5 ms·

Bitcoin promoter Shrem indicted in NY for money laundering

59 points by downandout 13y ago

sillysaurus3 13y ago
Setting aside the fact that allegedly he was doing illegal things, it's interesting to note that PGP didn't protect him. (I'm basing this on two assumptions: SR encourages its users to use PGP, so therefore unless he was blindingly stupid, he, too, was using PGP; and that he never slipped up once. The second assumption is probably invalid.) Anyone have details as to how these charges came about?
- uncoder0 13y ago
  How did you determine that?
  - sillysaurus3 13y ago
    Eh, I deserve to be downvoted. It's unsubstantiated speculation. I didn't think before I spoke. It's been on my mind a lot lately that we don't have tools to remain private. The only evidence of this is when criminals are caught, because it's rare for evidence of that fact to surface when people aren't doing criminal things, so I pay attention when it happens. I've just been thinking about what it takes to interact with other people while remaining truly private, and it's daunting.
- veemjeem 13y ago
  I would think that it was traced via bitcoin, not pgp.
  - jordanbaucke 13y ago
    Its worth noting there was no indication that BTCKing and Mr. Shrem used PGP to encrypt their communication.
    - dobbsbob 13y ago
      From the original arrest it said he was using his work email @bitinstant to communicate with BTCKing and I don't remember anything about PGP being used. Shrem is screwed, because all those emails are highly incriminating with him actively helping BTCKing avoid being flagged in the system for laundering checks. BTCKing was originally caught because he's a drug addict supporting his habit by exchanging coins and was completely sloppy and careless with everything.
  - olalonde 13y ago
    The blockchain was not even mentioned in the original FBI document. Everything was based on email/SR logs. Bitcoin makes it very difficult to associate transactions with people and I haven't yet heard of a case where the blockchain was successfully used to track down someone.
    - dobbsbob 13y ago
      Indeed, not a lot of ways to associate an address with somebody unless: - seize drives or papers with private keys - extract printer memory if they printed a private key - subpoena exchanges to hand over records to tie them to identities they have on file - search if somebody put the address in a forum sig or on IRC/elsewhere and admitted it was their address - check IP if they generated the address with an online wallet, brainwallet or some other discoverable method (not behind Tor) Otherwise all you are looking at is a big chain with coins going from address to address and no way to prove somebody is the definitive owner of it.
      - unreal37 13y ago
        Almost all business transactions are between people that know at least a little bit about each other. If Silk Road User A sends Silk Road Merchant B BTC for drugs, A has to give B a postal address to mail the drugs to. There is almost no such thing as two completely anonymous people in a financial transaction. There's always an email address, user name, a third party, or postal address to tie them. The only thing that I can think of is some type of charitable/political donation that is anonymous.
      - abruzzi 13y ago
        For 100% certainty yes, but like a murder (or any other crime) no one witnesses, a circumstantial tie to a bitcoin address is theoretically possible. Though that doesn't seem to be the case here.
- Igglyboo 13y ago
  It would be much easier to trace him via the blockchain than break PGP. Bitcoin is pseduoanonymous, it is possible to track coins.
  - trhway 13y ago
    This complete traceability of BTC is why i don't touch it. I just don't want to happen to be in possession of a BTC that 2-3 hops back was used in a transaction that FBI/etc.. is happily looking at now.
- melvinng 13y ago
  He was arrested by admitting to the crime. Anyone could have done that accidentally, here is the source: http://www.cryptocoinsnews.com/news/charlie-shrem-did-nothing-wrong/2014/01/28 http://www.cryptocoinsnews.com/news/charlie-shrem-did-nothin...
- awda 13y ago
  I think he was selling btc for other very traceable and identity-linked forms of digital money (paypal, liberty reserve, western union, something like that). The issue was that he was operating as a money processor without following the mandatory guidelines that try to prevent laundering, etc. You can google the earlier arrest for more information on it, there are some juicy transcripts.
- A_COMPUTER 13y ago
  I don't know anything about the charges, but I have read from sellers that PGP turned out to be an insurmountable hurdle for Silk Road buyers, and so many, many people did not use it.
- wmf 13y ago
  Shrem himself didn't use Silk Road; he bypassed his own company's AML process to help a known SR user exchange BTC. Here's the criminal complaint: http://www.wired.com/images_blogs/threatlevel/2014/01/Faiella-Robert-M.-and-Charlie-Shrem-Complaint.pdf http://www.wired.com/images_blogs/threatlevel/2014/01/Faiell... There may be more detail in the indictment but I haven't seen it.
downandout 13y ago
