35 ms·

US makes Bitcoin exchange arrests

411 points by majc2 13y ago

CapitalistCartr 13y ago
There is a bit more information here, not much to be had anywhere I see, though. http://business.time.com/2014/01/27/bitinstant-ceo-charlie-shrem-arrested-for-alleged-money-laundering/ http://business.time.com/2014/01/27/bitinstant-ceo-charlie-s...
CodeCube 13y ago
People are gonna have to learn to play by the rules. They are obviously paying attention.
- exo762 13y ago
  Their scale of operations was too low. Rookie mistake. Should have learned from HSBC management.
- shiftpgdn 13y ago
  Sorry but that's rubbish. Even if you play by the rules they'll just change them via some obscure FTC policy or congressional rider. Look at what happened to all the "Work from home" companies a few years ago. All the owners had their assets seized in full for breaking a new FTC policies that had been published for only a matter of days.[1] The reality is if you're doing something the government doesn't like you NEED to leave the country. They'll just keep moving the goal posts until you're in prison. [1]http://www.ftc.gov/news-events/press-releases/2012/11/ftc-expands-fight-against-deceptive-business-opportunity-schemes http://www.ftc.gov/news-events/press-releases/2012/11/ftc-ex...
  - objclxt 13y ago
    The rules in this case are "don't enter into a drug based money laundering business", which is allegedly what went on here. It's certainly not new or obscure.
    - BlackDeath3 13y ago
      >drug based money laundering business No ambiguity there!
  - judk 13y ago
    http://business.ftc.gov/documents/bus79-selling-work-home-or-other-business-opportunity%20 http://business.ftc.gov/documents/bus79-selling-work-home-or... FTC makes rules, not laws. That is a important distinction, and the Courts determine where the rules are consistent with the pre-existing laws.
  - poopsintub 13y ago
    If you're trying to avoid taxes and do shady stuff with your money, eyeah. You're going to have a bad time.
  - hashmap 13y ago
    "The US government is cracking down on companies that scam millions of dollars out of people looking for jobs, WHERE'S THE FREEDOM??" Come on, man.
  - notahacker 13y ago
    I can't think of many people less deserving of sympathy than the people in the linked article (even the Bitcoin money-launderer deserves more), and the world is unequivocally a better place for the FTC moving the goalposts to catch them. Frankly, you shouldn't need to read FTC guidelines to understand that peddling lies and then not honouring promised refunds might get you into trouble, and conmen whose businesses get suspended by court 12 months after the FTC introduces explicit guidelines banning their business practices are not victims, unlike their paying customers.
  - imroot 13y ago
    These rules were publicized in November of 2011,[1] and implemented March 1, 2012. Press release November 15, 2012. I don't think 6+ months qualifies as "a matter of days." 1: http://www.ftc.gov/news-events/press-releases/2011/11/ftc-adds-new-protections-consumers-seeking-work-home http://www.ftc.gov/news-events/press-releases/2011/11/ftc-ad...
dreen 13y ago
Seems like they were arrested for selling bitcoins to silk road users en masse. Is this just a US law oddity or is that what passes for money laundering these days?
- deleted 13y ago
  [deleted]
- caublestone 13y ago
  Not quite. The US gov is accusing these men of putting wealth through the Silk Road (which was believed to be untraceable) in order to get this wealth off the books to avoid taxes and investigations of the source of this wealth. Edit: Not necessarily their own wealth.
  - dmix 13y ago
    Where does it say that they used it for personal wealth laundering? As far as I can tell it was only for providing a service for purchasing BTC anonymously with cash. It seems to be that BitInstant CEO sold BTC to a known Silk Road BTC dealer, who was aware of what the BTC was being used for.
    - lispsil 13y ago
      Basically this, also surprised anybody would buy Bitcoins from a SR vendor. Also another reminder for companies to encrypt their internal emails this is also how they busted Megaupload because of stupid things they emailed each other 'hey where is Batman uploaded?'
      - rhino369 13y ago
        The court will just order them to turn it over unencrypted. And if you won't they can use that as evidence against you.
- jljljl 13y ago
  Speculating, but I imagine it has to do with US requirements on financial transaction reporting. Financial institutions and securities traders have certain requirements on which transactions and activity they report. http://en.wikipedia.org/wiki/Money_laundering#The_role_of_financial_institutions http://en.wikipedia.org/wiki/Money_laundering#The_role_of_fi... A bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as "know your customer". This means knowing the identity of the customer and understanding the kinds of transactions in which the customer is likely to engage. http://en.wikipedia.org/wiki/Money_laundering#Preventive http://en.wikipedia.org/wiki/Money_laundering#Preventive These laws, contained in sections 5311 through 5332 of Title 31 of the United States Code, require financial institutions, which under the current definition include a broad array of entities, including banks, credit card companies, life insurers, money service businesses and broker-dealers in securities, to report certain transactions to the United States Treasury. Cash transactions in excess of US$10,000 must be reported on a currency transaction report (CTR), identifying the individual making the transaction as well as the source of the cash.
mdelias 13y ago
Complaint: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles...
- gwern 13y ago
  Non-evil link: http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR/Faiella,%20Robert%20M.%20and%20Charlie%20Shrem%20Complaint.pdf http://www.justice.gov/usao/nys/pressreleases/January14/Schr...
zmanian 13y ago
Seems like solid evidence that the reason the US govt is so comfortable with Bitcoin is that they have a handle on anonymizing the blockchain as needed. Also maybe an example of crypto over-confidence.
- coldtea 13y ago
  Obligatory XKCD reference: http://xkcd.com/538/ http://xkcd.com/538/
  - wyager 13y ago
    Except for that the government still can't use torture in most cases.
    - coldtea 13y ago
      You'd be surprised. Especially if those laundering money via Bitcoin are also suspected of helping bad guys and such.
    - TallGuyShort 13y ago
      No, but they can use legal intimidation, and that's worked pretty well in the past.
    - smtddr 13y ago
      You trust the USgov? I don't. They can do whatever they want as long as they don't get caught; and sometimes even when that happens.... e.g. NSA.
- rjzzleep 13y ago
  government loves bitcoin. credit cards are very traceable. cash is fairly traceable, but the moment bitcoins are used to get real goods theyre completely traceable. add redlisting and upcoming ca authorities to the mix and bitcoin is a governments wet dream
  - wyager 13y ago
untog 13y ago
Note that this isn't an arrest just for operating a Bitcoin exchange. It's specifically to do with Silk Road.
- thisiswrong 13y ago
  From the BBC article: ''The authorities said the pair were engaged in a scheme to sell more than $1m (£603,000) in bitcoins to users of online drug marketplace the Silk Road.'' This is ridiculous! Please tell me how selling Bitcoin to someone is illegal? What that person does with the Bitcoin they acquire not the responsibility of the exchange. This smells like another case of gvt scare tactics to protect the bankers and their out-dated & thieving business models. Anyone remember liberty exchange ?
  - matthewmacleod 13y ago
    "Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business." Does that answer your question? It's far from ridiculous.
    - deleted 13y ago
      [deleted]
  - mkautzm 13y ago
    It is the literal definition of money laundering dude. If you purchased something illegally with some currency or good or service with the intention of converting that currency, good or service into a different currency, that's called money laundering and it's illegal.
  - coldtea 13y ago
    >This is ridiculous! Please tell me how selling Bitcoins to someone is illegal? What that person does with the Bitcoins they acquire not the responsibility of the exchange. You know that it's illegal for actual banks to assist in money laundering right? Money has to pass through specific channels and be exposed to specific checks to be wired from country to country (in some countries even from person to person after a certain amount). Else you're liable to be caught for assisting in money laundering. So, yes, if you help people to move money, you can be held liable for what they're doing with it.
gst 13y ago
In related news: http://www.globalpost.com/dispatch/news/regions/americas/united-states/140121/hsbc-paying-2-billion-drug-money-laundering-cartel http://www.globalpost.com/dispatch/news/regions/americas/uni...
- JetSpiegel 13y ago
  Silk Road isn't too big to fail.
- rayiner 13y ago
