Bitcoin Operators Arrested for Drug Money Laundering

Bitcoin

Charges were made public Monday against two men that operate the bitcoin exchange business. The Bitcoin operators have been arrested for helping drug merchants launder money. Federal prosecutors in New York charged Charlie Schrem and Robert Faiella after they attempted to sell $1 million worth of the digital currency to members of Silk Road, the now-defunct black market drug website. Authorities had shut down the illegal website back in September 2013.

Schrem, 24, chief executive of BitInstant.com, had changed the cash for Faiella, 52. Faiella then set up and ran an underground bitcoin exchange for the users of Silk Road. Under the username BTCKing, the pair had intended to funnel the funds to the members, who would then, in turn, use that money to anonymously purchase illegal drugs and products. Schrem also used the site to purchase marijuana-infused brownies, amongst other illicit goods. According to the complaint, in an online chat Schrem even admitted to being surprised that Silk Road actually worked.

U.S. law enforcement officials have pledged to pursue all criminal activity in the world of digital currency. While the bitcoin operators arrested for laundering the drug money are the first, Preeta Bharara, the U.S. attorney for Manhattan, stated in an email to the press that when the digital currency is used to fund criminal activities, law enforcement will be forced to act. Bharara went as far to say that they will aggressively pursue all those who try to co-opt any new forms of currency for illegal activities. He concluded by saying that truly innovated business models do not need to resort to old-fashioned law breaking. Although, officials have stated that they will not be going after bitcoin itself and instead, will treat it like any other currency in which illegal transactions occur.

Cameron and Tyler Winklevoss, tech investors best known for their lawsuit against Facebook creator Mark Zuckerberg, are among the original investors for BitInstant.com. The twins invested 1.5 million in the bitcoin exchange service in the fall of 2012. They issued a statement saying BitInstant.com made a commitment to them to abide by all laws, including those involving money laundering. The twins went on to say that, even though BitInstant.com is not named in the indictment of Charlie Schrem, they are deeply concerned about the arrest and will do everything they can to help law enforcement officials as they remain passive investors in the company.

The case will still deal a blow to the flourishing service, as Schrem was a high-profile advocate for the technology. Created in 2009 by a developer or developers under the name Satoshi Nakamoto, bitcoin’s true identity remains largely a mystery. Along with his position at BitInstant.com, Schrem was also the vice president of the main bitcoin trade group, the Bitcoin Trade Foundation. The foundation issued a statement expressing their surprise and shock by the news of Schrem’s arrest.

On Jan. 27, Faiella is scheduled to appear before a court while no date has been made for Schrem yet. Bitcoin was developed for people with a desire to conduct affairs outside of government-sanctioned spaces. The bitcoin operators’ arrest for drug money laundering marks an ugly black spot on the burgeoning service’s positive reputation.

By Benjamin Murray

Sources:

National Journal

Yahoo! News

BBC News