CEO OF BITCOIN EXCHANGE ARRESTED

[Bitco]

I think we are going around in circles.

Yeah.  I look at this and I can't tell whether what Shrem allegedly did was illegal.  Certainly inadvisable, but beyond-a-reasonable-doubt criminal?

He could have told the guy "Hey, stop doing that," knowing that BTCKing would probably continue doing it anyway.  So instead he tells BTCKing to quit causing trouble.

He probably should have said "Stop it", but was he willfully breaking the law to instead say to BTCKing, "respect our $1000 limit"?

What would you do if one of you were trying to resolve a customer service issue, and one of your customers suddenly says something about Silk Road?

[Minor Miner]

Arguably, the activity involved falls under the "illegal activity" in (i) and the "criminal activity in (iv), but even if it doesn't, the "avoid any transaction reporting requirement" in (i) and the "structuring" language in (ii) certainly apply.  While there is a lot of ground where this language is arguably ambiguous and there are many situations where it might be difficult to determine whether a certain activity triggered a responsibility to file an SAR, this case is not one of them.

It was not "funds derived from illegal activity".  Allegedly, some of the funds might later have been used to buy drugs, but that hadn't yet happened. So (i) is out.
It was not structured to avoid the currency reporting requirement.   Shrem and BTCKing allegedly discussed $1000 and $4000.  The currency reporting requirement is $10,000.  Perhaps it could be viewed as evading some other requirement, but there isn't a clear case for (ii) here.
What about (iv) use of the money services business to facilitate criminal activity?  Perhaps.

You are wrong about the 10,000.   Go and try and cash a ticket at the sports book for $9500 and see what happens.   Then ask them at what point they have to bring the forms out.   They cannot tell you.   If you cash more than once and they recognize you they have to tell their supervisor also.
Spitzer was busted for a $5000 transfer that was reported as suspicious.   Remember him?

[Bitco]

You are wrong about the 10,000.   Go and try and cash a ticket at the sports book for $9500 and see what happens.   Then ask them at what point they have to bring the forms out.   They cannot tell you.   If you cash more than once and they recognize you they have to tell their supervisor also.

That's a different issue.  If it's over $600 in income, then they have to file a 1099 with the IRS.  And yes, they can tell you.

Spitzer was busted for a $5000 transfer that was reported as suspicious.   Remember him?

$5000 for a hooker?

[Phinnaeus Gage]

You are wrong about the 10,000.   Go and try and cash a ticket at the sports book for $9500 and see what happens.   Then ask them at what point they have to bring the forms out.   They cannot tell you.   If you cash more than once and they recognize you they have to tell their supervisor also.

That's a different issue.  If it's over $600 in income, then they have to file a 1099 with the IRS.  And yes, they can tell you.

Spitzer was busted for a $5000 transfer that was reported as suspicious.   Remember him?

$5000 for a hooker?

On March 10, 2008, The New York Times reported that Spitzer had previously patronized a high-priced prostitution service called Emperors Club VIP[88] and met for over two hours with a $1,000-an-hour call girl. This information originally came to the attention of authorities from a federal wiretap.[89][90][91][92] Spitzer had at least seven or eight liaisons with women from the agency over six months, and paid more than $15,000.[93][94] According to published reports, investigators believe Spitzer paid up to $80,000 for prostitutes over a period of several years while he was Attorney General, and later as Governor.[95][96][97] Spitzer first drew the attention of federal investigators when his bank reported suspicious money transfers under the anti-money laundering provisions of the Bank Secrecy Act and the Patriot Act.[98] The resulting investigation, triggered by the belief that Spitzer may have been hiding bribe proceeds, led to the discovery of the prostitution ring.[99]

[600watt]

You are wrong about the 10,000.   Go and try and cash a ticket at the sports book for $9500 and see what happens.   Then ask them at what point they have to bring the forms out.   They cannot tell you.   If you cash more than once and they recognize you they have to tell their supervisor also.