  I suggest you read the e-mail exchanges in the indictment, for example starting on page 15: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles.... There is a huge difference between having controls that were too weak to catch money laundering activity in Mexico, and the CEO deliberately bypassing money laundering controls in order to sell BTC to Silk Road users. The indictment in HSBC is full of stuff like "HSBC ignored government recommendations that Mexico be treated as a high-risk area instead of a medium-risk area..." This indictment has deliberate, knowing activity on the part of Shrem that, as the e-mails indicate, even he thinks is illegal.
  - mdp 13y ago
    This is simply not true. 'In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a "systemically flawed sham paper-product designed solely to make it appear that the Bank has complied" with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.' 'In one email exchange submitted as evidence in that case, employees debated whether the bank should help a Miami client get around U.S. sanctions by moving the client's business to HSBC's Hong Kong office. "I believe that the best outcome would be for the customer to open a relationship with Hong Kong just for leters (sic) of credit purposes. He travels there all the time," private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the bank and couldn't be reached for comment.' http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc=932 http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc...
rayiner 13y ago
It's worth reading the indictment: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles.... At least read the e-mail exchanges starting on pages 10 and 12. What the article doesn't make clear is that the charge isn't for just selling BTC to Silk Road users. The charge is that Faiella purposefully targeted Silk Road users, sold them BTC at a markup, and Shrem coordinated with him to bypass BitInstant's anti-money laundering mechanisms and deliver the actual Bitcoin.
- eloff 13y ago
  This is the information missing both from the article and the comments here in order to understand what's really being objected to. This should be the top comment.
olefoo 13y ago
From reading the complaint; it seems that the BTCKing guy was advertising his services on Silk Road and was active on the forums. Which means that he was knowingly violating the laws on money transmission and specifically the know your customer aspects. It's pretty clear that in the not too distant future it will be illegal to not make a good faith effort to identify anyone you are selling bitcoins to.
- maaku 13y ago
  > It's pretty clear that in the not too distant future it will be illegal to not make a good faith effort to identify anyone you are selling bitcoins to. Is that a bad thing?
  - olefoo 13y ago
    It is a political question. What happens if the government restricts access not only to drugs, but phones without key escrow, or media players without DRM and uses the money laundering tools to go after the "pirates and tax evaders" who for some reason don't want to share their every communication with the government? And there are plenty of people who would disagree with you about the morality of the government doing anything but enforcing quality-control and truth in labeling when it comes to what molecules adults want to put in to their bodies.
mikecane 13y ago
"and operating an unlicensed money transmitting business" http://bnowire.com/inbox/?id=2158 http://bnowire.com/inbox/?id=2158 And they reveal the hand they'll use to shut it all down.
- deleted 13y ago
  [deleted]
- NegativeK 13y ago
  They revealed that hand a while ago with the FINCEN announcement. The US government isn't going to give Bitcoin a status that's different than other currencies.
- dragonwriter 13y ago
  > And they reveal the hand they'll use to shut it all down. Well, except that they released information about how they viewed MSB rules applying to virtual currencies some time ago, and since then bitcoin related businesses to which the rules would apply have taken steps to become appropriately licensed.
kumarski 13y ago
This seems a bit ridiculous considering the half a TRILLION dollars that were laundered for drug cartels by the American bank Wells Fargo. Am I missing something?
- coldtea 13y ago
  Yes. 1) Big banks have more leverage than insignificant fringe exchanges. 2) Wells Fargo was also investigated and fined (although an insignificant amount compared to their business).
  - deleted 13y ago
    [deleted]
  - notmarkus 13y ago
    Your evidence that something isn't ridiculous consists of two points which are, themselves, ridiculous.
    - coldtea 13y ago
      I've never attempted to provide evidence "that something isn't ridiculous". Parent (you?) asked "if [he] is missing something" and I replied. That said, the points are realistic, not ridiculous. Reality might be ridiculous, but you can't leave in a fantasy world.
ChuckMcM 13y ago
Interesting that they charged them with the money transmitting and laundering charges. I suspect it is hard to get someone indicted for just trading in coin since to the average lay person that probably seems like baseball collector cards or something.
jbb555 13y ago
If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering. If this is all as presented, this is good for bitcoin. The fact that a criminal has been caught is good. The fact that they were using bitcoin to commit their crime makes it doubly good they were arrested as it reflects badly on the community.
- dragonwriter 13y ago
  > If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering. Exactly. > If this is all as presented, this is good for bitcoin. Perhaps, but to the extent that the value of bitcoin is supported by people buying it based on (a) the perception that they can use it in can't-get-caught criminal schemes, or (b) the perception that other people will buy it for that reason, then events like this (and them being reported widely in the media) are bad for bitcoin (value). It's good for mainstream adoption if it is perceived as cleaning the criminals out of the ecosystem more than as a sign that the ecosystem is infested with criminals.
  - maaku 13y ago
    > Perhaps, but to the extent that the value of bitcoin is supported by people buying it based on (a) the perception that they can use it in can't-get-caught criminal schemes, or (b) the perception that other people will buy it for that reason, then events like this (and them being reported widely in the media) are bad for bitcoin (value). I would rather such people left the Bitcoin community. IMHO that would increase the value of bitcoin, even if it means a dip in the price.
- venomsnake 13y ago
  It is also good for bitcoin because suddenly the government admits by its actions that it is indeed a currency.
jusben1369 13y ago
I wonder how central figures in Bitcoin feel about this. The headlines aren't helpful but in the longer run if the Feds drive down or out the number of bad guys using Bitcoin that would seem to help it's image over the long run.
eterm 13y ago
A good excerpt from page 13. "Shrem email accounts reflect that "BTCKing" not only obtained his supply of Bitcoins through the Company, but did so with extensive support from SHREM. Even though SHREM quickly realized that "BTCKing" was reselling Bitcoins on Silk Road, which SHREM knew to be a marketplace for illicit drugs, SHREM went out of his way to facilitate "BTCKing's" business. Among other things, SHREM: permitted "BTCKing" to continue doing business with the Company, despite initially threatening to "ban" him based on his illegal activity; personally ensured that "BTCKing's" orders with the Company were filled everyday; gave "BTCKing" discounts based on his large order volume; sought to conceal "BTCKing's" activity from the Co-founder and the Cash Processor to prevent "BTCKing's" orders from being blocked; advised "BTCKing" how to evade the transaction limits imposed by the Company's own AML policy; let "BTCKing" conduct large transactions without ever verifying his identity, in violation of federal AML laws; and failed to file a single Suspicious Activity Report about "BTCKing," [sic] despite the obvious "red flags" raised by "BTCKing's" dealings with the Company." If all that is alledged is true, that's pretty damning and this isn't just a general bitcoin crackdown.
- synctext 13y ago
  The US Attorney Press release puts it nice: "SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users." http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php http://www.justice.gov/usao/nys/pressreleases/January14/Schr... (note the 14 Jan in URL and 27Jan release date; first draft Press release, then make arrests)
  - gedrap 13y ago
    >>> note the 14 Jan in URL and 27Jan release date; first draft Press release, then make arrests 2014 January?
    - basseq 13y ago
      Definitely. There are other January press releases with the same base URL.
nullc 13y ago
The Justice Department press release is the ultimate source for all these stories and is the most informative: http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php http://www.justice.gov/usao/nys/pressreleases/January14/Schr... I guess this bodes poorly for the people who were hoping to get their coins back from Bitinstant: http://bitinstant.info/ http://bitinstant.info/
