30 September 2016
Visit dh.com

BitInstant CEO charged with money laundering over Silk Road scheme

27 January 2014  |  3306 views  |  0 bitcoins

US prosecutors have charged BitInstant CEO Charlie Shrem and an accomplice with running a scheme to sell over $1 million in bitcoins to users of the underground Silk Road marketplace.

Shrem - a Bitcoin Foundation vice chairman - and Robert Faiella have been charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. Shrem is also charged with wilfully failing to file any suspicious activity report regarding Faiella.

Using the name BTCKing, Faiella is accused of running an underground bitcoin exchange on the Silk Road, the notorious Web site which was used to buy and sell illegal goods such as drugs until it was shut down by the feds in October.

With bitcoins the only form of payment accepted on the Silk Road, Faiella bought the currency from Shrem's company, BitInstant, and then sold it on at a mark up. In total, the pair exchanged over $1 million in cash for bitcoins for Silk Road users.

Shrem - who as well as being BitInstant CEO is its chief compliance officer - knew what the Silk Road was used for and even personally bought drugs on it, says the complaint. He also knew that Faiella was running a bitcoin exchange for the site's users, and knowingly facilitated the business, personally processing orders and giving discounts on high-volume transactions.

Shrem failed to file a single suspicious activity report with the US Treasury as he was required to do in his role as compliance officer and helped his accomplice circumvent hos firm's own AML restrictions.

Faiella did stop doing business with Shrem's firm in late 2012 when it stopped accepting cash payments. He also briefly shut his own exchange down before opening up again without Shrem's assistance.

Manhattan US Attorney Preet Bharara says: "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 co-opt new forms of currency for illicit purposes."

The conspiracy to commit money laundering charges carry prison sentences of up to 20 years, while the unlicensed money transmitting business charges carry up to five years.

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Wells Fargo and JPMorgan take contrasting stance on bitcoin

Wells Fargo and JPMorgan take contrasting stance on bitcoin

24 January 2014  |  11024 views  |  2 comments | 11 tweets | 14 linkedin
London hosts Satoshi Square bitcoin meetup

London hosts Satoshi Square bitcoin meetup

17 January 2014  |  4151 views  |  1 comments | 5 tweets | 1 linkedin
Feds get go-ahead to sell $28 million bitcoin stash; eBay UK to open virtual currency category

Feds get go-ahead to sell $28 million bitcoin stash; eBay UK to open virtual currency category

17 January 2014  |  5529 views  |  2 comments | 5 tweets | 10 linkedin
French Senate holds bitcoin hearing

French Senate holds bitcoin hearing

16 January 2014  |  4138 views  |  2 comments | 7 tweets | 3 linkedin
Precious metals group joins Bitcoin cold storage fray

Precious metals group joins Bitcoin cold storage fray

13 January 2014  |  4549 views  |  0 comments | 3 tweets | 1 linkedin
Bitcoin smashes $1000 mark on Zynga adoption

Bitcoin smashes $1000 mark on Zynga adoption

06 January 2014  |  4141 views  |  0 comments | 7 tweets | 7 linkedin
Mt. Gox boosts security with one-time password card

Mt. Gox boosts security with one-time password card

29 November 2013  |  4247 views  |  0 comments | 4 tweets | 6 linkedin
US police force pays out bitcoin ransom after falling to Cryptolocker

US police force pays out bitcoin ransom after falling to Cryptolocker

22 November 2013  |  5544 views  |  0 comments | 3 tweets | 1 linkedin
Senate Committee sets date for bitcoin hearing

Senate Committee sets date for bitcoin hearing

11 November 2013  |  7032 views  |  0 comments | 6 tweets | 4 linkedin
Bitcoin value bounces back after Silk Road shock

Bitcoin value bounces back after Silk Road shock

03 October 2013  |  8882 views  |  5 comments | 6 tweets | 1 linkedin
BitInstant becomes latest bitcoin theft victim

BitInstant becomes latest bitcoin theft victim

06 March 2013  |  8707 views  |  0 comments | 9 tweets
BitInstant confirms Bitcoin card plans

BitInstant confirms Bitcoin card plans

23 August 2012  |  7949 views  |  0 comments

Related blogs

Create a blog about this story (membership required)
Find out moreVisit capgemini.comFind out more

Top topics

Most viewed Most shared
Ripple rudely gatecrashes Sibos partyRipple rudely gatecrashes Sibos party
10934 views comments | 35 tweets | 33 linkedin
BNP Paribas is working with clients on blockchain deploymentBNP Paribas is working with clients on blo...
7853 views comments | 15 tweets | 31 linkedin
Banks ready for real-world blockchainBanks ready for real-world blockchain
6939 views comments | 22 tweets | 29 linkedin
PayPal and Lenovo team on biometric authentication for laptopsPayPal and Lenovo team on biometric authen...
6801 views comments | 13 tweets | 16 linkedin
Distributed ledger technology could damage financial market integration - ECBDistributed ledger technology could damage...
6220 views comments | 15 tweets | 10 linkedin

Featured job

to c.£100K base, double OTE
London, UK (covering Europe)

Find your next job