Vice squad cuffs vice chairman of Bitcoin Foundation in $1m money-laundering probe
Charlie Shrem swooped on by feds at JFK Airport
The Bitcoin Foundation is shy a vice chairman today: US money-laundering investigators have arrested and charged Charlie Shrem, the 24-year-old CEO of one-time Bitcoin exchange BitInstant.
Also arrested and charged is Bitcoin trader Robert Faiella, 52, who operated as BTCKing on the underground e-bazaar Silk Road before it was shuttered by the FBI in October 2013. It's alleged the pair were involved in processing payments for illegal drugs in Bitcoins worth $1m (£600,000).
The Manhattan US Attorney said today Faiella, of Cape Coral, Florida, and Shrem, of New York, New York, are each charged with conspiring to commit money laundering and with operating an unlicensed money transmitting business.
In addition, Shrem has been charged with “willfully failing to file any suspicious activity report regarding Faiella’s illegal transactions ... in violation of the Bank Secrecy Act.”
As BitInstant's compliance officer – in addition to being its CEO and Bitcoin Foundation vice chairman – Shrem was responsible for reporting suspicious activity on the site. He was arrested at JFK Airport, while Faiella was arrested at his home in Florida.
BitInstant.com had backing to the tune of $1.5m from investors, and in 2012, the Bitcoin Foundation – set up to promote BTC as a legit currency – was chuffed to have brought BitInstant into its fold.
However, last year BitInstant was among a group of traders served with subpoenas by the New York Department of Financial Services in a wide-ranging investigation.
BitInstant's investors the Winklevoss twins – along with Google Ventures – were also asked to cooperate in the 2013 probe. There is no suggestion of any wrongdoing by BitInstant's investors. The exchange shut down in August last year.
The criminal complaint against Faiella today alleges he "sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site" between December 2011 and October 2013. It also alleges that Shrem “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.”
"As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road," said Manhattan US Attorney Preet Bharara, announcing the arrests in conjunction with the US Drug Enforcement Administration and the Internal Revenue Service.
"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. We will aggressively pursue those who would coopt new forms of currency for illicit purposes."
The two accused men are due to appear before federal courts in Manhattan and Florida. ®