Two Bitcoin-Exchange Operators Arrested for Money Laundering on Silk Road

A pile of Bitcoins are shown here after Software engineer Mike Caldwell minted them in his shop on April 26, 2013 in Sandy, Utah. Bitcoin is an experimental digital currency used over the Internet that is gaining in popularity worldwide. 
National Journal
Dustin Volz
Jan. 27, 2014, 7:39 a.m.

The In­tern­al Rev­en­ue Ser­vice might not be sure how to treat bit­coins, but the Justice De­part­ment, for now, is con­tinu­ing to treat the crypto­cur­rency like old-fash­ioned green­backs.

Au­thor­it­ies an­nounced Monday the ar­rest of two op­er­at­ors of bit­coin ex­changes on charges of laun­der­ing more than $1 mil­lion for the pur­poses of drug traf­fick­ing on the now-de­funct un­der­ground drug site Silk Road.

Agents ar­res­ted Charlie Shr­em, CEO of New York-based BitIn­stant, which is now off­line, and Robert Fai­ella, bet­ter known by his on­line nom de plume “BTCK­ing.” Schr­em was nabbed Sunday by au­thor­it­ies at the John F. Kennedy In­ter­na­tion­al Air­port in New York. Fai­ella was ar­res­ted Monday at his home in Cape Cor­al, Fla.

Shr­em and Failla are al­leged to have “schemed to sell over $1 mil­lion in bit­coins to crim­in­als bent on traf­fick­ing nar­cot­ics on the dark web drug site, Silk Road,” ac­cord­ing to Justice’s state­ment. The two are al­leged to have funneled money to Silk Road users who would in turn use that money to an­onym­ously pur­chase drugs and oth­er il­li­cit goods.

“Truly in­nov­at­ive busi­ness mod­els don’t need to re­sort to old-fash­ioned law-break­ing, and when bit­coins, like any tra­di­tion­al cur­rency, are laundered and used to fuel crim­in­al activ­ity, law en­force­ment has no choice but to act,” Man­hat­tan U.S. At­tor­ney Preet Bhar­ara of the South­ern Dis­trict of New York said. “We will ag­gress­ively pur­sue those who would co-opt new forms of cur­rency for il­li­cit pur­poses.”

Last week, Bhar­ara an­nounced the for­feit­ure of $28 mil­lion worth of bit­coins that were seized from Silk Road.

James Hunt, a spe­cial agent with the Drug En­force­ment Agency, ad­ded: “Hid­ing be­hind their com­puters, both de­fend­ants are charged with know­ingly con­trib­ut­ing to and fa­cil­it­at­ing an­onym­ous drug sales, earn­ing sub­stan­tial profits along the way.”

Fai­ella is charged with hav­ing op­er­ated an un­der­ground bit­coin ex­change from late 2011 to late 2013 via the now in­fam­ous Silk Road, de­scribed by au­thor­it­ies 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.”

The charges are part of an on­go­ing string of busts against al­leged sus­pec­ted ex­changers who sur­repti­tiously nav­ig­ated Silk Road from its launch in Feb­ru­ary 2011 un­til it was shut down by the FBI in Oc­to­ber 2013. Silk Road copycats have emerged in the ashes of the fallen site, which was be­lieved to have traded up­ward of $1 mil­lion dol­lars a month.

Camer­on and Tyler Winkle­voss, whose pre­vi­ous leg­al spars with Face­book founder Mark Zuck­er­berg were fam­ously chron­icled in the The So­cial Net­work, were among BitIn­stant’s ori­gin­al in­vestors. The twins raised $1.5 mil­lion in seed fund­ing for the start-up.

What We're Following See More »
FLOTUS OFFERS STRONG ENDORSEMENT OF CLINTON
Michelle Obama: “I Trust” Hillary Clinton
15 minutes ago
THE DETAILS

"In this election, and every election, it's about who will have the power to shape our children for the next four or eight years of their lives," Michelle Obama said. "There is only one person who I trust with that responsibility … and that is our friend Hillary Clinton." In a personal and emotional speech, Michelle Obama spoke about the effect that angry oppositional rhetoric had on her children and how she chose to raise them. "When they go low, we go high," Obama said she told her children about dealing with bullies. Obama stayed mostly positive, but still offered a firm rebuke of Donald Trump, despite never once uttering his name. "The issues a president faces cannot be boiled down to 140 characters," she said.

SANDERS BACKER CONFRONTS STUBBORN SANDERS SUPPORTERS
Sarah Silverman to Bernie or Bust: “You’re Being Ridiculous”
1 hours ago
THE DETAILS

Many Bernie Sanders delegates have spent much of the first day of the Democratic National Convention resisting unity, booing at mentions of Hillary Clinton and often chanting "Bernie! Bernie!" Well, one of the most outspoken Bernie Sanders supporters just told them to take a seat. "To the Bernie-or-bust people: You're being ridiculous," said comedian Sarah Silverman in a brief appearance at the Convention, minutes after saying that she would proudly support Hillary Clinton for president.

‘INEXCUSABLE REMARKS’
DNC Formally Apologizes to Bernie Sanders
5 hours ago
THE LATEST

The Democratic National Committee issued a formal apology to Bernie Sanders today, after leaked emails showed staffers trying to sabotage his presidential bid. "On behalf of everyone at the DNC, we want to offer a deep and sincere apology to Senator Sanders, his supporters, and the entire Democratic Party for the inexcusable remarks made over email," DNC officials said in the statement. "These comments do not reflect the values of the DNC or our steadfast commitment to neutrality during the nominating process. The DNC does not—and will not—tolerate disrespectful language exhibited toward our candidates."

Source:
STILL A ‘SAFE SEAT’
DCCC Won’t Aid Wasserman Schultz
5 hours ago
THE LATEST

The chairman of the DCCC said Debbie Wasserman Schultz won't be getting financial help from the organization this year, even as she faces a well-funded primary challenger. "Rep. Ben Ray Luján (D-NM) said the committee’s resources will be spent helping Democrats in tough races rather than those in seats that are strongholds for the party." Executive Director Kelly Ward added, “We never spend money in safe seats."

Source:
STEPHANIE RAWLINGS-BLAKE TO FILL IN
Wasserman Schultz Won’t Gavel Open the Convention
8 hours ago
THE LATEST

Debbie Wasserman Schultz has given up her last remaining duty at this week's convention. Now, she's told her hometown newspaper, the South Florida Sun-Sentinel, that she will not gavel in the convention today. Baltimore Mayor Stephanie Rawlings-Blake will do the honors instead. "I have decided that in the interest of making sure that we can start the Democratic convention on a high note that I am not going to gavel in the convention," Wasserman Schultz said.

Source:
×