
US makes Bitcoin exchange arrests - majc2
http://www.bbc.co.uk/news/technology-25919482
======
eterm
A good excerpt from page 13.

"Shrem email accounts reflect that "BTCKing" not only obtained his supply of
Bitcoins through the Company, but did so with extensive support from SHREM.
Even though SHREM quickly realized that "BTCKing" was reselling Bitcoins on
Silk Road, which SHREM knew to be a marketplace for illicit drugs, SHREM went
out of his way to facilitate "BTCKing's" business. Among other things, SHREM:
permitted "BTCKing" to continue doing business with the Company, despite
initially threatening to "ban" him based on his illegal activity; personally
ensured that "BTCKing's" orders with the Company were filled everyday; gave
"BTCKing" discounts based on his large order volume; sought to conceal
"BTCKing's" activity from the Co-founder and the Cash Processor to prevent
"BTCKing's" orders from being blocked; advised "BTCKing" how to evade the
transaction limits imposed by the Company's own AML policy; let "BTCKing"
conduct large transactions without ever verifying his identity, in violation
of federal AML laws; and failed to file a single Suspicious Activity Report
about "BTCKing," [sic] despite the obvious "red flags" raised by "BTCKing's"
dealings with the Company."

If all that is alledged is true, that's pretty damning and this isn't just a
general bitcoin crackdown.

~~~
synctext
The US Attorney Press release puts it nice:

"SHREM, who personally bought drugs on Silk Road, was fully aware that Silk
Road was a drug-trafficking website, and through his communications with
FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service
for Silk Road users."

[http://www.justice.gov/usao/nys/pressreleases/January14/Schr...](http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php)
(note the 14 Jan in URL and 27Jan release date; first draft Press release,
_then_ make arrests)

~~~
downandout
It's not surprising at all that the press releases are written in advance of
arrests. Preet Bharara, the US Attorney responsible for this, is a symbol of
everything that is wrong with the US justice system. His every action is
designed to maximize his PR and advance his political career. If on occasion
he happens to perform his actual job in the process, that is only incidental.
If you look closely you'll see that he actually has professionally applied
makeup during his press conferences - these are manufactured dog and pony
shows. He was looking for a case that would allow him to ride the PR coattails
of Bitcoin, and he found one.

In my opinion, prosecutors like this are as despicable as many of the people
they prosecute.

~~~
tptacek
I am shocked, shocked to learn that someone had makeup applied professionally
before a televised press conference.

~~~
downandout
I'm not sure why he needs to be on TV in the first place. His job is to
prosecute whatever crimes happen to be occurring in his district. Instead, he
cherry picks those that will make headlines in order to further his career. He
is in the news vastly more often than any of his counterparts in other
jurisdictions have ever been in the history of the DOJ. In short, he is
abusing his office for personal gain.

~~~
tptacek
Prosecutors are expected to look like zombies on TV?

 _(The comment I replied to was edited heavily after I replied to it)_

~~~
polymatter
I think its more that the application of professional makeup is indicative of
a prosecutor overly concerned with appearance. Its not the touch up here and
there to avoid looking like an overworked zombie, its the going to the extreme
to look like a hero. The suggestion is that such vanity can get in the way of
facts, truth and justice. I don't agree with this perspective, but I
sympathise with it.

~~~
krapp
The implication that makeup and vanity have anything to do with one another in
this context is suspect, though.

------
siculars
I find it hilarious that they take this guy down and nobody from HSBC does a
perp walk. I guess it's who you know and how much you can pay off, ya? This
has everything to do with the threat Bitcoin represents. HSBC literally paid a
2 Billion dollar fine against specifically money laundering on behalf of
organized drug cartels. The investigation took years and not a single HSBC
employee has done a perp walk.

Oh, and since when does selling BTC anywhere, including Silk Road, constitute
a crime? It's what you buy with BTC, or any other currency, that is the crime.

~~~
patio11
_Oh, and since when does selling BTC anywhere, including Silk Road, constitute
a crime? It 's what you buy with BTC, or any other currency, that is the
crime._

Since September 23, 1994, when they passed the Money Laundering Suppression
Act.