siculars 13y ago
I find it hilarious that they take this guy down and nobody from HSBC does a perp walk. I guess it's who you know and how much you can pay off, ya? This has everything to do with the threat Bitcoin represents. HSBC literally paid a 2 Billion dollar fine against specifically money laundering on behalf of organized drug cartels. The investigation took years and not a single HSBC employee has done a perp walk. Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime? It's what you buy with BTC, or any other currency, that is the crime.
- kbenson 13y ago
  The investigation took years and not a single HSBC employee has done a perp walk. The large companies obviously know how to avoid accountability by eliminating, or never creating paper trails. Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime? The article says money laundering, so there's probably more to it than that. Eterm's review seems to support that.
  - deleted 13y ago
    [deleted]
  - jnbiche 13y ago
    Wrong, there were plenty of paper trails in the HSBC case. The large companies know how to avoid accountability by paying off powerful politicians.
    - kbenson 13y ago
      While no doubt true in some cased, I prefer the more optimistic view that the system is just somewhat broken with respect to bringing larger entities to account for their errors. I find that problem to be more tractable than eliminating political corruption, while possibly also making paying off politicians to avoid prosecution more dangerous for both involved parties.
    - deleted 13y ago
      [deleted]
johnmurch 13y ago
I am sure this will get down voted, but I can't help but find it interesting (Gov going after them after this recent HSBC news) HSBC was involved with drug cartels and much more and just had to pay a 1.9 billion dollar fine (sounds like a lot, but keep in mind its about 5 weeks of profits) http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211 http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUS...
- atmosx 13y ago
  Not, actually it's a valid point: If you are a corrupted bank, you can get away with everything. If you are against the establishment you can't.
NAFV_P 13y ago
> "It is unfortunate Silk Road continues to make the headlines in association with Bitcoin - this is the dark side of Bitcoin, which the vast majority of digital currency users have no association with." Every currency or commodities of value have a dark side. A significant percentage of British notes have traces of cocaine, occasionally you see ones with blood on them. I'd consider blood diamonds to have just as sinister connotations as bitcoin. Discussing this reminds me of the scene in Beverley Hills Cop, where the character Michael Tandino is murdered for stealing a wad of bearer bonds. http://en.wikipedia.org/wiki/Bearer_bond http://en.wikipedia.org/wiki/Bearer_bond
- eli 13y ago
  Perhaps offtopic, but the US is against blood diamonds too. It's illegal to import diamonds from Sierra Leone.
- camperman 13y ago
  Indeed. You could do :s/Bitcoin/cash/ign on the article and it would be still be surprisingly readable.
kbar13 13y ago
Title is very sensationalist and almost gave me a heart attack.
- nullc 13y ago
  I expect that this is no accident.
jboggan 13y ago
I am very supportive of the Bitcoin Foundation, but it doesn't look good to have your Vice Chairman [1] taken down on money laundering charges. 1 - https://bitcoinfoundation.org/about/board https://bitcoinfoundation.org/about/board
SoftwarePatent 13y ago
A better headline: "U.S. makes money-laundering arrests"
epaga 13y ago
For me, the biggest shock is that Shrem is on the board of the Bitcoin Foundation and was involved in this stuff. The Bitcoin foundation is one of the strongest voices in Washington about Bitcoin. This is a big hit to the credibility of Bitcoin in the near to midterm future.
- lsc 13y ago
  >This is a big hit to the credibility of Bitcoin in the near to midterm future. It sure seems that way, doesn't it? If I had significant amounts of bitcoin, it would freak me out. But, I think we're seeing selection bias here. The fact that I believe that the government will eventually shut the operation down, as they did e-gold, is a big part of why I don't have any bitcoin. But the thing is, the current bitcoin price, something like $970 as of now (Monday, 11:54 AM PST) would indicate that "the market" (that is, the people who own and are thus in a position to sell bitcoin) doesn't think this is such a huge deal. This might be one of those places where the difficulty of shorting bitcoin is propping up the price. I don't know if I would /short/ bitcoin right now, but if it were possible, I would probably blow a couple grand on put options if I could do so in a reasonable way.
  - fnordfnordfnord 13y ago
    >The fact that I believe that the government will eventually shut the operation down, as they did e-gold, is a big part of why I don't have any bitcoin. Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict. >I would probably blow a couple grand on put options if I could do so in a reasonable way. Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks https://www.bitfinex.com/pages/howitworks
    - lsc 13y ago
      >Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict. My belief is that bitcoin will slowly become less legally convenient, through actions like the story above. The government can't just shut down bitcoin like they did e-gold, sure, but the government can put in legal barriers to transferring bitcoin. if it becomes defacto illegal to transfer bitcoin? Yes, they haven't "shut down" bitcoin, but for me, they've made it worth zero dollars. >Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks https://www.bitfinex.com/pages/howitworks Yeah, that lets me short bitcoin. the difference between a short and a put is that with a put, I'm only risking what I've paid for the put, and the put expires after a certain period of time. Put options become more expensive the further out you want that expiration date (and more expensive as the security in question is perceived to be more volatile, so it's very likely that put options on bitcoins would be very expensive. But they don't have the unlimited liability of a short.) The fact that I'd be willing to buy put options but I'm not willing to short bitcoin tells you that while I believe it is likely that bitcoin is going to fail, I'm not anywhere near certain.
deleted 13y ago
[deleted]
jahewson 13y ago
There seems to be a general lack of understanding here on HN that money laundering is incredibly harmful to society. It allows organised crime to operate with great ease. It facilitates the corrupt in any walk of life, be it political, corporate, or even law enforcement. Any money-trading entity needs to keep track of who money is coming from and going to and to monitor their transactions. The recent billion-dollar HSBC settlement is an example of a failure to properly monitor transactions, it is not clear that there was any criminal conspiracy involved [1]. That's very different from this BitInstant charge: the operators are accused of knowing that one of their customers was reselling hundreds of thousands of dollars worth of BitCoin on SilkRoad where the transaction was anonymous, which means it can be used to launder money. Worse still, they're accused of helping this guy circumvent their own monitoring systems so that they weren't obliged to report him. This is serious stuff. [1] The criminal charges from that case were dropped as part of a settlement, but that's an entirely separate contoversy. Failure to correctly charge possible criminals in once case does not make it ok in another.
- jnbiche 13y ago
  Money laundering is part of the criminalization of victimless drug use. That's why they were created, and that's how they're used. Nothing more, nothing less. Money laundering laws are almost never used to track down under the table payments to corrupt politicians or business leaders, as you seem to imply. It's always linked to the drug trade, or occasionally "terrorism" (which may or may not involve actual terrorists). Do you really think it's a good idea to criminalize non-violent, victimless drug use? If so, then we'll agree to disagree. It not, then I suggest you look into the history of money laundering laws and how they are applied. They're not doing what you seem to think they're doing.
  - mh- 13y ago
    victimless drug use organized crime? human trafficking? [..]
    - SpaceRaccoon 13y ago
      Consequences of drugs being illegal, no?
mcantelon 13y ago
Meanwhile, the US allows the Sinaloa to move drugs in the US: http://world.time.com/2014/01/14/dea-boosted-mexican-drug-cartel/ http://world.time.com/2014/01/14/dea-boosted-mexican-drug-ca...
thinkcomp 13y ago
This is no different from many of the companies that Andreessen-Horowitz, Y Combinator, Sequoia, KPCB, and other big names have invested in. In fact, it's just the tip of the iceberg. More arrests will likely follow. I wouldn't be surprised if Dwolla and/or Veridian Credit Union is next. They were one of the largest pipes to the Silk Road. http://www.plainsite.org/flashlight/case.html?id=2434524 http://www.plainsite.org/flashlight/case.html?id=2434524
