Bitcoin Exchange CEO Charlie Shrem Arrested for Drugs and Money Laundering

bitcoinAnother string of bitcoin arrests, this time in New York, have linked the crypto-currency to drugs and money laundering yet again. Charges were issued against Charlie Shrem and Robert Faiella, a so-called co-conspirator, for drug trafficking and money laundering activities. Shrem is well known for his leadership role in the Bitcoin Foundation which is a major promoter of the new digital currency, and thus his recent arrest has grabbed the attention of both dealers and users of bitcoin. Shrem’s arrest is also important because of his role as CEO of BitInstant, a type of currency exchange which, prior to the recent arrests, was a premier bitcoin start-up.

The charges leveled against Shrem and Faiella by Federal prosecutors are in connection with allegations that the two were involved in a scheme to attempt to sell $1 million worth of bitcoin to users of the unsavory world of Silk Road. Silk Road was a website which acted as a type of illegal marketplace for drugs and other outlawed items and services, and used bitcoin as one of its primary forms of payment. The recent charges allege that Shrem knowingly sold bitcoin to Faiella in exchange for cash that Faiella apparently earned while running an exchange using only the handle BTCKing on Silk Road. The allegations claim also that Shrem failed to report suspicious activity. The charges go even further and allege that Shrem used bitcoin and bought himself drugs from the infamous Silk Road.

While the recent bitcoin arrests do link the crypto-currency to drugs and money laundering yet again, the saga now has taken a more interesting turn. Because of the roles played by Charlie Shrem, being both a leader in a significant bitcoin advocacy group along with operating a leading exchange, insights are being drawn as to the future of the digital currency. BitInstant was quite a prominent exchange in the world of bitcoin and even managed to raise $1.5 million in venture capital from the Winklevoss twins. The level of legitimacy enjoyed by BitInstant, now followed by an arrest of its CEO, could send a message to some that federal acceptance of the crypto-currency is anything but a sure thing.

Supporters of the digital money, when presented with negative outlooks based on lack of government approval, often respond by pointing out that the entire idea of the currency is one that does not need government approval. The recent arrests however show that the purported anonymity of the digital currency is likely much less than its street reputation implies, as federal authorities have now been able to make multiple arrests of bitcoin users. It is also clear from the recent arrests that though federal acceptance may not be a necessary component to the future success of bitcoin, authorities certainly can regulate and prosecute the new currency into possible irrelevance if they so desired to. The vulnerabilities of bitcoin have become more and more apparent recently, as the recent China crackdown, along with the mining monopoly issue both highlighted some of its weaker areas.

Authorities however will also likely suffer some scrutiny as a result of the recent arrests. It has been clear that some of the largest banking institutions in the country have engaged in some very colorful business practices that were anything but legal, and the resulting penalties have been relatively soft slaps on the wrist in the form of fines and settlements. The recent arrest of Shrem and Faiella however may be construed as quite a glaring double standard when it comes to financial crimes, which ardent supporters of bitcoin will surely aim to highlight.

As it stands, the purported anonymity of bitcoin appears to be more legend than truth, as the Charlie Shrem and Robert Faiella arrests point out. The bitcoin arrests have once against linked the crypto-currency to drugs and money laundering, but it is not clear whether the actions can be construed as a worsening relationship between the digital currency and federal authorities. For now, the digital money world awaits the result of the arrests. Bitcoin dealers and users alike will certainly keep an interested eye on the proceedings in an attempt to better calculate the crypto-currency’s future performance.

By Daniel Worku

Forbes

Washington Post

Chicago Tribune