Bitcoin Exchange CEO Arrested For Laundering Drug Money With Bitcoins

Bitcoin Exchange CEO Arrested For Laundering Drug Money With Bitcoins

Bitcoin

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

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

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

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

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

The official BitInstant website has been brought down, and it is uncertain how this ruling will affect its customers.

Source: CNN

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

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

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

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

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

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

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

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

This^

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

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

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

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

Is anyone honestly surprised by this?

Kuala BangoDango:

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

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

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

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

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

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

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

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

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

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

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

Strazdas:

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

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

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

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

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

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

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

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

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

FalloutJack:

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

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

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

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

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

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

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

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

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

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

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

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

Kuala BangoDango:

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

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

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

Eldritch Warlord:
Zip

Kuala BangoDango:
Boom

Well, you're not going to convince ME that it's money.

Their mistake was operating their business within US borders.

albino boo:

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

considering volatile bitcoin price the amount of money given reflecting other moneyt value is wage. Also silk rode in itself is not illegal just like torrents in itself are not illegal. it can be used both for legal and illegal trade, therefore exchanging the money for silk road could easily be seen as accepting moeny change from a source that does legal trade until it is proven otherwise. Once it was proven otherwise Silk Road owners were arrested and their assets frozen, and unless they got proof that Bitcoin Exchange CEO had personal knowledge about where the money came from before that the case is a false accusation (and i guess the court will decide if it is, it probably has more info than either of us).
It is true that some countries require certain proof of source of money for people who want to exchange large amounts, but its not like that cannot be fake. the way criminals launder money here is actually mechanic repair shops. they open legal repair shop business, buy a totaly broken car from Germany, pretend to fix them, then sell them to russia (where it cant be traced due to russian regulation gaps) like fully refurbished. here they laundered up to 100.000 dollars per car as "legal income".

FalloutJack:

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

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

and i dont view nintendo consoles as an asset with value but it is to some people. BItcoin is as true money as the one that you hold in your hand. the paper you call dollars true asset value is that of paper you can wipe you ass with. The only reason you can buy items with it is because people selling those items believe they can buy other items with it. Once that belief is broken the percieved value plummets. we have a name for it - inflation. There is no currency in the world right now that is based on any real backing. There are some that are partly backed (my currency is around 40% backed on gold reserves, but its not a gold standart, merely central bank keeping gold reserves as "trust us we can support it" deal. As far as i know actual asset backing for USD does not approach 10%).
To give an example during WW2 Cigarettes were money and people used them to trade. Anything can be money as long as people agree on using it as an exchange intermediate.
All money is based on trust. You trust banks more, other people trust bitcoins more, they trust them so much its value is rising in comparison. every item value is limited only to what other people are willing to pay for it. If gold was as common as dirt it would hardly have more value too.

If from my example you got the picture that Man1 is a money launderer then every bank in the world is a money launderer.

FalloutJack:
Well, you're not going to convince ME that it's money.

If you are stubbornly holding to your ideas even if they are proven false id say thats a flaw on your part and not ours.

Strazdas:
Zoop

Uhh, no, actually. If I do not accept it as legal tender, then it would be completely useless to me. Since you cannot bridge this particular gap, you're going to have to accept it, because the flaw is in trying to convince me that something that's a crock is real. I will take cash, credit, and collateral that is worth real money, but if you try to foist something like this on me unwelcomed, I can call a cop and force out the real doe. Similar cannot be done on your end.

FalloutJack:

Strazdas:
Zoop

Uhh, no, actually. If I do not accept it as legal tender, then it would be completely useless to me. Since you cannot bridge this particular gap, you're going to have to accept it, because the flaw is in trying to convince me that something that's a crock is real. I will take cash, credit, and collateral that is worth real money, but if you try to foist something like this on me unwelcomed, I can call a cop and force out the real doe. Similar cannot be done on your end.

It may be useless to you, but that does not make it valueless for anyone else. I may not accept dollars as legal tender but they dont stop being so because of it. it only makes me look foolish. Bitcoin is real money. you are misusing the term, and should instead use "that is worth money i like". Not sure how you can call a cop on me for trying to pay you with an actual currency. you can refuse to make the transaction, sure, but thats as far as it goes.

Strazdas:

FalloutJack:

Strazdas:
Zoop

Uhh, no, actually. If I do not accept it as legal tender, then it would be completely useless to me. Since you cannot bridge this particular gap, you're going to have to accept it, because the flaw is in trying to convince me that something that's a crock is real. I will take cash, credit, and collateral that is worth real money, but if you try to foist something like this on me unwelcomed, I can call a cop and force out the real doe. Similar cannot be done on your end.