[http://www.law.cornell.edu/usc-
cgi/get_external.cgi?type=pub...](http://www.law.cornell.edu/usc-
cgi/get_external.cgi?type=pubL&target=103-325)

See Title 18 Section 1960:

[http://www.law.cornell.edu/uscode/text/18/1960](http://www.law.cornell.edu/uscode/text/18/1960)

 _(a) Whoever knowingly conducts, controls, manages, supervises, directs, or
owns all or part of an unlicensed money transmitting business, shall be fined
in accordance with this title or imprisoned not more than 5 years, or both._

There are three prongs which can get you classified as an unlicensed MSB, and
they are evaluated with an OR gate not an AND gate. The slam-dunk one is:

 _[You are an unlicensed MSB if you] fail[] to comply with the money
transmitting business registration requirements under section 5330 of title
31, United States Code, or regulations prescribed under such section;_

Lets see if buying Bitcoins and reselling them to effect money movements
qualifies:

 _(1) Money transmitting business.— The term “money transmitting business”
means any business other than the United States Postal Service which— (A)
provides check cashing, currency exchange, or money transmitting or remittance
services, or issues or redeems money orders, travelers’ checks, and other
similar instruments or any other person who engages as a business in the
transmission of funds, including any person who engages as a business in an
informal money transfer system or any network of people who engage as a
business in facilitating the transfer of money domestically or internationally
outside of the conventional financial institutions system_

Well, yep, that is _exactly_ what this guy's business is.

This is why the affadavit says "I checked with FinCEN. Nobody with that name
is now or was ever registered with them." This makes an absolutely airtight,
slam-dunk case for a federal felony.

Can I again recommend to HN that if someone against posts a blog saying "Hey
it's really easy to make money by straw-purchasing coins on Coinbase for
buyers from LocalBitcoins" that you really, really think twice about doing
that?

~~~
torbjorn
I know it is how the legal system works but it seems kinda silly that laws
from 1994 and 1960 apply to bitcoin.

~~~
justincormack
Why? They are designed to stop people making money from crimes. Seems to be
exactly what was intended.I happen to think that drugs should be legal but
that's a different issue.

~~~
hawleyal
They are designed to prevent people from making too much money anonymously.

~~~
betterunix
Taxes took care of that already. Money laundering rules are designed to make
it hard to conceal how you earned large amounts of money.

------
jahewson
There seems to be a general lack of understanding here on HN that _money
laundering is incredibly harmful to society_. It allows organised crime to
operate with great ease. It facilitates the corrupt in any walk of life, be it
political, corporate, or even law enforcement.

Any money-trading entity needs to keep track of who money is coming from and
going to and to monitor their transactions. The recent billion-dollar HSBC
settlement is an example of a failure to properly monitor transactions, it is
not clear that there was any criminal conspiracy involved [1]. That's very
different from this BitInstant charge: the operators are accused of knowing
that one of their customers was reselling hundreds of thousands of dollars
worth of BitCoin on SilkRoad where the transaction was anonymous, which means
it can be used to launder money. Worse still, they're accused of helping this
guy circumvent their own monitoring systems so that they weren't obliged to
report him. This is serious stuff.

[1] The criminal charges from that case were dropped as part of a settlement,
but that's an entirely separate contoversy. Failure to correctly charge
possible criminals in once case does not make it ok in another.

~~~
jnbiche
Money laundering is part of the criminalization of victimless drug use. That's
why they were created, and that's how they're used. Nothing more, nothing
less.

Money laundering laws are almost never used to track down under the table
payments to corrupt politicians or business leaders, as you seem to imply.
It's always linked to the drug trade, or occasionally "terrorism" (which may
or may not involve actual terrorists).

Do you really think it's a good idea to criminalize non-violent, victimless
drug use? If so, then we'll agree to disagree.

It not, then I suggest you look into the history of money laundering laws and
how they are applied. They're not doing what you seem to think they're doing.

~~~
Aqueous
You realize that this argument justifies anything even tangentially related to
the drug war because they are just the side effect of the 'criminalization of
victimless drug use' right?

This includes the thousands of people who are beheaded each year by the
Mexican/Colombian cartels, which, if you look at it this way, can be blamed on
the US government's 'criminalization of victimless drug use'. The US
government's policy might be stupid - but the cartels are also evil, and we
should do as much as possible to try to curb these kinds of atrocities.

Look the drug war is terrible, drugs should de-criminalized and treated like a
health problem as they are in Europe. However, you can recognize this while
recognizing that the people who traffic drugs tend to be engaged in some
pretty reprehensible behavior, and money laundering is one of those things
(along with human trafficking and gang violence.)

~~~
nullymcnull
> This includes the thousands of people who are beheaded each year by the
> Mexican/Colombian cartels, which, if you look at it this way, can be blamed
> on the US government's 'criminalization of victimless drug use'.

Why should it not be blamed on the criminalization of victimless drug use?
Where would the cartels get the immense capital with which to terrorize whole
provinces and take on state actors, if not for those highly lucrative drugs -
their profitably grossly inflated by their illegality? If our societies would
stop burying their heads in the sand over the issue of drugs and the immense
demand for them (which remains remarkably static no matter how many billions
are spent on 'war' against them), the cartels wouldn't have much left to fight
over.

~~~
Aqueous
I'm not doubting that US drug policy remains the driving force. It pushes
people who would consume drugs legally or illegally into a black market where
they inevitably do business with some extension of these powerful criminal
organizations. I agree with all that - and it needs to change.