Fortunately, this case is much more about Charlie Shrem and his penchant for violating laws than Bitcoin itself. I think this guy - who now refers to himself as "Charlie van Bitcoin" - just doesn't get it. There are laws out there, and he doesn't seem to want to follow them. Here's an example: He is out on bail on this case right now. As someone out on bail for a federal felony, he is prohibited from using or possessing deadly weapons (knives, guns etc.). There are people in his position that have found themselves in trouble over kitchen knives. Yet Charlie publicly posted yesterday that he is the proud new owner of a World War II Nazi Dagger. https://bitcointalk.org/index.php?topic=566300.msg6202174#msg6202174 https://bitcointalk.org/index.php?topic=566300.msg6202174#ms... He will eventually learn, but apparently he hasn't yet.
- colechristensen 13y ago
  Many of the naïve proponents highly praise the qualities of Bitcoin which are essentially money laundering. Turns out transferring large sums of money anonymously isn't legal in most places in the world.
  - caf 13y ago
    Transferring large sums of money anonymously isn't actually money laundering, though it can help facilitate money laundering (so it is often banned in an effort to make money laundering harder). Money laundering is the process of making income from criminal enterprises appear to be income from legitimate businesses, usually at a significant discount.
    - ma2rten 13y ago
      Speaking about that, I am wondering if there are internet businesses out there which are actually a front for money laundering. Say for example an online game or even a porn site. Seems to me like an ideal cover, because it's almost impossible to prove that it's not a real business.
      - olalonde 13y ago
kolev 13y ago
I'm getting tired already of all this noise around Bitcoin. It's a nice technology, okay, terribly wasteful in terms of resources, but regardless - it won't help us colonize the space, it won't help us reach Singularity sooner, it won't help extend lifespan and do other meaningful things - it could potentially (although very unlikely) make some lazy hoarders rich and that's it. Bitcoin really turned into a scum of the Earth magnet - just reading the comments under any negative article makes you realize the kind of human waste that's behind the bubble!
- olalonde 13y ago
  > it won't help us colonize the space, it won't help us reach Singularity sooner, it won't help extend lifespan and do other meaningful things Would you have said the same about Paypal? Because if you did, you'd have been wrong. Plus, among the set of technologies/companies that are discussed on HN, not that many are directly related to the goals you mentioned. Perhaps Bitcoin is wasteful due to its Proof-of-Work system but you have to consider how wasteful the alternative is. How much human capital is wasted in operating the deposit banking and payments industry? How much land and resources are wasted to physically secure cash in bank vaults and move it around? How much efficiency is lost to high transaction fees or lack of access to the banking system? How many services which haven't yet been invented would be enabled by a distributed ledger? I'm not saying Bitcoin would wipe out those industries completely but it could certainly make parts of them obsolete. I think it's wrong to dismiss the technology just because you dislike its community. The web was once a wild west as well.
  - kolev 13y ago
    PayPal never had the speculation appeal! PayPal, Venmo, Dwolla, Stripe, Balanced, Ribbon, Square, and others are all great services. They change the world in different ways - I buy with credit cards at Farmers Markets now, Stripe saved endless developer hours simplifying integration, Dwolla offers even lower than Bitcoin cost for accepting payments, etc. Bitcoin fans should learn from Elon Musk - the guy is a genius and, yet, he is a lot more humble than the average satoshi hoarder with a quarter of a Bitcoin waiting for the price to hit $1M apiece! The technology never matters as much as the community! The Internet was created by nerds, not speculators!
downandout 13y ago
Here's the indictment: http://www.scribd.com/doc/218320971/Charlie-Shrem-Indictment http://www.scribd.com/doc/218320971/Charlie-Shrem-Indictment
jluxenberg 13y ago
According to 31 CFR 1022.320 [1], your bank is legally required to report on any transaction that it "knows, suspects, or has reason to suspect ... involves funds derived from illegal activity" I don't know how the Treasury Department expects my bank to know if transactions involve funds derived from illegal activity, but damn is that creepy. [1] http://www.law.cornell.edu/cfr/text/31/1022.320 http://www.law.cornell.edu/cfr/text/31/1022.320
- xux 13y ago
  I'm curiously why you think that's creepy. If you suddenly deposit $5 million, but your salary is $100k / year, that's pretty suspicious and report-able.
  - D9u 13y ago
    What's really creepy is the fact that the big bankers can get away with laundering billions in drug cartel profits, yet not a single person has yet to answer for these crimes. http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-drug-gangs http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-... http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html http://www.bloomberg.com/news/2010-06-29/banks-financing-mex...