That's a different issue.  If it's over $600 in income, then they have to file a 1099 with the IRS.  And yes, they can tell you.

Spitzer was busted for a $5000 transfer that was reported as suspicious.   Remember him?

$5000 for a hooker?

supposing you are a bitcoiner: do you prefer cheaper ones ? 

[Minor Miner]

You are wrong about the 10,000.   Go and try and cash a ticket at the sports book for $9500 and see what happens.   Then ask them at what point they have to bring the forms out.   They cannot tell you.   If you cash more than once and they recognize you they have to tell their supervisor also.

That's a different issue.  If it's over $600 in income, then they have to file a 1099 with the IRS.  And yes, they can tell you.

Spitzer was busted for a $5000 transfer that was reported as suspicious.   Remember him?

$5000 for a hooker?

supposing you are a bitcoiner: do you prefer cheaper ones ? 

my point is bitco you are incorrect about your facts and should look more into it.  Spitzer was transferring smaller amounts through friends that were far below the 10k you quoted.   He was caught through the reporting of suspicious transfers and was not told he was reported.
Your casino 1099 comment is incorrect also.  go cash a $700 ticket.   they do not write out 1099s.   But yes, you as an american do have a responsibility to report all income you make.  Your $600 reference is the trigger point that a business must issue a 1099 and have a current W9 on file for the person (or LLC) that they have done business with.
I guess my larger point is, when you are not sure about the law, you should not post things that are incorrect.   

[marcotheminer]

That just does not make sense to me. What makes bitcoin so special it deserves arrests? Why not a bank cashing a persons check and then that person buys drugs with the fiat? Or some type of comparison like that?

I was thinking the same thing. Maybe there was an agreement to send and receive (i.e. launder) coins.

Launder could be receiving and sending coins, any coins.

[DeathAndTaxes]

That just does not make sense to me. What makes bitcoin so special it deserves arrests? Why not a bank cashing a persons check and then that person buys drugs with the fiat? Or some type of comparison like that?

I was thinking the same thing. Maybe there was an agreement to send and receive (i.e. launder) coins.

Launder could be receiving and sending coins, any coins.

Money laundering requires intent.  Receiving coins that you have no knowledge or reasonable suspicion they are involved in illegal activity is not money laundering.  Criminals have money.  I know it is a shocking fact but they do.  Not just Bitcoins, but also good ole US dollars as well.

There is a big difference between being an innocent counterparty, and actively evading the AML program your own company put in place.

[Bitco]

my point is bitco you are incorrect about your facts and should look more into it.  Spitzer was transferring smaller amounts through friends that were far below the 10k you quoted.   He was caught through the reporting of suspicious transfers and was not told he was reported.
Your casino 1099 comment is incorrect also.  go cash a $700 ticket.   they do not write out 1099s.   But yes, you as an american do have a responsibility to report all income you make.  Your $600 reference is the trigger point that a business must issue a 1099 and have a current W9 on file for the person (or LLC) that they have done business with.
I guess my larger point is, when you are not sure about the law, you should not post things that are incorrect.   

What did I post that was incorrect?  Are you claiming that reporting of gambling income is not subject to the $600 threshold of 26 USC § 6041 ?

The Spitzer case is a separate issue.  Suspicious activity reports can be filed for amounts less than $10000.  There is a $10000 threshold for currency transaction reports. You are mixing up several different things here.

[mainline]

Pirateat40 most likely cooperated in exchange for reduced/dropped charges.  If he had dirt to trade, he probably did.

There's no indication any criminal action was filed let alone settled.  There's no indication anyone but the SEC is involved, which has no independent power to bring a criminal prosecution.  If the government had settled, it wouldn't be on any less terms than a return of the stolen money.  However, the civil action over the stolen money is still proceeding in federal court.  There is no good reason to believe there was ever a criminal case for there to be a plea bargain.