But too often I see people using the stupidity of US drug policy as an excuse
for all sorts of morally reprehensible deeds. Case in point: when asked, Ross
Ulbricht trotted out all sorts of high-minded rhetoric about freedom and
libertarianism and the gross injustice of prohibition, but in private he was
ordering hits on his own users, and as far as he knew and was concerned, the
murders were carried out successfully. Is that in the spirit of libertarian
ideology? Is that about protesting US drug policy or is it just Ullbricht's
greed?

People will go through all sorts of mental gymnastics in order to rationalize
their personal appetites. In the end the consumers of drugs have to know that
they are buying from people who either engage in violence themselves or work
for someone who does, and because they are participating in this marketplace
they are in some way partially responsible for the violence that occurs
because of it. It may be unrealistic to think that they will realize that -
but we should not relax our personal criticism of them just because its
convenient for our political position.

~~~
onetwofiveten
What you say feels right intuitively, but I can't figure out the logic behind
it. Does participating in a marketplace automatically make one partially
responsible for the crimes of others who participate in it? That doesn't seem
quite right. There's a lot of violence in poor inner city areas, is it morally
wrong to own a gun shop in such an area? Are we morally responsible for the
actions of the corporations we buy from? What about our nation's foreign
policy? To take an extreme example if you sell food to enough people, you know
that eventually you'll feed a murderer. But intuitively there's a big
difference between selling food and money laundering. I don't know.

The Ross Ulbricht case doesn't really help. Ordering hits is morally wrong
whatever the context, so that doesn't help in figuring out whether his other
actions were wrong.

------
rayiner
It's worth reading the indictment:
[http://www.scribd.com/doc/202555785/United-States-vs-
Charles...](http://www.scribd.com/doc/202555785/United-States-vs-Charles-
Shrem-and-Robert-M-Faiella). At least read the e-mail exchanges starting on
pages 10 and 12.

What the article doesn't make clear is that the charge isn't for just selling
BTC to Silk Road users. The charge is that Faiella purposefully targeted Silk
Road users, sold them BTC at a markup, and Shrem coordinated with him to
bypass BitInstant's anti-money laundering mechanisms and deliver the actual
Bitcoin.

~~~
eloff
This is the information missing both from the article and the comments here in
order to understand what's really being objected to. This should be the top
comment.

------
JumpCrisscross
This is not an attack on Bitcoin _per se_ , but an attack on blatant money
laundering:

US Attorney for the Southern District of New York, Preet Bharara, who filed
the charges: "truly innovative business models don’t need to resort to old-
fashioned lawbreaking, and when Bitcoins, like any traditional currency, are
laundered and used to fuel criminal activity, law enforcement has no choice
but to act" [1].

This is different from HSBC's case because while HSBC was negligent in
implementing proper anti-money laundering procedures Shrem was actively aiding
his clients in their money laundering. That has not been _proven_ in the case
of any of HSBC's U.S. executives, at least so far.

[1]
[http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144...](http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144feab7de.html?siteedition=intl#axzz2rTXVAoxC)

------
untog
Note that this isn't an arrest just for operating a Bitcoin exchange. It's
specifically to do with Silk Road.

~~~
thisiswrong
From the BBC article: ''The authorities said the pair were engaged in a scheme
to sell more than $1m (£603,000) in bitcoins to users of online drug
marketplace the Silk Road.''

This is ridiculous! Please tell me how selling Bitcoin to someone is illegal?
What that person does with the Bitcoin they acquire not the responsibility of
the exchange. This smells like another case of gvt scare tactics to protect
the bankers and their out-dated & thieving business models. Anyone remember
liberty exchange ?

~~~
coldtea
> _This is ridiculous! Please tell me how selling Bitcoins to someone is
> illegal? What that person does with the Bitcoins they acquire not the
> responsibility of the exchange._

You know that it's illegal for actual banks to assist in money laundering
right?

Money has to pass through specific channels and be exposed to specific checks
to be wired from country to country (in some countries even from person to
person after a certain amount).

Else you're liable to be caught for assisting in money laundering.

So, yes, if you help people to move money, you can be held liable for what
they're doing with it.

~~~
300bps
_You know that it 's illegal for actual banks to assist in money laundering
right?_

You know that when a bank does it though, nobody gets arrested right? They
just get a small fine that is a fraction of their net profit from their
illegal activities. When someone with Bitcoin is accused of money laundering,
everyone involved is arrested and every asset they have is immediately frozen.
It's a tremendous double standard.

[http://www.rollingstone.com/politics/blogs/taibblog/outrageo...](http://www.rollingstone.com/politics/blogs/taibblog/outrageous-
hsbc-settlement-proves-the-drug-war-is-a-joke-20121213#ixzz2on2hF9sl)

~~~
coldtea
> _This issue was brought to my attention by pals who had investigated Julia
> and rejected it for this very reason._

You know that it depends, right? With some heavy big banks nobody gets
arrested, with others, and especially smaller ones, people go to jail. Also
the US isn't the only country with such laws -- people have gone to jail in
other countries.

