Bitcoin Forum

The operator of an exchange for the virtual currency Bitcoin has pleaded guilty to running an unlicensed money transmitting business.

Charlie Shrem from BitInstant.com admitted the charges in a New York federal court hearing.

Another Bitcoin trader, Robert Faiella, also pleaded guilty.

Both were arrested in January, accused of selling more than $1m (£603,000) in bitcoins to users of online drug marketplace the Silk Road.

The site was shut down last year and its alleged owner was arrested.

The two traders admitted the charges as part of a deal struck with US prosecutors in order to settle the allegations against them.

Bitcoin exchanges are services that allow users to trade bitcoins for traditional currencies.

Mr Shrem had been accused of allowing Mr Faiella to use BitInstant to purchase large quantities of bitcoins to sell on to Silk Road users who wanted to buy drugs anonymously.

The authorities said Mr Shrem was aware that the bitcoins were being used for such purchases, and therefore he was in violation of the Bank Secrecy Act.

The Act requires financial institutions in the US to alert authorities to any suspicious activity that may suggest money laundering is taking place.

...
http://www.bbc.com/news/business-29072886

Is he arrested for selling bitcoin or because of his link to silkroad?

There are still a lot of btc sellers on localbitcoin. Some have been selling for more than a year and these sellers don't appear to be worry.

Because he not only knows BTCKing are using Bitcoin for laundering money, but also Charlie Shrem supports BTCking to do it and help him to do laundering.

More likely then not, yes. Although this is not the official stance of the government. He was officially charged and arrested for violating AML rules/laws.

I personally think the government is essentially trying to spread FUD about participating in the sale (and purchase) of drugs on darknet/deepweb sites. I also find it ironic that many more of these kinds of sites have popped up almost right after SR was taken down and media reports have said that overall business is way up since SR was taken down.

This admission is only a formality. It is not actually alleged that he did this, the allegations are in the original indictment. It was agreed that he would be allowed to admit to a lessor crime in exchange for not forcing the government to bear the expense and uncertainty of going to trial.

It's because of his links to SR!


5 years though... Justified??!

https://www.expressvpn.com/blog/current-events/charlie-shrem-bitcoin-pioneer-pleads-guilty-federal-charge-bitcoin-trading-scandal/

I'm sure these prosecutors are really proud of their bust—pressuring yet another harmless kid into a plea deal.
And while they're doing that, countless professional launderers go to work, day in and day out. The only difference is that they have the financial backing and legal counsel from those who specialize in these things.

Most of what the pros do is technically "legal" so there's nothing to prosecute. And when it's not 100% legal, they know how to structure their arrangements to fall within certain grey areas of the law, making a successful prosecution of their practices, a legal nightmare.
Instead of facing any of these fundamental issues, or having the balls to investigate real cases, the prosecutors, as typical, go for the low hanging fruit. Regardless of the fact that what Shrem did, is for all practical purposes, harmless.

But bitcoin isn't money. How can he plead guilty to running a money exchange, when the IRS has ruled it isn't money. He was only buying and selling a virtual property. Do we need to start arresting people who buy and sell high ticket items like wine or cars?

Faces UP TO 5 years, most likely will get less.

You're confused. The IRS said it's a property, but their opinion doesn't matter when it comes to regulatory issues. The various departments of the government are under no obligation to treat bitcoin the same.
It's stupid, but that's reality.

Well they probably went after him just because of the link to Silk Road, but they do occasionally go after Local Bitcoin sellers too. Been a few sting operations on there I believe.

That sucks for him. He shouldn't have done that. He lost lot of money now!

:)

he always was and will be a racist too... google some of the things he said its interesting hehe.

Charlie is a great guy and always will be. He made a deal with the prosecutors, sometimes you have to bend to not to be broken.

And to avoid spending a fortune in legal fees just to defend himself.  I'm sure the lawyers have already cost him a pretty penny.

https://bitcointalk.org/index.php?topic=764907.0

Government is out of control. 5 years jail time for someone who just buy and sell btc.

If they want to go after drug vendors, they should arrest them rather than someone who just facility payment.

The LBC sellers that have been charged with crimes were told that the bitcoin being purchased was going to be used for illegal activity. The government is saying in Shrem's case that he knew the bitcoin was going to be used on SR.

This is just the Banks going after the little guys once again that are trying to bring a change and eventually delivering a fatal blow to the banking system.
Proof that the government is rotten to its core and does what the big corporations tells it to do.
But it's too late , you can't stop it anymore.

 ;D

It's not confusion. It's pointing out the hypocrisy of the system.

Casino chips aren't money either, but you can still get in big trouble for buying/selling them.

