at the John F. Kennedy Airport in New York while trying to board a plane. It is unknown where he was trying to fly to. Shrem originally started his company with a $10,000 investment from family. BitInstant was intended to provide a platform to quickly and easily turn traditional currencies into digital bitcoins. The goal was to make BitInstant the “go-to site” for buying and selling bitcoins.

 

I Have Not Heard Of This Thing Known As Silk Road

In case you were unaware, Silk Road, often refered to as the “Amazon.com of illegal goods”, was the ultimate crazy ass black market where you could get just about anything you could possibly think of. Imagine a website where as of March 2013, had 10,000 products for sale by vendors, 70% which were drugs that are considered contraband in most jurisdictions. There were over 300 varieties of drugs being sold including heroin, LSD, cocaine, crystal meth, prescription pills, and marijuana. FBI investigators even found vendors of stolen credit card numbers, hitmen, guns, and numerous other illegal offers, some being quite sick in nature. Coolio would have called it a gangsters paradise.

Buyers could even leave reviews of the sellers products and rate the sellers just like on EBay! Now that’s what you call twisted… To try and preserve users’ anonymity, the site required all transactions be conducted in the bitcoin currency. On October 2, 2013, the Federal Bureau of Investigation permanently shut down Silk Road. They arrested the site operator Ross William Ulbricht on charges of alleged murder for hire and narcotics trafficking violations. I’m guessing it will be awhile before Mr. Ulbricht sees a life without forced sodomy. I wonder if he sold that on his website?

“Buyers could even leave reviews of the sellers products and rate the sellers just like on EBay! Now that’s what you call twisted…”

 

Tell Me More Of Mr. Shrem’s Dastardly Deeds!

According to the US prosecutors office, a fella by the name of Robert Faiella worked with Charlie Shrem to sell bitcoins to Silk Road users. The two men allegedly sold more than $1 million worth of the currency, with Shrem giving Faiella a volume discount on BitInstant’s fees. “Upon receiving orders for Bitcoins from Silk Road users,” the prosecutors office said, “Faiella filled the orders through BitInstant, which was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service.” At this point you may or may not see where this is going.

Possibly, you may be thinking to yourself, well that doesn’t really sound illegal. I mean, they probably shouldn’t have been associating with Silk Road, but WTF? Well, according to the government, what they did runs afoul of U.S. money laundering laws, which require that payment companies like BitInstant collect information about their customers, monitor their transactions, and also report “suspicious” transactions to the government. Shrem failed to do this the government says and was therefor laundering the money. Game over, thanks for playing. You may now drive thru. The Faiella guy is also facing a rack of charges. You would think being in that industry they would know better, but I guess not.

Faiella and Shrem are each charged with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and one count of operating an unlicensed money transmitting business, which carries a maximum sentence of five years in prison. In addition, Shrem is being charged with one count of willful failure to file a suspicious activity report, which carries a maximum sentence of five years in prison.

 

So What About BitInstant?

In May 2013, BitInstant made headlines when the twins who claimed that Mark Zuckerberg stole their idea for Facebook, invested. Not to long after that trouble started. A few weeks after taking the cash, BitInstant announced it was suspending operations. That triggered a class action lawsuit from BitInstant customers. These new charges against Shrem represent the latest setback for BitInstant, which was once an “on fire” and highly talked about start-up. Investors expressed surprise and said they are deeply concerned with the CEO’s arrest. They have been  quoted as saying that they fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulations being implemented on the purchase and sale of bitcoins. BitInstant was not named in the criminal complaint, but their website is no longer operational. Read into that whatever you would like.

“Truly innovative business models don’t need to resort to old-fashioned law-breaking,” Manhattan U.S. Attorney Preet Bharara said. “When Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act.” Bharara’s statement suggests that Bitcoin exchange services that color within the lines of U.S. law — collecting information about their customers and reporting evidence of illegal transactions to the authorities — don’t need to worry about running afoul of money laundering laws and can stay out of trouble.

What do you think? We’d love to hear you sound off with your thoughts in the comments below!

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