------
epaga
For me, the biggest shock is that Shrem is on the board of the Bitcoin
Foundation and was involved in this stuff. The Bitcoin foundation is one of
the strongest voices in Washington about Bitcoin.

This is a big hit to the credibility of Bitcoin in the near to midterm future.

~~~
lsc
>This is a big hit to the credibility of Bitcoin in the near to midterm
future.

It sure seems that way, doesn't it? If I had significant amounts of bitcoin,
it would freak me out. But, I think we're seeing selection bias here. The fact
that I believe that the government will eventually shut the operation down, as
they did e-gold, is a big part of why I don't have any bitcoin.

But the thing is, the current bitcoin price, something like $970 as of now
(Monday, 11:54 AM PST) would indicate that "the market" (that is, the people
who own and are thus in a position to sell bitcoin) doesn't think this is such
a huge deal.

This might be one of those places where the difficulty of shorting bitcoin is
propping up the price. I don't know if I would /short/ bitcoin right now, but
if it were possible, I would probably blow a couple grand on put options if I
could do so in a reasonable way.

~~~
fnordfnordfnord
>The fact that I believe that the government will eventually shut the
operation down, as they did e-gold, is a big part of why I don't have any
bitcoin.

Bitcoin isn't an "operation" that a government can 'shut down.' It may yet
fail by some measure but not directly by government edict.

>I would probably blow a couple grand on put options if I could do so in a
reasonable way.

Easy peasy. Bitfinex features margin trading. Good luck.
[https://www.bitfinex.com/pages/howitworks](https://www.bitfinex.com/pages/howitworks)

~~~
lsc
>Bitcoin isn't an "operation" that a government can 'shut down.' It may yet
fail by some measure but not directly by government edict.

My belief is that bitcoin will slowly become less legally convenient, through
actions like the story above.

The government can't just shut down bitcoin like they did e-gold, sure, but
the government can put in legal barriers to transferring bitcoin. if it
becomes defacto illegal to transfer bitcoin? Yes, they haven't "shut down"
bitcoin, but for me, they've made it worth zero dollars.

>Easy peasy. Bitfinex features margin trading. Good luck.
[https://www.bitfinex.com/pages/howitworks](https://www.bitfinex.com/pages/howitworks)

Yeah, that lets me short bitcoin. the difference between a short and a put is
that with a put, I'm only risking what I've paid for the put, and the put
expires after a certain period of time. Put options become more expensive the
further out you want that expiration date (and more expensive as the security
in question is perceived to be more volatile, so it's very likely that put
options on bitcoins would be very expensive. But they don't have the unlimited
liability of a short.)

The fact that I'd be willing to buy put options but I'm not willing to short
bitcoin tells you that while I believe it is likely that bitcoin is going to
fail, I'm not anywhere near certain.

------
johnmurch
I am sure this will get down voted, but I can't help but find it interesting
(Gov going after them after this recent HSBC news) HSBC was involved with drug
cartels and much more and just had to pay a 1.9 billion dollar fine (sounds
like a lot, but keep in mind its about 5 weeks of profits)
[http://www.reuters.com/article/2012/12/11/us-hsbc-probe-
idUS...](http://www.reuters.com/article/2012/12/11/us-hsbc-probe-
idUSBRE8BA05M20121211)

~~~
atmosx
Not, actually it's a valid point: If you are a corrupted bank, you can get
away with everything. If you are against the _establishment_ you can't.

------
jbb555
If my understanding is true, then bitcoin isn't really relevant here. They
could have been selling hand written money tokens to people that they then
used to pay their drug dealer with. The allegations are about intent and money
laundering.

If this is all as presented, this is good for bitcoin. The fact that a
criminal has been caught is good. The fact that they were using bitcoin to
commit their crime makes it doubly good they were arrested as it reflects
badly on the community.

~~~
venomsnake
It is also good for bitcoin because suddenly the government admits by its
actions that it is indeed a currency.

~~~
jerf
There's never been any question about whether the government will see it as a
currency for the purposes of buying drugs, or avoiding taxes, or anything else
it perceives to be you using BitCoin to avoid its laws. There's oodles and
oodles of precedent on that front, not least of which is the fact you still
must pay taxes on barter transactions, for instance, in which there is
definitely no "currency" involved on either side. The question is whether it
will ever see it as something that, in addition to being bad, is also at least
neutral or potentially good as well. Or, put another way, when the government
finds out you used BitCoin for something, is it going to see that as as
neutral as using an Amazon giftcard, or is that going to be a presumption that
there's something else shady going on? Perhaps even to the point of
considering that fact alone sufficient to start issuing warrants?

~~~
krapp
Did you watch the recent Senate hearing on cryptocurrencies? They seem to have
already admitted that there are legitimate uses for Bitcoin, etc. I think
businesses in general are more scared of it than the government is.