I thought that during the time that BitInstant was operating that the federal government had not yet classified bitcoin as currency. I do recall that they introduced that idea at some point, then used that new classification to argue that existing bitcoin exchanges were suddenly illegal.

Soon enough we will see btc-e getting seized for some illegal act.The bitcoin days no more safe at last the financial hypocrites are gonna win over bitcoin.

It is not a money exchange it was a money transmitting service. There is a big difference; a money exchange would be to exchange one type of money ($5 bills) for another type of money ($100 bills); a money transmitting service is when you accept money and agree to send/give a certain percentage of that money to someone else while taking the rest as payment.

I don't think that is an element of the money laundering crime. I doubt that paying from the US, for drugs on SR, to be shipped from a Portugal address to another Portugal address is illegal. Even if it was, there were legal items for sale on SR as well as illegal ones.

I think it is well established that people went to SR for the purpose of buying illegal items. Yes there were some items sold that were not illegal, but these items were a very small minority (I think).

Where the drugs were being shipped from or two is not the issue, the issue is that he was operating inside the US and was taking money from inside the US that was to be given to other people.

So he finally admitted he broke the law? Took awhile...

BTC-e is based in Bulgaria.  Let's keep things in perspective.  I don't think the US can seize anything there without a severe backlash.  Shrem is an American, so the US have the power to seize his assets.  It's not some crazy domino effect where everything suddenly gets shut down because this one thing happened.

How many staff from HSBC went to jail for 5 years after laundering hundreds of millions billions for the mexican drug cartel?

I'm pretty sure nobody did... They got off with a fine or something, correct me if I'm wrong!!!

Who were the victim?

No victim = no crime.

HSBC wasn't using Bitcoin and there wasn't just one compliance officer for the company though. That's the difference. With Charlie there was just one guy from the company to slap and teach a lesson to other small Bitcoin startups. Always remember we are just children and sometimes need our govermom to teach us a lesson.

So , police should stop giving speeding tickets , right? Cause there are victims only when you run into somebody else.

Also , everybody should start their own shops without licenses or without paying taxes as probably there will no victims from this either.

Rather than arguing about how the law is applied change the law.

I think another difference was that with HSBC the laundering of money was less then intentional, and was likely the result of lax controls in place to prevent the laundering of money to mexico; very similar to bitinstant prior to it was discovered that the other guy was selling bitcoin on silk road. It is alleged that Shrem was aware of the activity and declined to try to stop it.

Yeah, they knew.

http://www.huffingtonpost.com/marni-halasa/is-anybody-listening-hsbc_b_3831412.html

 Banks going after the little guys once again that are trying to bring a change and eventually delivering a fatal blow to the banking system.
Proof that the government is rotten to its core and does what the big corporations tells it to do.

Yes on private roads. No on public roads.

Licenses needed for what? pointless, costly and waste of resources. Taxes IS theft.

Many laws needs to be repelled en mass. There are too many stupid laws and no one can possibly remember them all. People are being criminalise for no reason.

Kim Dotcom might argue against your assertion.

I agree with you that we do need rules in our society and it is appropriate to punish people who do not follow the rules. With that being said the government also needs to follow certain rules to make sure people have a fair chance in court when they are charged with a crime, and to follow rules regarding a person's "papers" (rules regarding search and seizure).

Regarding if Charlie apparently broke the rules, I would say yes, but only from a technical standpoint. He could have changed his behavior in a very minor way to stay in compliance with the law and the outcome of the transactions in question would not have changed.

Regarding the government following the rules, I would say they almost certainly did break them. Their getting access to the SR servers is questionable at best (they admit to not having a warrant prior to receiving the copy of the server). Also IIRC they had seized the servers of an email service that was marketed to TOR users, and some of Charlie's communications were from this service. I don't see the legal justification here to for the government to be able to read all of the emails on this email service without specific warrants that document probable cause.

The US Govt doesn't use logic concerning laws.


http://www.takepart.com/article/2013/01/02/no-relief-convicted

Fair point.  At least on the plus side, he seems to be winning his fight.  Relaunching mega to make it less prone to future takedown attempts and using encryption.  If every site that gets blocked comes back stronger and better than before, then maybe it's ultimately a good thing that someone's out to challenge free information.  They might win the battle against Shrem for now, but they'll lose the war.

This is not the only thing that the US is alone in the way they operate. (overseas taxes is a big one).

My point wasn't so much that the law changed after the fact, but is rather that if Charlie had followed the law to the "t" then the same transactions would have happened, no additional reporting would have been given to the government about any of the transactions. The only real difference to the outcome is that bitinstant would have higher compliance costs.

I think that it would be hard to argue that "society" was a victim in this case.

I definitely agree with that.