There seems to be a surreal level of abstraction and disconnect on this forum when people talk abut law.  If you don't think TLAs shoot the shit with each other, or that people are not questioned and pressed for info without being formally charged, you are spectacularly uninformed.

Exactly what on Earth did I say that you decided to turn into this outlandish straw man and then attack?  I think I was very, very clear that other law enforcement agencies would, almost as a matter of course, have been aware of this case in some form or another and would have had to have made a conscious decision not to prosecute.  Read better next time, please.

I said that it is likely that Pirateat40 has provided information in exchange for reduced charges.
You went on to protest that, to your knowledge, no one but the SEC was involved.
If no charges were filed in exchange for information, what kind of evidence would you expect?

In case I'm not being explicit enough, an example you might relate to:
A cop stopped you for pissing on a dumpster, told you that he wouldn't write you up if you ratted out your buddy, which you did.  Just what sort of paper trail would that leave, exactly?

What is it that you disagree with in my original statement?

Pirateat40 most likely cooperated in exchange for reduced/dropped charges.

[Minor Miner]

my point is bitco you are incorrect about your facts and should look more into it.  Spitzer was transferring smaller amounts through friends that were far below the 10k you quoted.   He was caught through the reporting of suspicious transfers and was not told he was reported.
Your casino 1099 comment is incorrect also.  go cash a $700 ticket.   they do not write out 1099s.   But yes, you as an american do have a responsibility to report all income you make.  Your $600 reference is the trigger point that a business must issue a 1099 and have a current W9 on file for the person (or LLC) that they have done business with.
I guess my larger point is, when you are not sure about the law, you should not post things that are incorrect.   

What did I post that was incorrect?  Are you claiming that reporting of gambling income is not subject to the $600 threshold of 26 USC § 6041 ?

The Spitzer case is a separate issue.  Suspicious activity reports can be filed for amounts less than $10000.  There is a $10000 threshold for currency transaction reports. You are mixing up several different things here.

I cannot educate you unless you care to learn.  You would be mistaken (and likely confused) on your first question and you are ALSO incorrect that the "threshold" is $10,000.
This is the last I will say to you.   If you wish to learn more, go to a casino and see what happens when you win $601...    You do not know what you are speaking of.   You are mixing google searches up and applying them to other things....
If you wish to test your $10,000 theory which you either take from the customs form for the US or from some other google search that you did, it will be simple for you to do.   If you have $9,000 in your bank account.   Go down and withdraw $4,000 (or $2,000 if you have more patience).   Then do it at another branch OR do it again the next day BUT DO NOT take out more than $10k.   If they do not ask someone to come over, do it one more time the next day.    See if you get it as quickly and without a supervisor having to "approve" the teller doing it.     See if they ask if what you want the money for (then they are deciding whether you are suspicious or not).  You might learn something.
Or if you know anyone in vegas or that works at a book or a cage in a casino, ask them.
Enough time wasted on that.

[darkmule]

Money laundering requires intent.

This is why I think the actual money laundering charge is pretty thin.  They have lots of evidence Shrem knew the transactions were suspicious and should have triggered the reporting requirement, especially for someone who was supposedly the AML officer for a corporation, including correspondence with the co-founder. 

The intent to launder money is not at all clear, though.  Money laundering is a specific intent offense.  While that need not necessarily be as specific as, say, intent to launder the proceeds of cocaine sales by Pablo Escobar to fund terrorists, just to pick a glaring example, it certainly has to be more specific than just an intention to collect fees on processing transactions that seem a little fishy.

Federal prosecutors also tend both to overstate and understate their claims in a complaint.  First, they overstate in that they quite often allege dire offenses with incredibly lengthy maximum sentences, but second, they understate in that they only cite enough evidence to establish sufficient probable cause to bring the complaint at all.

We can neither assume they can prove the claims they have made nor that they only have as much evidence as they cite in the complaint. 