~~~
jerf
The Federal government is a big thing. A couple of Senators orally agreeing
BitCoin might be useful isn't much consolation if the law enforcement branch
decides to start treating it as _de facto_ evidence of drug involvement.

(To be clear, I'm not "rooting" for the government to find it that way... I'm
just trying to look clearly at the situation and not conflate desires with
reality.)

~~~
krapp
I'm not saying that would be impossible, but I just don't see the evidence as
clearly-cut as others appear to. There's a 'desire' among some in the
cryptocurrency community to see themselves on the front lines of a war against
the state and regulated commerce as well.

------
gst
In related news:
[http://www.globalpost.com/dispatch/news/regions/americas/uni...](http://www.globalpost.com/dispatch/news/regions/americas/united-
states/140121/hsbc-paying-2-billion-drug-money-laundering-cartel)

~~~
rayiner
I suggest you read the e-mail exchanges in the indictment, for example
starting on page 15: [http://www.scribd.com/doc/202555785/United-States-vs-
Charles...](http://www.scribd.com/doc/202555785/United-States-vs-Charles-
Shrem-and-Robert-M-Faiella). There is a huge difference between having
controls that were too weak to catch money laundering activity in Mexico, and
the CEO deliberately bypassing money laundering controls in order to sell BTC
to Silk Road users.

The indictment in HSBC is full of stuff like "HSBC ignored government
recommendations that Mexico be treated as a high-risk area instead of a
medium-risk area..." This indictment has deliberate, knowing activity on the
part of Shrem that, as the e-mails indicate, even he thinks is illegal.

~~~
mdp
This is simply not true.

'In some of the documents, prosecutors allege that HSBC intentionally flouted
the law. The bank created an operation that was a "systemically flawed sham
paper-product designed solely to make it appear that the Bank has complied"
with the Bank Secrecy Act and is able to detect money laundering, wrote
William J. Ihlenfeld II, U.S. Attorney for the Northern District of West
Virginia, in a draft of a 2010 letter addressed to Justice Department
officials.'

'In one email exchange submitted as evidence in that case, employees debated
whether the bank should help a Miami client get around U.S. sanctions by
moving the client's business to HSBC's Hong Kong office. "I believe that the
best outcome would be for the customer to open a relationship with Hong Kong
just for leters (sic) of credit purposes. He travels there all the time,"
private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the
bank and couldn't be reached for comment.'

[http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc...](http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc=932)

~~~
bd_at_rivenhill
Hmm, looks like Suarez wasn't arrested either.

~~~
notahacker
That content of that cited email is ambiguous as to whether the banker in
question had any reason to believe the client was guilty of anything (as
opposed to operating a legitimate business inconvenienced by his country of
origin) Regardless of what he did and didn't know, or the intricacies of
legislation around letters of credit, he was smart enough not to write "cool"
in response to an email to the effect "so many of his transactions smell like
fraud or money laundering", never mind negotiating a "kickback" by email. It's
kind of hard to plead innocent when you do that.

------
jboggan
I am very supportive of the Bitcoin Foundation, but it doesn't look good to
have your Vice Chairman [1] taken down on money laundering charges.

1 -
[https://bitcoinfoundation.org/about/board](https://bitcoinfoundation.org/about/board)

------
dreen
Seems like they were arrested for selling bitcoins to silk road users en
masse. Is this just a US law oddity or is that what passes for money
laundering these days?

~~~
clamprecht
I did 5 years for money laundering under 18 USC 1956(a), and I don't even know
how to launder money. Sometimes they choose to charge you with money
laundering because they can't actually catch you for another crime. Other
times they choose money laundering because it carries a higher sentence than
the underlying crime.

~~~
antiterra
So is this inaccurate?:

 _With the help of at least one other person, the roommates re-sold these
[stolen] high-end components to various telephony equipment suppliers
nationwide, washing the checks through a series of falsified bank accounts and
voice-mail business fronts._

\-
[http://www.fineorsuperfine.com/newyorkpress31.html](http://www.fineorsuperfine.com/newyorkpress31.html)

~~~
clamprecht
The sentence you quoted is mostly accurate. It says a "series of falsified
bank accounts" \- I'm not sure what they mean by a series. There were either 2
or 3 bank accounts under fake names. But this doesn't do anything to conceal
the source of the funds, or make them appear legitimate. And I thought money
laundering was all about making illegal money appear legal, by "washing" it.
This is one of the problems with the money laundering law - it is pretty
vague. The prosecutors in my case could have easily charged us with interstate
transportation of stolen property, and then my sentence would have been half
of what I actually received. If you do some more googling, you will find that
the US Sentencing Commission investigated this sentencing disparity, including
my own case. My prosecutor was pissed.

