THE top executive of a New York City-based Bitcoin company and a Florida Bitcoin exchanger have been charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, authorities said Monday.

B01According to this report by the MIT Technology Review:

Charlie Shrem, 24, whom we profiled last year as one of group of young Bitcoin millionaires playing a decisive role in shaping the electronic currency (see “Bitcoin Millionaires Become Investing Angels”), was arrested after an investigation by the Drug Enforcement Administration.

In its indictment, the government says Shrem and an accomplice used the electronic currency to launder drug money in connection with the website Silk Road, a site for purchasing narcotics and other illegal goods which at one time was responsible for about 5 percent of the trade in Bitcoin.

Shrem (pictured left) was captured in a surprise arrest at New York’s JFK airport.


As Quartz reports:

At first, the news was a surprise: Many payments start-ups, including bitcoin companies, run afoul of money transmission laws, and typically face legal expenses, business challenges and bad press—but not arrest.

Then the US Department of Justice issued a press release announcing charges against Shrem and a co-conspirator, and the picture became a lot more interesting. The government alleges Shrem was using his legitimate bitcoin business as a front while knowingly supplying bitcoins for illegal purposes at Silk Road, the erstwhile online drug and contraband market that first brought the crypto-currency to wide repute.

Robert Faiella,  52 was arrested as Shrem’s alleged accomplice, and the DoJ press release states the following:

FAIELLA ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site.

The FBI swooped in to close down the site last October, arresting owner Ross William Ulbricht and seizing $25m of Bitcoins from users – who were left seriously out of pocket.

In its lengthy and detailed complaint, the FBI estimated that the site had generated sales of over 9.5m bitcoins, and collected commissions totalling over 600,000 bitcoins, “roughly equivalent today to approximately $1.2bn in sales and approximately $80m in commissions.” – wrote Channel 4 News

The arrests of Shrem and Faiella come just over a week after Overstock became the first major retailer to accept payment by Bitcoin.  Bitcoin ATMs are now beginning to arrive in cities across the world, including Toronto.  There are also Bitcoin cafes springing up, like this one in East London.  So, are authorities leveraging the fallout from Silk Road to kill off a potentially game changing global crypto-currency?

Well, the jury is out.  But there is some quite smelly hypocrisy going on here for sure.  After all, even if the Silk Road charges of true – they would amount to only a fraction of the money laundering activities of HSBC Bank.  HSBC set up an entire subsidiary firm with the specific intention of using it to launder the money of Mexican drug cartels.  It spirited over $7bn of the stuff between 2001 and 2007. HSBC were found guilty on all charges – but no executives were arrested, none of the bank’s branches, operations or websites were closed down.  In fact, HSBC were able to settle it all with a fine, paid by the company, worth just 14% of the profits the bank made in the same year. Furthermore, not a single Wall Street of City of London banker has been held accountable for the dodgy derivatives trading that crashed global economy in 2007/8.  Not one.

So, Bitcoin supporters might have a point when they ask, why the double standards?



About The Author

Kerry-anne Mendoza is a writer, blogger and activist. She is the author of the Scriptonite Daily blog which explores matters of current affairs, politics, economics and ideas. She is also a contributor to New Internationalist, openDemocracy, Trebuchet Magazine, the Occupy News Network and others. She is based in the UK, and left her career as a Management Consultant having held senior positions in banking, local government and the NHS to be part of the Occupy Movement. She has since worked as a writer and campaigner for social, economic and environmental justice.