- kylebrown 13y ago
  The complaint is against two individuals: Faiella and Shrem. There is no complaint against the company BitInstant, nor arrests of any other employees. The complaint notes that BitInstant was actually a registered MSB (since March 26, 2012). The charge of operating an unlicensed MSB was not for operating BitInstant, but for an independent operation ("BTCKing") by Faiella and Shrem. In this case, there was evidence of blatant, specific conspiracy, hence the arrests and federal charges. That's different from the ThinkComp suit, which has broader concerns of inter-state registration. We've already seen government actions which were directly relevant to the concerns of your suit: seizure of MtGox assets held by Dwolla, the $500k fine on Square by the state of Florida, and the California DFI cease-and-desist to the Bitcoin Foundation. More of that is to be expected, against say Stripe and Coinbase. We did recently see a wide crackdown (arrests and domain seizures) on the whole network of LibertyReserve and exchangers, but those were offshore companies actively evading US banking and regulations. The situation with bitcoin exchanges (and the other defendants in the ThinkComp suit) is of a different nature, mostly about the specific approach to inter-state regulation, rather than blatant federal violations. If the ThinkComp defendants were directly doing payment processing for online poker (rather than one-decentralized-step removed, in the case of bitcoin), then I would expect another round of arrests. But the arrests would be for violation of federal UIGEA and bank fraud. Operating an MSB in an unlicensed state is punished by a fine, as seen with Square. But please, point out anything I might be confusing or overlooking. And keep fighting the (good) fight.
egocodedinsol 13y ago
Without being upset, I'm curious what the difference is between this type of arrest and various traditional banks that were civilly fined for money laundering, but not criminally charged. I doubt many FBI agents would hesitate to pursue a big bank. But they don't seem to be able to, even when there are civil fines given. What causes that, I wonder?
- smtddr 13y ago
  The difference is SilkRoad didn't have friends in high places, nor was it giving corrupt politicians/law enforcement/corp execs their cut of the spoils.
  - dragonwriter 13y ago
    Well, actually, this case is exactly about corrupt corporate officials getting a cut of the spoils.
btcstanford 13y ago
what about coin base and bitpay do they have any anti money laundering issues? Is the burden of AML KYC fall on the merchant or on coin base bitpay?
- thinkcomp 13y ago
  Yes, they do. Both are operating illegally and they know it. Neither has money transmission licenses nationwide (BitPay only has one in one state to the best of my knowledge).
amiramir 13y ago
How is what these people were arrested for different than what Coinbase does?
- dustcoin 13y ago
  Shrem was not arrested for running Bitinstant. He was arrested for allegedly going behind his bank and cofounder's backs to advise a known BTC dealer on Silkroad on how to skirt Bitinstant's AML policies.
- thinkcomp 13y ago
  It's exactly the same.
ommunist 13y ago
Criminalizing BTC is a sure sign of fear from the US/UK banking system. But you cannot criminalise maths, you can only do that with mathematicians like Alan Turing.
- krapp 13y ago
  Except... no one has criminalized BTC itself here, only its use in facilitating crime. They seem to be treating it like any other currency.
  - ommunist 13y ago
    Coining headings like that "US makes Bitcoin exchange arrests" is criminalizing the term 'bitcoin'. And the article emphasises that tone. Ever seen headings "US makes US Dollar exchange arrests"? Huh?
    - krapp 13y ago
      Ok, I partially retract my statement. BBC News has criminalized Bitcoin for the sake of a headline. This still isn't evidence of the western banking or government systems quaking in their boots.
    - dragonwriter 13y ago
      > Coining headings like that "US makes Bitcoin exchange arrests" is criminalizing the term 'bitcoin'. The BBC coined the headline, but last I checked, the BBC can't criminalize things -- at least not in the US.
dsugarman 13y ago
HSBC admitted to laundering $800M for drug cartels. No arrests.
at-fates-hands 13y ago
>>> Given that everyone involved was an American citizen. I guess this is the moral of the story. Don't do this stuff within the confines of the US? Find a nice island paradise (I hear Vanuatu is nice this time of year) and do your business from a country that has no extradition treaty with the US.
CryptcWriter 13y ago
HSBC just had to pay a 2b fine for money laundering, I guess the US gov doesn't accept BTC yet...
brianbarker 13y ago
I've been worried about random people opening up exchanges, pools and other BTC transaction web applications. There are so many regulations, particularly in Anti-Money Laundering and Compliance that complicate business. People need to be careful and realize exchanges aren't a business you jump into on a whim. The worst is, if you innocently run a site like this and don't have the correct AML protections, the baddies will use your service for their goals. You will be in trouble for not having the appropriate controls in place.
lama_drama 13y ago
The difference between HSBC money laundering and Bitcoin's money laundering is more political hands involved with HSBC's profits.
teawithcarl 13y ago
Here's Andy Greenberg's excellent article on today's events-- http://www.forbes.com/sites/andygreenberg/2014/01/27/winklevoss-funded-bitcoin-startup-ceo-arrested-in-silk-road-investigation/ http://www.forbes.com/sites/andygreenberg/2014/01/27/winklev...
JumpCrisscross 13y ago
This is not an attack on Bitcoin per se, but an attack on blatant money laundering: US Attorney for the Southern District of New York, Preet Bharara, who filed the charges: "truly innovative business models don’t need to resort to old-fashioned lawbreaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act" [1]. This is different from HSBC's case because while HSBC was negligent in implementing proper anti-money laundering procedures Shrem was actively aiding his clients in their money laundering. That has not been proven in the case of any of HSBC's U.S. executives, at least so far. [1] http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144feab7de.html?siteedition=intl#axzz2rTXVAoxC http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144...
rtpg 13y ago
tangential to the story, but can someone explain to me why the government hates bitcoin(or rather, why people seem to think this)? It's a public ledger of all payments, seems like a pretty good thing for the IRS.
- gamblor956 13y ago
  The US government doesn't hate Bitcoin at all. Indeed, the DoJ, FBI, IRS, and NSA love Bitcoin, especially the public ledger part of it. For some reason, libertarians really flock to Bitcoin, not realizing that it's the worst possible currency to use if you want anonymity. (Physical cash is easy to hide, but a digital currency will always be traceable with enough effort.)
  - kylebrown 13y ago
    Tracing a cash payment is trivial: you just watch the physical address where the payment is to be mailed or dropped. So for any business in which the customer can't be trusted (eg Silk Road vendors), cash won't work.
mbloom1915 13y ago
so uncool, much dogecoin to invest
mbloom1915 13y ago
so uncool, much dogecoin to invest
mbloom1915 13y ago
so uncool, much dogecoin to invest
aerialfish 13y ago
For me, the worst part is I went to high school in Brooklyn with this guy. Ugh.
ada1981 13y ago
"Drug law enforcement's job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution, including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye." Start with congress for making drugs illegal in the first place.
ergoproxy 13y ago
The legality of crypto-currencies in the US ultimately hinges on whether Wall St. execs can make money off them. If they could "frontrun" bitcoin trades, "naked short sell" into bitcoin exchanges, and execute "wash trades" to fix the price of bitcoins, then not only would bitcoin be declared legal, but we would see the US government using it and have it forced down the throats of middle-class pension funds. But Wall St. can't control bitcoin. So JP Morgan CEO Jamie Dimon denounced it as "terrible" and predicted its downfall. Source: http://rt.com/usa/chase-ceo-bitcoin-terrible-downfall-100/ http://rt.com/usa/chase-ceo-bitcoin-terrible-downfall-100/ Then JP Morgan filed patents on its own crypto-currency, one that it can rig with frontrunning, naked short selling, and wash trades. Source: http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabdc0.html#axzz2rjvqMuDn http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabd... As for bitcoin, I predict we'll increasingly see it in the news headlines linked to: (1) illegal drugs, (2) child porn, and (3) terrorism. These are the exact same smear tactics we've seen before used against P2P filesharing. And we'll see lots more bitcoin arrests like these.
- eru 13y ago
  How has P2P filesharing be linked with terrorism?