------
olefoo
From reading the complaint; it seems that the BTCKing guy was advertising his
services on Silk Road and was active on the forums. Which means that he was
knowingly violating the laws on money transmission and specifically the know
your customer aspects.

It's pretty clear that in the not too distant future it will be illegal to not
make a good faith effort to identify anyone you are selling bitcoins to.

~~~
maaku
> It's pretty clear that in the not too distant future it will be illegal to
> not make a good faith effort to identify anyone you are selling bitcoins to.

Is that a bad thing?

~~~
olefoo
It is a political question. What happens if the government restricts access
not only to drugs, but phones without key escrow, or media players without DRM
and uses the money laundering tools to go after the "pirates and tax evaders"
who for some reason don't want to share their every communication with the
government?

And there are plenty of people who would disagree with you about the morality
of the government doing anything but enforcing quality-control and truth in
labeling when it comes to what molecules adults want to put in to their
bodies.

------
mdelias
Complaint: [http://www.scribd.com/doc/202555785/United-States-vs-
Charles...](http://www.scribd.com/doc/202555785/United-States-vs-Charles-
Shrem-and-Robert-M-Faiella)

~~~
gwern
Non-evil link:
[http://www.justice.gov/usao/nys/pressreleases/January14/Schr...](http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR/Faiella,%20Robert%20M.%20and%20Charlie%20Shrem%20Complaint.pdf)

------
kumarski
This seems a bit ridiculous considering the half a TRILLION dollars that were
laundered for drug cartels by the American bank Wells Fargo.

Am I missing something?

~~~
coldtea
Yes.

1) Big banks have more leverage than insignificant fringe exchanges.

2) Wells Fargo was also investigated and fined (although an insignificant
amount compared to their business).

~~~
notmarkus
Your evidence that something isn't ridiculous consists of two points which
are, themselves, ridiculous.

~~~
coldtea
I've never attempted to provide evidence "that something isn't ridiculous".
Parent (you?) asked "if [he] is missing something" and I replied.

That said, the points are realistic, not ridiculous. Reality might be
ridiculous, but you can't leave in a fantasy world.

------
CapitalistCartr
There is a bit more information here, not much to be had anywhere I see,
though.

[http://business.time.com/2014/01/27/bitinstant-ceo-
charlie-s...](http://business.time.com/2014/01/27/bitinstant-ceo-charlie-
shrem-arrested-for-alleged-money-laundering/)

------
mcantelon
Meanwhile, the US allows the Sinaloa to move drugs in the US:

[http://world.time.com/2014/01/14/dea-boosted-mexican-drug-
ca...](http://world.time.com/2014/01/14/dea-boosted-mexican-drug-cartel/)

------
CodeCube
People are gonna have to learn to play by the rules. They are obviously paying
attention.

~~~
shiftpgdn
Sorry but that's rubbish. Even if you play by the rules they'll just change
them via some obscure FTC policy or congressional rider.

Look at what happened to all the "Work from home" companies a few years ago.
All the owners had their assets seized in full for breaking a new FTC policies
that had been published for only a matter of days.[1]

The reality is if you're doing something the government doesn't like you NEED
to leave the country. They'll just keep moving the goal posts until you're in
prison.

[1][http://www.ftc.gov/news-events/press-releases/2012/11/ftc-
ex...](http://www.ftc.gov/news-events/press-releases/2012/11/ftc-expands-
fight-against-deceptive-business-opportunity-schemes)

~~~
objclxt
The rules in this case are "don't enter into a drug based money laundering
business", which is _allegedly_ what went on here. It's certainly not new or
obscure.

~~~
BlackDeath3
>drug based money laundering business

No ambiguity there!

------
ergoproxy
The legality of crypto-currencies in the US ultimately hinges on whether Wall
St. execs can make money off them. If they could "frontrun" bitcoin trades,
"naked short sell" into bitcoin exchanges, and execute "wash trades" to fix
the price of bitcoins, then not only would bitcoin be declared legal, but we
would see the US government using it and have it forced down the throats of
middle-class pension funds.

But Wall St. can't control bitcoin. So JP Morgan CEO Jamie Dimon denounced it
as "terrible" and predicted its downfall. Source: [http://rt.com/usa/chase-
ceo-bitcoin-terrible-downfall-100/](http://rt.com/usa/chase-ceo-bitcoin-
terrible-downfall-100/)

Then JP Morgan filed patents on its own crypto-currency, one that it can rig
with frontrunning, naked short selling, and wash trades. Source:
[http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabd...](http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabdc0.html#axzz2rjvqMuDn)

As for bitcoin, I predict we'll increasingly see it in the news headlines
linked to: (1) illegal drugs, (2) child porn, and (3) terrorism. These are the
exact same smear tactics we've seen before used against P2P filesharing.

And we'll see lots more bitcoin arrests like these.