59 points by downandout 13y ago

Setting aside the fact that allegedly he was doing illegal things, it's interesting to note that PGP didn't protect him. (I'm basing this on two assumptions: SR encourages its users to use PGP, so therefore unless he was blindingly stupid, he, too, was using PGP; and that he never slipped up once. The second assumption is probably invalid.) Anyone have details as to how these charges came about?

uncoder0 13y ago
How did you determine that?
- sillysaurus3 13y ago
  Eh, I deserve to be downvoted. It's unsubstantiated speculation. I didn't think before I spoke. It's been on my mind a lot lately that we don't have tools to remain private. The only evidence of this is when criminals are caught, because it's rare for evidence of that fact to surface when people aren't doing criminal things, so I pay attention when it happens. I've just been thinking about what it takes to interact with other people while remaining truly private, and it's daunting.
veemjeem 13y ago
I would think that it was traced via bitcoin, not pgp.
- jordanbaucke 13y ago
  Its worth noting there was no indication that BTCKing and Mr. Shrem used PGP to encrypt their communication.
  - dobbsbob 13y ago
    From the original arrest it said he was using his work email @bitinstant to communicate with BTCKing and I don't remember anything about PGP being used. Shrem is screwed, because all those emails are highly incriminating with him actively helping BTCKing avoid being flagged in the system for laundering checks. BTCKing was originally caught because he's a drug addict supporting his habit by exchanging coins and was completely sloppy and careless with everything.
- olalonde 13y ago
  The blockchain was not even mentioned in the original FBI document. Everything was based on email/SR logs. Bitcoin makes it very difficult to associate transactions with people and I haven't yet heard of a case where the blockchain was successfully used to track down someone.
  - dobbsbob 13y ago
    Indeed, not a lot of ways to associate an address with somebody unless: - seize drives or papers with private keys - extract printer memory if they printed a private key - subpoena exchanges to hand over records to tie them to identities they have on file - search if somebody put the address in a forum sig or on IRC/elsewhere and admitted it was their address - check IP if they generated the address with an online wallet, brainwallet or some other discoverable method (not behind Tor) Otherwise all you are looking at is a big chain with coins going from address to address and no way to prove somebody is the definitive owner of it.
    - unreal37 13y ago
      Almost all business transactions are between people that know at least a little bit about each other. If Silk Road User A sends Silk Road Merchant B BTC for drugs, A has to give B a postal address to mail the drugs to. There is almost no such thing as two completely anonymous people in a financial transaction. There's always an email address, user name, a third party, or postal address to tie them. The only thing that I can think of is some type of charitable/political donation that is anonymous.
    - abruzzi 13y ago
      For 100% certainty yes, but like a murder (or any other crime) no one witnesses, a circumstantial tie to a bitcoin address is theoretically possible. Though that doesn't seem to be the case here.
Igglyboo 13y ago
It would be much easier to trace him via the blockchain than break PGP. Bitcoin is pseduoanonymous, it is possible to track coins.
- trhway 13y ago
  This complete traceability of BTC is why i don't touch it. I just don't want to happen to be in possession of a BTC that 2-3 hops back was used in a transaction that FBI/etc.. is happily looking at now.
melvinng 13y ago
He was arrested by admitting to the crime. Anyone could have done that accidentally, here is the source: http://www.cryptocoinsnews.com/news/charlie-shrem-did-nothing-wrong/2014/01/28 http://www.cryptocoinsnews.com/news/charlie-shrem-did-nothin...
awda 13y ago
I think he was selling btc for other very traceable and identity-linked forms of digital money (paypal, liberty reserve, western union, something like that). The issue was that he was operating as a money processor without following the mandatory guidelines that try to prevent laundering, etc. You can google the earlier arrest for more information on it, there are some juicy transcripts.
A_COMPUTER 13y ago
I don't know anything about the charges, but I have read from sellers that PGP turned out to be an insurmountable hurdle for Silk Road buyers, and so many, many people did not use it.
wmf 13y ago
Shrem himself didn't use Silk Road; he bypassed his own company's AML process to help a known SR user exchange BTC. Here's the criminal complaint: http://www.wired.com/images_blogs/threatlevel/2014/01/Faiella-Robert-M.-and-Charlie-Shrem-Complaint.pdf http://www.wired.com/images_blogs/threatlevel/2014/01/Faiell... There may be more detail in the indictment but I haven't seen it.