411 points by majc2 13y ago

There is a bit more information here, not much to be had anywhere I see, though. http://business.time.com/2014/01/27/bitinstant-ceo-charlie-shrem-arrested-for-alleged-money-laundering/ http://business.time.com/2014/01/27/bitinstant-ceo-charlie-s...

CodeCube 13y ago

People are gonna have to learn to play by the rules. They are obviously paying attention.

exo762 13y ago
Their scale of operations was too low. Rookie mistake. Should have learned from HSBC management.
shiftpgdn 13y ago
Sorry but that's rubbish. Even if you play by the rules they'll just change them via some obscure FTC policy or congressional rider. Look at what happened to all the "Work from home" companies a few years ago. All the owners had their assets seized in full for breaking a new FTC policies that had been published for only a matter of days.[1] The reality is if you're doing something the government doesn't like you NEED to leave the country. They'll just keep moving the goal posts until you're in prison. [1]http://www.ftc.gov/news-events/press-releases/2012/11/ftc-expands-fight-against-deceptive-business-opportunity-schemes http://www.ftc.gov/news-events/press-releases/2012/11/ftc-ex...
- objclxt 13y ago
  The rules in this case are "don't enter into a drug based money laundering business", which is allegedly what went on here. It's certainly not new or obscure.
  - BlackDeath3 13y ago
    >drug based money laundering business No ambiguity there!
- judk 13y ago
  http://business.ftc.gov/documents/bus79-selling-work-home-or-other-business-opportunity%20 http://business.ftc.gov/documents/bus79-selling-work-home-or... FTC makes rules, not laws. That is a important distinction, and the Courts determine where the rules are consistent with the pre-existing laws.
- poopsintub 13y ago
  If you're trying to avoid taxes and do shady stuff with your money, eyeah. You're going to have a bad time.
- hashmap 13y ago
  "The US government is cracking down on companies that scam millions of dollars out of people looking for jobs, WHERE'S THE FREEDOM??" Come on, man.
- notahacker 13y ago
  I can't think of many people less deserving of sympathy than the people in the linked article (even the Bitcoin money-launderer deserves more), and the world is unequivocally a better place for the FTC moving the goalposts to catch them. Frankly, you shouldn't need to read FTC guidelines to understand that peddling lies and then not honouring promised refunds might get you into trouble, and conmen whose businesses get suspended by court 12 months after the FTC introduces explicit guidelines banning their business practices are not victims, unlike their paying customers.
- imroot 13y ago
  These rules were publicized in November of 2011,[1] and implemented March 1, 2012. Press release November 15, 2012. I don't think 6+ months qualifies as "a matter of days." 1: http://www.ftc.gov/news-events/press-releases/2011/11/ftc-adds-new-protections-consumers-seeking-work-home http://www.ftc.gov/news-events/press-releases/2011/11/ftc-ad...

dreen 13y ago

Seems like they were arrested for selling bitcoins to silk road users en masse. Is this just a US law oddity or is that what passes for money laundering these days?

deleted 13y ago
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caublestone 13y ago
Not quite. The US gov is accusing these men of putting wealth through the Silk Road (which was believed to be untraceable) in order to get this wealth off the books to avoid taxes and investigations of the source of this wealth. Edit: Not necessarily their own wealth.
- dmix 13y ago
  Where does it say that they used it for personal wealth laundering? As far as I can tell it was only for providing a service for purchasing BTC anonymously with cash. It seems to be that BitInstant CEO sold BTC to a known Silk Road BTC dealer, who was aware of what the BTC was being used for.
  - lispsil 13y ago
    Basically this, also surprised anybody would buy Bitcoins from a SR vendor. Also another reminder for companies to encrypt their internal emails this is also how they busted Megaupload because of stupid things they emailed each other 'hey where is Batman uploaded?'
    - rhino369 13y ago
      The court will just order them to turn it over unencrypted. And if you won't they can use that as evidence against you.
jljljl 13y ago
Speculating, but I imagine it has to do with US requirements on financial transaction reporting. Financial institutions and securities traders have certain requirements on which transactions and activity they report. http://en.wikipedia.org/wiki/Money_laundering#The_role_of_financial_institutions http://en.wikipedia.org/wiki/Money_laundering#The_role_of_fi... A bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as "know your customer". This means knowing the identity of the customer and understanding the kinds of transactions in which the customer is likely to engage. http://en.wikipedia.org/wiki/Money_laundering#Preventive http://en.wikipedia.org/wiki/Money_laundering#Preventive These laws, contained in sections 5311 through 5332 of Title 31 of the United States Code, require financial institutions, which under the current definition include a broad array of entities, including banks, credit card companies, life insurers, money service businesses and broker-dealers in securities, to report certain transactions to the United States Treasury. Cash transactions in excess of US$10,000 must be reported on a currency transaction report (CTR), identifying the individual making the transaction as well as the source of the cash.

mdelias 13y ago

Complaint: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles...

gwern 13y ago
Non-evil link: http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR/Faiella,%20Robert%20M.%20and%20Charlie%20Shrem%20Complaint.pdf http://www.justice.gov/usao/nys/pressreleases/January14/Schr...

zmanian 13y ago

Seems like solid evidence that the reason the US govt is so comfortable with Bitcoin is that they have a handle on anonymizing the blockchain as needed. Also maybe an example of crypto over-confidence.

coldtea 13y ago
Obligatory XKCD reference: http://xkcd.com/538/ http://xkcd.com/538/
- wyager 13y ago
  Except for that the government still can't use torture in most cases.
  - coldtea 13y ago
    You'd be surprised. Especially if those laundering money via Bitcoin are also suspected of helping bad guys and such.
  - TallGuyShort 13y ago
    No, but they can use legal intimidation, and that's worked pretty well in the past.
  - smtddr 13y ago
    You trust the USgov? I don't. They can do whatever they want as long as they don't get caught; and sometimes even when that happens.... e.g. NSA.
rjzzleep 13y ago
government loves bitcoin. credit cards are very traceable. cash is fairly traceable, but the moment bitcoins are used to get real goods theyre completely traceable. add redlisting and upcoming ca authorities to the mix and bitcoin is a governments wet dream
- wyager 13y ago

untog 13y ago

Note that this isn't an arrest just for operating a Bitcoin exchange. It's specifically to do with Silk Road.

thisiswrong 13y ago
From the BBC article: ''The authorities said the pair were engaged in a scheme to sell more than $1m (£603,000) in bitcoins to users of online drug marketplace the Silk Road.'' This is ridiculous! Please tell me how selling Bitcoin to someone is illegal? What that person does with the Bitcoin they acquire not the responsibility of the exchange. This smells like another case of gvt scare tactics to protect the bankers and their out-dated & thieving business models. Anyone remember liberty exchange ?
- matthewmacleod 13y ago
  "Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business." Does that answer your question? It's far from ridiculous.
  - deleted 13y ago
    [deleted]
- mkautzm 13y ago
  It is the literal definition of money laundering dude. If you purchased something illegally with some currency or good or service with the intention of converting that currency, good or service into a different currency, that's called money laundering and it's illegal.
- coldtea 13y ago
  >This is ridiculous! Please tell me how selling Bitcoins to someone is illegal? What that person does with the Bitcoins they acquire not the responsibility of the exchange. You know that it's illegal for actual banks to assist in money laundering right? Money has to pass through specific channels and be exposed to specific checks to be wired from country to country (in some countries even from person to person after a certain amount). Else you're liable to be caught for assisting in money laundering. So, yes, if you help people to move money, you can be held liable for what they're doing with it.

gst 13y ago

In related news: http://www.globalpost.com/dispatch/news/regions/americas/united-states/140121/hsbc-paying-2-billion-drug-money-laundering-cartel http://www.globalpost.com/dispatch/news/regions/americas/uni...

