Post date: Jan 27, 2014 9:7:23 PM
U.S. authorities charge two men for taking part in a money laundering scheme tied to Bitcoin, the online currency allegedly used by drug merchants.
NEW YORK CITY, NEW YORK, UNITED STATES (JANUARY 27, 2014) (REUTERS) - Two men who operate bitcoin exchange businesses have been charged with money laundering for helping drug merchants exchange $1 million (USD) in cash for bitcoins, the digital currency, U.S. prosecutors said on Monday (January 27).
Federal prosecutors in New York announced charges against Charlie Shrem and Robert Faiella, both operators of bitcoin exchange businesses, for attempting to sell $1 million in the digital currency to users of the underground black market website Silk Road, which was shut down by authorities in September.According to the charging document, Shrem, aged 24, chief executive officer of the exchangeBitInstant.com, changed cash into bitcoins for Faiella, aged 52, who ran an underground bitcoin exchange through the username BTCKing on Silk Road's website. The criminal complaint says thatShrem, in addition to knowing that Faiella's business was funneling money into Silk Road, also used Silk Road himself to buy drugs, including marijuana-infused brownies.
"Wow, Silk Road actually works," Shrem told an acquaintance in an online chat, according to the complaint.
U.S. law enforcement officials have vowed to pursue any criminal activity in the nascent bitcoin world as regulators try to formulate their approach to the digital currency.
"There's a money laundering violation and there's evidence that's laid out in the complaint and you can read it and judge for yourselves and it will play out in court and both gentlemen are presumed innocent until proven guilty," said Preet Bharara, the U.S. attorney for Manhattan.
Bharara has said recently that prosecutors are not going after bitcoin itself and view it as they view any other currency in which transactions are sometimes made illegally.
The U.S. Attorney's office in Manhattan said in the statement that authorities arrested Shrem on Sunday at New York's John F. Kennedy International Airport. Faiella was arrested on Monday at his home in Cape Coral, Florida.
The case against Shrem is likely to deal a blow to the burgeoning community of bitcoin businesses because Shrem is a high-profile advocate for the technology. In addition to running BitInstant, he is vice president of the main bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation's website and Shrem's LinkedIn profile.
A spokeswoman for the foundation declined to immediately comment on Shrem's arrest.
Shrem and Faiella were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business.
According to the charges, Faiella, going by "BTCKing" online, sold bitcoins to Silk Road users and passed on purchase orders he received from the site to Shrem, who filled them, transferring funds to Faiella's account at another bitcoin exchange service based in Japan.
The Japan-based exchange business is not named. One of the largest bitcoin exchanges in the world, MtGox, is based in Japan. Its chief executive, Mark Karpeles, did not immediately respond to a request for comment.
The charging document says that Shrem, who also ran BitInstant's compliance program for a little under two years, failed to report suspicious activity to regulators "with respect to numerous Bitcoin purchases" Faiella made from BitInstant.
Bitcoins have been gaining wider acceptance recently. The Sacramento Kings basketball team earlier this month became the first professional sports franchise to say it would allow purchases using bitcoins. Last month, ecommerce site Overstock.com announced its plan to become the first major U.S. retailer to accept the digital currency, and two Las Vegas casino hotels -- the co-ownedGolden Gate Hotel and Casino and the D Las Vegas Casino Hotel -- last week said they will begin accepting bitcoins to pay for hotel rooms and related purchases.
Created in 2009 by a developer or team of developers going by the name Satoshi Nakamoto, whose true identity remains unknown, bitcoin's earliest adopters have included people expressing a desire to conduct their affairs in a realm outside of government-sanctioned commercial spaces.
Bitcoin was the currency used on Silk Road, which was allegedly founded and operated by Ross Ulbricht, a libertarian-minded, 29-year-old American, who was arrested during a raid by federal authorities on the site last year.
Ulbricht is being held in a federal detention center in New York and faces charges of money laundering, computer hacking and drug trafficking. He has maintained his innocence through statements by his lawyer.