downandout 13y ago

Fortunately, this case is much more about Charlie Shrem and his penchant for violating laws than Bitcoin itself. I think this guy - who now refers to himself as "Charlie van Bitcoin" - just doesn't get it. There are laws out there, and he doesn't seem to want to follow them. Here's an example: He is out on bail on this case right now. As someone out on bail for a federal felony, he is prohibited from using or possessing deadly weapons (knives, guns etc.). There are people in his position that have found themselves in trouble over kitchen knives. Yet Charlie publicly posted yesterday that he is the proud new owner of a World War II Nazi Dagger. https://bitcointalk.org/index.php?topic=566300.msg6202174#msg6202174 https://bitcointalk.org/index.php?topic=566300.msg6202174#ms... He will eventually learn, but apparently he hasn't yet.

colechristensen 13y ago
Many of the naïve proponents highly praise the qualities of Bitcoin which are essentially money laundering. Turns out transferring large sums of money anonymously isn't legal in most places in the world.
- caf 13y ago
  Transferring large sums of money anonymously isn't actually money laundering, though it can help facilitate money laundering (so it is often banned in an effort to make money laundering harder). Money laundering is the process of making income from criminal enterprises appear to be income from legitimate businesses, usually at a significant discount.
  - ma2rten 13y ago
    Speaking about that, I am wondering if there are internet businesses out there which are actually a front for money laundering. Say for example an online game or even a porn site. Seems to me like an ideal cover, because it's almost impossible to prove that it's not a real business.
    - olalonde 13y ago

kolev 13y ago

I'm getting tired already of all this noise around Bitcoin. It's a nice technology, okay, terribly wasteful in terms of resources, but regardless - it won't help us colonize the space, it won't help us reach Singularity sooner, it won't help extend lifespan and do other meaningful things - it could potentially (although very unlikely) make some lazy hoarders rich and that's it. Bitcoin really turned into a scum of the Earth magnet - just reading the comments under any negative article makes you realize the kind of human waste that's behind the bubble!

olalonde 13y ago
> it won't help us colonize the space, it won't help us reach Singularity sooner, it won't help extend lifespan and do other meaningful things Would you have said the same about Paypal? Because if you did, you'd have been wrong. Plus, among the set of technologies/companies that are discussed on HN, not that many are directly related to the goals you mentioned. Perhaps Bitcoin is wasteful due to its Proof-of-Work system but you have to consider how wasteful the alternative is. How much human capital is wasted in operating the deposit banking and payments industry? How much land and resources are wasted to physically secure cash in bank vaults and move it around? How much efficiency is lost to high transaction fees or lack of access to the banking system? How many services which haven't yet been invented would be enabled by a distributed ledger? I'm not saying Bitcoin would wipe out those industries completely but it could certainly make parts of them obsolete. I think it's wrong to dismiss the technology just because you dislike its community. The web was once a wild west as well.
- kolev 13y ago
  PayPal never had the speculation appeal! PayPal, Venmo, Dwolla, Stripe, Balanced, Ribbon, Square, and others are all great services. They change the world in different ways - I buy with credit cards at Farmers Markets now, Stripe saved endless developer hours simplifying integration, Dwolla offers even lower than Bitcoin cost for accepting payments, etc. Bitcoin fans should learn from Elon Musk - the guy is a genius and, yet, he is a lot more humble than the average satoshi hoarder with a quarter of a Bitcoin waiting for the price to hit $1M apiece! The technology never matters as much as the community! The Internet was created by nerds, not speculators!

downandout 13y ago

Here's the indictment: http://www.scribd.com/doc/218320971/Charlie-Shrem-Indictment http://www.scribd.com/doc/218320971/Charlie-Shrem-Indictment

jluxenberg 13y ago

According to 31 CFR 1022.320 [1], your bank is legally required to report on any transaction that it "knows, suspects, or has reason to suspect ... involves funds derived from illegal activity" I don't know how the Treasury Department expects my bank to know if transactions involve funds derived from illegal activity, but damn is that creepy. [1] http://www.law.cornell.edu/cfr/text/31/1022.320 http://www.law.cornell.edu/cfr/text/31/1022.320

xux 13y ago
I'm curiously why you think that's creepy. If you suddenly deposit $5 million, but your salary is $100k / year, that's pretty suspicious and report-able.
- D9u 13y ago
  What's really creepy is the fact that the big bankers can get away with laundering billions in drug cartel profits, yet not a single person has yet to answer for these crimes. http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-drug-gangs http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-... http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html http://www.bloomberg.com/news/2010-06-29/banks-financing-mex...