JetSpiegel 13y ago
Silk Road isn't too big to fail.
rayiner 13y ago
I suggest you read the e-mail exchanges in the indictment, for example starting on page 15: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles.... There is a huge difference between having controls that were too weak to catch money laundering activity in Mexico, and the CEO deliberately bypassing money laundering controls in order to sell BTC to Silk Road users. The indictment in HSBC is full of stuff like "HSBC ignored government recommendations that Mexico be treated as a high-risk area instead of a medium-risk area..." This indictment has deliberate, knowing activity on the part of Shrem that, as the e-mails indicate, even he thinks is illegal.
- mdp 13y ago
  This is simply not true. 'In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a "systemically flawed sham paper-product designed solely to make it appear that the Bank has complied" with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.' 'In one email exchange submitted as evidence in that case, employees debated whether the bank should help a Miami client get around U.S. sanctions by moving the client's business to HSBC's Hong Kong office. "I believe that the best outcome would be for the customer to open a relationship with Hong Kong just for leters (sic) of credit purposes. He travels there all the time," private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the bank and couldn't be reached for comment.' http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc=932 http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc...

rayiner 13y ago

It's worth reading the indictment: http://www.scribd.com/doc/202555785/United-States-vs-Charles-Shrem-and-Robert-M-Faiella http://www.scribd.com/doc/202555785/United-States-vs-Charles.... At least read the e-mail exchanges starting on pages 10 and 12. What the article doesn't make clear is that the charge isn't for just selling BTC to Silk Road users. The charge is that Faiella purposefully targeted Silk Road users, sold them BTC at a markup, and Shrem coordinated with him to bypass BitInstant's anti-money laundering mechanisms and deliver the actual Bitcoin.

eloff 13y ago
This is the information missing both from the article and the comments here in order to understand what's really being objected to. This should be the top comment.

olefoo 13y ago

From reading the complaint; it seems that the BTCKing guy was advertising his services on Silk Road and was active on the forums. Which means that he was knowingly violating the laws on money transmission and specifically the know your customer aspects. It's pretty clear that in the not too distant future it will be illegal to not make a good faith effort to identify anyone you are selling bitcoins to.

maaku 13y ago
> It's pretty clear that in the not too distant future it will be illegal to not make a good faith effort to identify anyone you are selling bitcoins to. Is that a bad thing?
- olefoo 13y ago
  It is a political question. What happens if the government restricts access not only to drugs, but phones without key escrow, or media players without DRM and uses the money laundering tools to go after the "pirates and tax evaders" who for some reason don't want to share their every communication with the government? And there are plenty of people who would disagree with you about the morality of the government doing anything but enforcing quality-control and truth in labeling when it comes to what molecules adults want to put in to their bodies.

mikecane 13y ago

"and operating an unlicensed money transmitting business" http://bnowire.com/inbox/?id=2158 http://bnowire.com/inbox/?id=2158 And they reveal the hand they'll use to shut it all down.

deleted 13y ago
[deleted]
NegativeK 13y ago
They revealed that hand a while ago with the FINCEN announcement. The US government isn't going to give Bitcoin a status that's different than other currencies.
dragonwriter 13y ago
> And they reveal the hand they'll use to shut it all down. Well, except that they released information about how they viewed MSB rules applying to virtual currencies some time ago, and since then bitcoin related businesses to which the rules would apply have taken steps to become appropriately licensed.

kumarski 13y ago

This seems a bit ridiculous considering the half a TRILLION dollars that were laundered for drug cartels by the American bank Wells Fargo. Am I missing something?

coldtea 13y ago
Yes. 1) Big banks have more leverage than insignificant fringe exchanges. 2) Wells Fargo was also investigated and fined (although an insignificant amount compared to their business).
- deleted 13y ago
  [deleted]
- notmarkus 13y ago
  Your evidence that something isn't ridiculous consists of two points which are, themselves, ridiculous.
  - coldtea 13y ago
    I've never attempted to provide evidence "that something isn't ridiculous". Parent (you?) asked "if [he] is missing something" and I replied. That said, the points are realistic, not ridiculous. Reality might be ridiculous, but you can't leave in a fantasy world.

ChuckMcM 13y ago

Interesting that they charged them with the money transmitting and laundering charges. I suspect it is hard to get someone indicted for just trading in coin since to the average lay person that probably seems like baseball collector cards or something.

jbb555 13y ago

If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering. If this is all as presented, this is good for bitcoin. The fact that a criminal has been caught is good. The fact that they were using bitcoin to commit their crime makes it doubly good they were arrested as it reflects badly on the community.

dragonwriter 13y ago
> If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering. Exactly. > If this is all as presented, this is good for bitcoin. Perhaps, but to the extent that the value of bitcoin is supported by people buying it based on (a) the perception that they can use it in can't-get-caught criminal schemes, or (b) the perception that other people will buy it for that reason, then events like this (and them being reported widely in the media) are bad for bitcoin (value). It's good for mainstream adoption if it is perceived as cleaning the criminals out of the ecosystem more than as a sign that the ecosystem is infested with criminals.
- maaku 13y ago
  > Perhaps, but to the extent that the value of bitcoin is supported by people buying it based on (a) the perception that they can use it in can't-get-caught criminal schemes, or (b) the perception that other people will buy it for that reason, then events like this (and them being reported widely in the media) are bad for bitcoin (value). I would rather such people left the Bitcoin community. IMHO that would increase the value of bitcoin, even if it means a dip in the price.
venomsnake 13y ago
It is also good for bitcoin because suddenly the government admits by its actions that it is indeed a currency.

jusben1369 13y ago

I wonder how central figures in Bitcoin feel about this. The headlines aren't helpful but in the longer run if the Feds drive down or out the number of bad guys using Bitcoin that would seem to help it's image over the long run.

eterm 13y ago

A good excerpt from page 13. "Shrem email accounts reflect that "BTCKing" not only obtained his supply of Bitcoins through the Company, but did so with extensive support from SHREM. Even though SHREM quickly realized that "BTCKing" was reselling Bitcoins on Silk Road, which SHREM knew to be a marketplace for illicit drugs, SHREM went out of his way to facilitate "BTCKing's" business. Among other things, SHREM: permitted "BTCKing" to continue doing business with the Company, despite initially threatening to "ban" him based on his illegal activity; personally ensured that "BTCKing's" orders with the Company were filled everyday; gave "BTCKing" discounts based on his large order volume; sought to conceal "BTCKing's" activity from the Co-founder and the Cash Processor to prevent "BTCKing's" orders from being blocked; advised "BTCKing" how to evade the transaction limits imposed by the Company's own AML policy; let "BTCKing" conduct large transactions without ever verifying his identity, in violation of federal AML laws; and failed to file a single Suspicious Activity Report about "BTCKing," [sic] despite the obvious "red flags" raised by "BTCKing's" dealings with the Company." If all that is alledged is true, that's pretty damning and this isn't just a general bitcoin crackdown.

synctext 13y ago
The US Attorney Press release puts it nice: "SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users." http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php http://www.justice.gov/usao/nys/pressreleases/January14/Schr... (note the 14 Jan in URL and 27Jan release date; first draft Press release, then make arrests)
- gedrap 13y ago
  >>> note the 14 Jan in URL and 27Jan release date; first draft Press release, then make arrests 2014 January?
  - basseq 13y ago
    Definitely. There are other January press releases with the same base URL.