~~~
eru
How has P2P filesharing be linked with terrorism?

------
zmanian
Seems like solid evidence that the reason the US govt is so comfortable with
Bitcoin is that they have a handle on anonymizing the blockchain as needed.

Also maybe an example of crypto over-confidence.

~~~
rjzzleep
government loves bitcoin. credit cards are very traceable. cash is fairly
traceable, but the moment bitcoins are used to get real goods theyre
completely traceable. add redlisting and upcoming ca authorities to the mix
and bitcoin is a governments wet dream

~~~
wyager
This is simply not true. Public != traceable. Please read about any of the
many methods for securely anonymizing BTC. Coinjoin is a good example.

CoInvalidation will probably never be even close to implemented, and the
proposed usage of x.509 certs has nothing to do with anonymity or privacy.

~~~
tbrownaw
_Please read about any of the many methods for securely anonymizing BTC._

All of which would be considered money laundering, yes?

~~~
wyager
And any technical solution wouldn't?

------
mikecane
"and operating an unlicensed money transmitting business"
[http://bnowire.com/inbox/?id=2158](http://bnowire.com/inbox/?id=2158)

And they reveal the hand they'll use to shut it all down.

~~~
NegativeK
They revealed that hand a while ago with the FINCEN announcement.

The US government isn't going to give Bitcoin a status that's different than
other currencies.

------
brianbarker
I've been worried about random people opening up exchanges, pools and other
BTC transaction web applications. There are so many regulations, particularly
in Anti-Money Laundering and Compliance that complicate business. People need
to be careful and realize exchanges aren't a business you jump into on a whim.

The worst is, if you innocently run a site like this and don't have the
correct AML protections, the baddies will use your service for their goals.
You will be in trouble for not having the appropriate controls in place.

------
nullc
The Justice Department press release is the ultimate source for all these
stories and is the most informative:
[http://www.justice.gov/usao/nys/pressreleases/January14/Schr...](http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php)

I guess this bodes poorly for the people who were hoping to get their coins
back from Bitinstant: [http://bitinstant.info/](http://bitinstant.info/)

------
thinkcomp
This is no different from many of the companies that Andreessen-Horowitz, Y
Combinator, Sequoia, KPCB, and other big names have invested in. In fact, it's
just the tip of the iceberg.

More arrests will likely follow. I wouldn't be surprised if Dwolla and/or
Veridian Credit Union is next. They were one of the largest pipes to the Silk
Road.

[http://www.plainsite.org/flashlight/case.html?id=2434524](http://www.plainsite.org/flashlight/case.html?id=2434524)

~~~
kylebrown
The complaint is against two individuals: Faiella and Shrem. There is no
complaint against the company BitInstant, nor arrests of any other employees.
The complaint notes that BitInstant was actually a registered MSB (since March
26, 2012). The charge of operating an unlicensed MSB was not for operating
BitInstant, but for an independent operation ("BTCKing") by Faiella and Shrem.

In this case, there was evidence of blatant, specific conspiracy, hence the
arrests and federal charges. That's different from the ThinkComp suit, which
has broader concerns of inter-state registration. We've already seen
government actions which were directly relevant to the concerns of your suit:
seizure of MtGox assets held by Dwolla, the $500k fine on Square by the state
of Florida, and the California DFI cease-and-desist to the Bitcoin Foundation.
More of that is to be expected, against say Stripe and Coinbase.

We did recently see a wide crackdown (arrests and domain seizures) on the
whole network of LibertyReserve and exchangers, but those were offshore
companies actively evading US banking and regulations. The situation with
bitcoin exchanges (and the other defendants in the ThinkComp suit) is of a
different nature, mostly about the specific approach to inter-state
regulation, rather than blatant federal violations.

If the ThinkComp defendants were directly doing payment processing for online
poker (rather than one-decentralized-step removed, in the case of bitcoin),
then I would expect another round of arrests. But the arrests would be for
violation of federal UIGEA and bank fraud. Operating an MSB in an unlicensed
state is punished by a fine, as seen with Square.

But please, point out anything I might be confusing or overlooking. And keep
fighting the (good) fight.

------
teawithcarl
Here's Andy Greenberg's excellent article on today's events--

[http://www.forbes.com/sites/andygreenberg/2014/01/27/winklev...](http://www.forbes.com/sites/andygreenberg/2014/01/27/winklevoss-
funded-bitcoin-startup-ceo-arrested-in-silk-road-investigation/)

------
SoftwarePatent
A better headline: "U.S. makes money-laundering arrests"

------
kbar13
Title is very sensationalist and almost gave me a heart attack.

~~~
nullc
I expect that this is no accident.

------
NAFV_P
> _" It is unfortunate Silk Road continues to make the headlines in
> association with Bitcoin - this is the dark side of Bitcoin, which the vast
> majority of digital currency users have no association with."_

Every currency or commodities of value have a dark side. A significant
percentage of British notes have traces of cocaine, occasionally you see ones
with blood on them. I'd consider blood diamonds to have just as sinister
connotations as bitcoin.

Discussing this reminds me of the scene in Beverley Hills Cop, where the
character Michael Tandino is murdered for stealing a wad of bearer bonds.

[http://en.wikipedia.org/wiki/Bearer_bond](http://en.wikipedia.org/wiki/Bearer_bond)

~~~
eli
Perhaps offtopic, but the US is against blood diamonds too. It's illegal to
import diamonds from Sierra Leone.