It may be useless to you, but that does not make it valueless for anyone else. I may not accept dollars as legal tender but they dont stop being so because of it. it only makes me look foolish. Bitcoin is real money. you are misusing the term, and should instead use "that is worth money i like". Not sure how you can call a cop on me for trying to pay you with an actual currency. you can refuse to make the transaction, sure, but thats as far as it goes.

"Police! This man refuses to give me real money for payment!"

You couldn't do this to me with Bitcoins. They're trying to be what credit and debit cards already are, ergo no point. If this were ever to become a legal issue, you would be force to pay real money.

FalloutJack:

Strazdas:

FalloutJack:

Uhh, no, actually. If I do not accept it as legal tender, then it would be completely useless to me. Since you cannot bridge this particular gap, you're going to have to accept it, because the flaw is in trying to convince me that something that's a crock is real. I will take cash, credit, and collateral that is worth real money, but if you try to foist something like this on me unwelcomed, I can call a cop and force out the real doe. Similar cannot be done on your end.

It may be useless to you, but that does not make it valueless for anyone else. I may not accept dollars as legal tender but they dont stop being so because of it. it only makes me look foolish. Bitcoin is real money. you are misusing the term, and should instead use "that is worth money i like". Not sure how you can call a cop on me for trying to pay you with an actual currency. you can refuse to make the transaction, sure, but thats as far as it goes.

"Police! This man refuses to give me real money for payment!"

You couldn't do this to me with Bitcoins. They're trying to be what credit and debit cards already are, ergo no point. If this were ever to become a legal issue, you would be force to pay real money.

since Bitcoin is real money police would not be doing anything. You can refuse the transaction but thats as far as it goes. this is like somone wanting to give you euros but you only like dollars so you call police on him.
No, cryptocurrencies are not what credit and debit cards are. they are very different type of money. It is clear you do not know (or want to know) what bitcoins are, so maybe you shouldnt be going around claiming what bitcoins are.

Strazdas:
Zoop

No no, you will never find someone paying with Bitcoins in a court of law. I'm sorry, but a judge would either laugh at you or get really pissed, dependent upon his temperment. There's no negotiation on the matter. They wouldn't allow it, period. Maybe you shouldn't claim them to be legal tender when those that enforce the law would never enforce them. The men responsible for this very news report, the money-launderer and the drug-runner, will not be paying in their faulty merchandise. They will be paying in money, or jail time, or both. And their company? Who knows what will happen? It's basically evidence of criminal activity, People's Exhibit A. Credibility's certainly flushed, that's for damn sure.

FalloutJack:

Strazdas:
Zoop

No no, you will never find someone paying with Bitcoins in a court of law. I'm sorry, but a judge would either laugh at you or get really pissed, dependent upon his temperment. There's no negotiation on the matter. They wouldn't allow it, period. Maybe you shouldn't claim them to be legal tender when those that enforce the law would never enforce them. The men responsible for this very news report, the money-launderer and the drug-runner, will not be paying in their faulty merchandise. They will be paying in money, or jail time, or both. And their company? Who knows what will happen? It's basically evidence of criminal activity, People's Exhibit A. Credibility's certainly flushed, that's for damn sure.

well im glad you can predict future of all court of law and to the precision of what would the judge do. I for one dont have such powers. What i do know is that Bitcoins is currently a legal currency everywhere. China has forbidden their exchange, however you can still pay with them, they just cant change it to the local currency legally (and legality in china is as important to them as international copyright is important to china, as in, not very). There are US police officers who get their pay in bitcoins, so it very much circulates in legal institutions already. Bitcoins are very much legal tender.
The owner of Silk Road actually is fighting in court to get acess to his legal personal bitcoin wallet that is condered actual money he owns. If he gets it back he could very well pay his fine with it (though more likely he will get jail time for dealing in drugs and weapons).
The man in this news report is accused of money lanudering, but thats as far as it goes at least now. he is not a drug runner, that is another guy, but you obviuosly got no interest into knowing that before commenting when it comes to bitcoins.

Strazdas:
Zoop

Strazzy, I can handle your disagreements, but do not misunderstand me.

The men responsible for this very news report, the money-launderer and the drug-runner, will not be paying in their faulty merchandise.

I heard you the first time when you said it was two different people, so don't gimme hell over it. I think we've taken the discussion as far as it will go. I'm not convinced, but neither of us has any more ammo, I'm thinking.

FalloutJack:

Strazdas:
Zoop

Strazzy, I can handle your disagreements, but do not misunderstand me.

The men responsible for this very news report, the money-launderer and the drug-runner, will not be paying in their faulty merchandise.

I heard you the first time when you said it was two different people, so don't gimme hell over it. I think we've taken the discussion as far as it will go. I'm not convinced, but neither of us has any more ammo, I'm thinking.

I have misread you there, for that i appologize.

 

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