nullc 13y ago

The Justice Department press release is the ultimate source for all these stories and is the most informative: http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php http://www.justice.gov/usao/nys/pressreleases/January14/Schr... I guess this bodes poorly for the people who were hoping to get their coins back from Bitinstant: http://bitinstant.info/ http://bitinstant.info/

siculars 13y ago

I find it hilarious that they take this guy down and nobody from HSBC does a perp walk. I guess it's who you know and how much you can pay off, ya? This has everything to do with the threat Bitcoin represents. HSBC literally paid a 2 Billion dollar fine against specifically money laundering on behalf of organized drug cartels. The investigation took years and not a single HSBC employee has done a perp walk. Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime? It's what you buy with BTC, or any other currency, that is the crime.

kbenson 13y ago
The investigation took years and not a single HSBC employee has done a perp walk. The large companies obviously know how to avoid accountability by eliminating, or never creating paper trails. Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime? The article says money laundering, so there's probably more to it than that. Eterm's review seems to support that.
- deleted 13y ago
  [deleted]
- jnbiche 13y ago
  Wrong, there were plenty of paper trails in the HSBC case. The large companies know how to avoid accountability by paying off powerful politicians.
  - kbenson 13y ago
    While no doubt true in some cased, I prefer the more optimistic view that the system is just somewhat broken with respect to bringing larger entities to account for their errors. I find that problem to be more tractable than eliminating political corruption, while possibly also making paying off politicians to avoid prosecution more dangerous for both involved parties.
  - deleted 13y ago
    [deleted]

johnmurch 13y ago

I am sure this will get down voted, but I can't help but find it interesting (Gov going after them after this recent HSBC news) HSBC was involved with drug cartels and much more and just had to pay a 1.9 billion dollar fine (sounds like a lot, but keep in mind its about 5 weeks of profits) http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211 http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUS...

atmosx 13y ago
Not, actually it's a valid point: If you are a corrupted bank, you can get away with everything. If you are against the establishment you can't.

NAFV_P 13y ago

> "It is unfortunate Silk Road continues to make the headlines in association with Bitcoin - this is the dark side of Bitcoin, which the vast majority of digital currency users have no association with." Every currency or commodities of value have a dark side. A significant percentage of British notes have traces of cocaine, occasionally you see ones with blood on them. I'd consider blood diamonds to have just as sinister connotations as bitcoin. Discussing this reminds me of the scene in Beverley Hills Cop, where the character Michael Tandino is murdered for stealing a wad of bearer bonds. http://en.wikipedia.org/wiki/Bearer_bond http://en.wikipedia.org/wiki/Bearer_bond

eli 13y ago
Perhaps offtopic, but the US is against blood diamonds too. It's illegal to import diamonds from Sierra Leone.
camperman 13y ago
Indeed. You could do :s/Bitcoin/cash/ign on the article and it would be still be surprisingly readable.

kbar13 13y ago

Title is very sensationalist and almost gave me a heart attack.

nullc 13y ago
I expect that this is no accident.

jboggan 13y ago

I am very supportive of the Bitcoin Foundation, but it doesn't look good to have your Vice Chairman [1] taken down on money laundering charges. 1 - https://bitcoinfoundation.org/about/board https://bitcoinfoundation.org/about/board

SoftwarePatent 13y ago

A better headline: "U.S. makes money-laundering arrests"

epaga 13y ago

For me, the biggest shock is that Shrem is on the board of the Bitcoin Foundation and was involved in this stuff. The Bitcoin foundation is one of the strongest voices in Washington about Bitcoin. This is a big hit to the credibility of Bitcoin in the near to midterm future.

lsc 13y ago
>This is a big hit to the credibility of Bitcoin in the near to midterm future. It sure seems that way, doesn't it? If I had significant amounts of bitcoin, it would freak me out. But, I think we're seeing selection bias here. The fact that I believe that the government will eventually shut the operation down, as they did e-gold, is a big part of why I don't have any bitcoin. But the thing is, the current bitcoin price, something like $970 as of now (Monday, 11:54 AM PST) would indicate that "the market" (that is, the people who own and are thus in a position to sell bitcoin) doesn't think this is such a huge deal. This might be one of those places where the difficulty of shorting bitcoin is propping up the price. I don't know if I would /short/ bitcoin right now, but if it were possible, I would probably blow a couple grand on put options if I could do so in a reasonable way.
- fnordfnordfnord 13y ago
  >The fact that I believe that the government will eventually shut the operation down, as they did e-gold, is a big part of why I don't have any bitcoin. Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict. >I would probably blow a couple grand on put options if I could do so in a reasonable way. Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks https://www.bitfinex.com/pages/howitworks
  - lsc 13y ago
    >Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict. My belief is that bitcoin will slowly become less legally convenient, through actions like the story above. The government can't just shut down bitcoin like they did e-gold, sure, but the government can put in legal barriers to transferring bitcoin. if it becomes defacto illegal to transfer bitcoin? Yes, they haven't "shut down" bitcoin, but for me, they've made it worth zero dollars. >Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks https://www.bitfinex.com/pages/howitworks Yeah, that lets me short bitcoin. the difference between a short and a put is that with a put, I'm only risking what I've paid for the put, and the put expires after a certain period of time. Put options become more expensive the further out you want that expiration date (and more expensive as the security in question is perceived to be more volatile, so it's very likely that put options on bitcoins would be very expensive. But they don't have the unlimited liability of a short.) The fact that I'd be willing to buy put options but I'm not willing to short bitcoin tells you that while I believe it is likely that bitcoin is going to fail, I'm not anywhere near certain.

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jahewson 13y ago

There seems to be a general lack of understanding here on HN that money laundering is incredibly harmful to society. It allows organised crime to operate with great ease. It facilitates the corrupt in any walk of life, be it political, corporate, or even law enforcement. Any money-trading entity needs to keep track of who money is coming from and going to and to monitor their transactions. The recent billion-dollar HSBC settlement is an example of a failure to properly monitor transactions, it is not clear that there was any criminal conspiracy involved [1]. That's very different from this BitInstant charge: the operators are accused of knowing that one of their customers was reselling hundreds of thousands of dollars worth of BitCoin on SilkRoad where the transaction was anonymous, which means it can be used to launder money. Worse still, they're accused of helping this guy circumvent their own monitoring systems so that they weren't obliged to report him. This is serious stuff. [1] The criminal charges from that case were dropped as part of a settlement, but that's an entirely separate contoversy. Failure to correctly charge possible criminals in once case does not make it ok in another.

jnbiche 13y ago
Money laundering is part of the criminalization of victimless drug use. That's why they were created, and that's how they're used. Nothing more, nothing less. Money laundering laws are almost never used to track down under the table payments to corrupt politicians or business leaders, as you seem to imply. It's always linked to the drug trade, or occasionally "terrorism" (which may or may not involve actual terrorists). Do you really think it's a good idea to criminalize non-violent, victimless drug use? If so, then we'll agree to disagree. It not, then I suggest you look into the history of money laundering laws and how they are applied. They're not doing what you seem to think they're doing.
- mh- 13y ago
  victimless drug use organized crime? human trafficking? [..]
  - SpaceRaccoon 13y ago
    Consequences of drugs being illegal, no?

mcantelon 13y ago

Meanwhile, the US allows the Sinaloa to move drugs in the US: http://world.time.com/2014/01/14/dea-boosted-mexican-drug-cartel/ http://world.time.com/2014/01/14/dea-boosted-mexican-drug-ca...