------
jusben1369
I wonder how central figures in Bitcoin feel about this. The headlines aren't
helpful but in the longer run if the Feds drive down or out the number of bad
guys using Bitcoin that would seem to help it's image over the long run.

------
dsugarman
HSBC admitted to laundering $800M for drug cartels. No arrests.

------
ommunist
Criminalizing BTC is a sure sign of fear from the US/UK banking system. But
you cannot criminalise maths, you can only do that with mathematicians like
Alan Turing.

~~~
krapp
Except... no one has criminalized BTC itself here, only its use in
facilitating crime. They seem to be treating it like any other currency.

~~~
ommunist
Coining headings like that "US makes Bitcoin exchange arrests" is
criminalizing the term 'bitcoin'. And the article emphasises that tone. Ever
seen headings "US makes US Dollar exchange arrests"? Huh?

~~~
dragonwriter
> Coining headings like that "US makes Bitcoin exchange arrests" is
> criminalizing the term 'bitcoin'.

The BBC coined the headline, but last I checked, the BBC can't criminalize
things -- at least not in the US.

------
btcstanford
what about coin base and bitpay do they have any anti money laundering issues?
Is the burden of AML KYC fall on the merchant or on coin base bitpay?

~~~
thinkcomp
Yes, they do. Both are operating illegally and they know it. Neither has money
transmission licenses nationwide (BitPay only has one in one state to the best
of my knowledge).

------
lama_drama
The difference between HSBC money laundering and Bitcoin's money laundering is
more political hands involved with HSBC's profits.

------
egocodedinsol
Without being upset, I'm curious what the difference is between this type of
arrest and various traditional banks that were civilly fined for money
laundering, but not criminally charged.

I doubt many FBI agents would hesitate to pursue a big bank. But they don't
seem to be able to, even when there are civil fines given. What causes that, I
wonder?

~~~
smtddr
The difference is SilkRoad didn't have friends in high places, nor was it
giving corrupt politicians/law enforcement/corp execs their cut of the spoils.

~~~
dragonwriter
Well, actually, this case is _exactly_ about corrupt corporate officials
getting a cut of the spoils.

------
ada1981
"Drug law enforcement's job is to investigate and identify those who abet the
illicit drug trade at all levels of production and distribution, including
those lining their own pockets by feigning ignorance of any wrong doing and
turning a blind eye."

Start with congress for making drugs illegal in the first place.

------
at-fates-hands
>>> Given that everyone involved was an American citizen.

I guess this is the moral of the story. Don't do this stuff within the
confines of the US? Find a nice island paradise (I hear Vanuatu is nice this
time of year) and do your business from a country that has no extradition
treaty with the US.

------
ChuckMcM
Interesting that they charged them with the money transmitting and laundering
charges. I suspect it is hard to get someone indicted for just trading in coin
since to the average lay person that probably seems like baseball collector
cards or something.

------
amiramir
How is what these people were arrested for different than what Coinbase does?

~~~
dustcoin
Shrem was not arrested for running Bitinstant. He was arrested for allegedly
going behind his bank and cofounder's backs to advise a known BTC dealer on
Silkroad on how to skirt Bitinstant's AML policies.

------
CryptcWriter
HSBC just had to pay a 2b fine for money laundering, I guess the US gov
doesn't accept BTC yet...

------
rtpg
tangential to the story, but can someone explain to me why the government
hates bitcoin(or rather, why people seem to think this)? It's a public ledger
of all payments, seems like a pretty good thing for the IRS.

~~~
gamblor956
The US government doesn't hate Bitcoin at all. Indeed, the DoJ, FBI, IRS, and
NSA _love_ Bitcoin, especially the public ledger part of it.

For some reason, libertarians really flock to Bitcoin, not realizing that it's
the worst possible currency to use if you want anonymity. (Physical cash is
easy to hide, but a digital currency will _always_ be traceable with enough
effort.)

~~~
kylebrown
Tracing a cash payment is trivial: you just watch the physical address where
the payment is to be mailed or dropped. So for any business in which the
customer can't be trusted (eg Silk Road vendors), cash won't work.

------
aerialfish
For me, the worst part is I went to high school in Brooklyn with this guy.
Ugh.

------
mbloom1915
so uncool, much dogecoin to invest