thinkcomp 13y ago

This is no different from many of the companies that Andreessen-Horowitz, Y Combinator, Sequoia, KPCB, and other big names have invested in. In fact, it's just the tip of the iceberg. More arrests will likely follow. I wouldn't be surprised if Dwolla and/or Veridian Credit Union is next. They were one of the largest pipes to the Silk Road. http://www.plainsite.org/flashlight/case.html?id=2434524 http://www.plainsite.org/flashlight/case.html?id=2434524

kylebrown 13y ago
The complaint is against two individuals: Faiella and Shrem. There is no complaint against the company BitInstant, nor arrests of any other employees. The complaint notes that BitInstant was actually a registered MSB (since March 26, 2012). The charge of operating an unlicensed MSB was not for operating BitInstant, but for an independent operation ("BTCKing") by Faiella and Shrem. In this case, there was evidence of blatant, specific conspiracy, hence the arrests and federal charges. That's different from the ThinkComp suit, which has broader concerns of inter-state registration. We've already seen government actions which were directly relevant to the concerns of your suit: seizure of MtGox assets held by Dwolla, the $500k fine on Square by the state of Florida, and the California DFI cease-and-desist to the Bitcoin Foundation. More of that is to be expected, against say Stripe and Coinbase. We did recently see a wide crackdown (arrests and domain seizures) on the whole network of LibertyReserve and exchangers, but those were offshore companies actively evading US banking and regulations. The situation with bitcoin exchanges (and the other defendants in the ThinkComp suit) is of a different nature, mostly about the specific approach to inter-state regulation, rather than blatant federal violations. If the ThinkComp defendants were directly doing payment processing for online poker (rather than one-decentralized-step removed, in the case of bitcoin), then I would expect another round of arrests. But the arrests would be for violation of federal UIGEA and bank fraud. Operating an MSB in an unlicensed state is punished by a fine, as seen with Square. But please, point out anything I might be confusing or overlooking. And keep fighting the (good) fight.

egocodedinsol 13y ago

Without being upset, I'm curious what the difference is between this type of arrest and various traditional banks that were civilly fined for money laundering, but not criminally charged. I doubt many FBI agents would hesitate to pursue a big bank. But they don't seem to be able to, even when there are civil fines given. What causes that, I wonder?

smtddr 13y ago
The difference is SilkRoad didn't have friends in high places, nor was it giving corrupt politicians/law enforcement/corp execs their cut of the spoils.
- dragonwriter 13y ago
  Well, actually, this case is exactly about corrupt corporate officials getting a cut of the spoils.

btcstanford 13y ago

what about coin base and bitpay do they have any anti money laundering issues? Is the burden of AML KYC fall on the merchant or on coin base bitpay?

thinkcomp 13y ago
Yes, they do. Both are operating illegally and they know it. Neither has money transmission licenses nationwide (BitPay only has one in one state to the best of my knowledge).

amiramir 13y ago

How is what these people were arrested for different than what Coinbase does?

dustcoin 13y ago
Shrem was not arrested for running Bitinstant. He was arrested for allegedly going behind his bank and cofounder's backs to advise a known BTC dealer on Silkroad on how to skirt Bitinstant's AML policies.
thinkcomp 13y ago
It's exactly the same.

ommunist 13y ago

Criminalizing BTC is a sure sign of fear from the US/UK banking system. But you cannot criminalise maths, you can only do that with mathematicians like Alan Turing.

krapp 13y ago
Except... no one has criminalized BTC itself here, only its use in facilitating crime. They seem to be treating it like any other currency.
- ommunist 13y ago
  Coining headings like that "US makes Bitcoin exchange arrests" is criminalizing the term 'bitcoin'. And the article emphasises that tone. Ever seen headings "US makes US Dollar exchange arrests"? Huh?
  - krapp 13y ago
    Ok, I partially retract my statement. BBC News has criminalized Bitcoin for the sake of a headline. This still isn't evidence of the western banking or government systems quaking in their boots.
  - dragonwriter 13y ago
    > Coining headings like that "US makes Bitcoin exchange arrests" is criminalizing the term 'bitcoin'. The BBC coined the headline, but last I checked, the BBC can't criminalize things -- at least not in the US.

dsugarman 13y ago

HSBC admitted to laundering $800M for drug cartels. No arrests.

at-fates-hands 13y ago

>>> Given that everyone involved was an American citizen. I guess this is the moral of the story. Don't do this stuff within the confines of the US? Find a nice island paradise (I hear Vanuatu is nice this time of year) and do your business from a country that has no extradition treaty with the US.

CryptcWriter 13y ago

HSBC just had to pay a 2b fine for money laundering, I guess the US gov doesn't accept BTC yet...

brianbarker 13y ago

I've been worried about random people opening up exchanges, pools and other BTC transaction web applications. There are so many regulations, particularly in Anti-Money Laundering and Compliance that complicate business. People need to be careful and realize exchanges aren't a business you jump into on a whim. The worst is, if you innocently run a site like this and don't have the correct AML protections, the baddies will use your service for their goals. You will be in trouble for not having the appropriate controls in place.

lama_drama 13y ago

The difference between HSBC money laundering and Bitcoin's money laundering is more political hands involved with HSBC's profits.

teawithcarl 13y ago

Here's Andy Greenberg's excellent article on today's events-- http://www.forbes.com/sites/andygreenberg/2014/01/27/winklevoss-funded-bitcoin-startup-ceo-arrested-in-silk-road-investigation/ http://www.forbes.com/sites/andygreenberg/2014/01/27/winklev...

JumpCrisscross 13y ago

This is not an attack on Bitcoin per se, but an attack on blatant money laundering: US Attorney for the Southern District of New York, Preet Bharara, who filed the charges: "truly innovative business models don’t need to resort to old-fashioned lawbreaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act" [1]. This is different from HSBC's case because while HSBC was negligent in implementing proper anti-money laundering procedures Shrem was actively aiding his clients in their money laundering. That has not been proven in the case of any of HSBC's U.S. executives, at least so far. [1] http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144feab7de.html?siteedition=intl#axzz2rTXVAoxC http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144...

rtpg 13y ago

tangential to the story, but can someone explain to me why the government hates bitcoin(or rather, why people seem to think this)? It's a public ledger of all payments, seems like a pretty good thing for the IRS.

gamblor956 13y ago
The US government doesn't hate Bitcoin at all. Indeed, the DoJ, FBI, IRS, and NSA love Bitcoin, especially the public ledger part of it. For some reason, libertarians really flock to Bitcoin, not realizing that it's the worst possible currency to use if you want anonymity. (Physical cash is easy to hide, but a digital currency will always be traceable with enough effort.)
- kylebrown 13y ago
  Tracing a cash payment is trivial: you just watch the physical address where the payment is to be mailed or dropped. So for any business in which the customer can't be trusted (eg Silk Road vendors), cash won't work.

mbloom1915 13y ago

so uncool, much dogecoin to invest

mbloom1915 13y ago

so uncool, much dogecoin to invest

mbloom1915 13y ago

so uncool, much dogecoin to invest

aerialfish 13y ago

For me, the worst part is I went to high school in Brooklyn with this guy. Ugh.

ada1981 13y ago

"Drug law enforcement's job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution, including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye." Start with congress for making drugs illegal in the first place.

ergoproxy 13y ago

The legality of crypto-currencies in the US ultimately hinges on whether Wall St. execs can make money off them. If they could "frontrun" bitcoin trades, "naked short sell" into bitcoin exchanges, and execute "wash trades" to fix the price of bitcoins, then not only would bitcoin be declared legal, but we would see the US government using it and have it forced down the throats of middle-class pension funds. But Wall St. can't control bitcoin. So JP Morgan CEO Jamie Dimon denounced it as "terrible" and predicted its downfall. Source: http://rt.com/usa/chase-ceo-bitcoin-terrible-downfall-100/ http://rt.com/usa/chase-ceo-bitcoin-terrible-downfall-100/ Then JP Morgan filed patents on its own crypto-currency, one that it can rig with frontrunning, naked short selling, and wash trades. Source: http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabdc0.html#axzz2rjvqMuDn http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabd... As for bitcoin, I predict we'll increasingly see it in the news headlines linked to: (1) illegal drugs, (2) child porn, and (3) terrorism. These are the exact same smear tactics we've seen before used against P2P filesharing. And we'll see lots more bitcoin arrests like these.

eru 13y ago
How has P2P filesharing be linked with terrorism?