I'm pretty suspicious of the 20 year maximum sentence money laundering claims, but if they can prove the factual claims they have made with regard to the failure to report (still a big if), they have him at least on that.  I suspect front-loading the complaint with the charge with a life-ruining potential sentence is to try to force a plea to the well founded but lesser charge.  Or something even less than that.

[Bitco]

The intent to launder money is not at all clear, though.  Money laundering is a specific intent offense.  While that need not necessarily be as specific as, say, intent to launder the proceeds of cocaine sales by Pablo Escobar to fund terrorists, just to pick a glaring example, it certainly has to be more specific than just an intention to collect fees on processing transactions that seem a little fishy.

Yeah.  Money laundering is attempting to disguise the unlawful origin of money.  At most, Shrem knew that some of the money would likely be used to buy drugs.  There wasn't evidence that it had an illicit origin.

Still, some of the stuff Shrem allegedly wrote looks really bad for him.  You've got to wonder what he was thinking.

[Bitco]

If you wish to test your $10,000 theory which you either take from the customs form for the US or from some other google search that you did, it will be simple for you to do.   If you have $9,000 in your bank account.   Go down and withdraw $4,000 (or $2,000 if you have more patience).   Then do it at another branch OR do it again the next day BUT DO NOT take out more than $10k.   If they do not ask someone to come over, do it one more time the next day.    See if you get it as quickly and without a supervisor having to "approve" the teller doing it.     See if they ask if what you want the money for (then they are deciding whether you are suspicious or not).  You might learn something.

The only thing this will prove is that some bank employees are more suspicious than others, and some are faster than others.

Enough time wasted on that.

Yep.

[kik1977]

The intent to launder money is not at all clear, though.  Money laundering is a specific intent offense.  While that need not necessarily be as specific as, say, intent to launder the proceeds of cocaine sales by Pablo Escobar to fund terrorists, just to pick a glaring example, it certainly has to be more specific than just an intention to collect fees on processing transactions that seem a little fishy.

Yeah.  Money laundering is attempting to disguise the unlawful origin of money.  At most, Shrem knew that some of the money would likely be used to buy drugs.  There wasn't evidence that it had an illicit origin.

One of the US AML nuances says, not literally: the act of sending money (monetary instrument or funds) outside the US border to promote a crime IS money laundering. I don't agree at all with this, but as you can see, according to the Law, ML is much more than what one usually thinks. And in that case, it's not required for the money to be a proceed of a crime.. nonsense, but that's the way it is.

What they try to demonstrate in the indictment is that he knew the (monetary instrument or funds) was going to be used to promote a crime (buying drugs in SR). Interesting to understand if bitcoins can qualify, according to laws, as monetary instrument or funds.

[darkmule]

One of the US AML nuances says, not literally: the act of sending money (monetary instrument or funds) outside the US border to promote a crime IS money laundering.

Yes, but to come under the ambit of the money laundering laws, there generally has to be an actual intent to facilitate illegal activity, or at least "willful blindness."  "Willful blindness" is fairly tough to prove, and that's where they'd have to go on this, because nothing in the evidence (so far) cited shows that Shrem actually knew specifically and intended to effect drug trafficking.

However, he did (if the allegations in the complaint are true) commit a crime most people can't commit.  Most people are in no position to submit a "Suspicious Activity Report" (SAR) or to fail to do so.  Shrem cleverly put himself behind the 8-Ball when he became the AML guy for BitInstant, and became eligible to commit a crime most people will never even be able to commit, that is, the failure to submit an SAR when it is legally required.

That is the exact opposite of a smart move.  If you're going to sign on with the feds to do federal business, expect them to go after you with a vengeance if you fuck them on exactly what you agreed to do when you signed up.

[tvbcof]

One of the US AML nuances says, not literally: the act of sending money (monetary instrument or funds) outside the US border to promote a crime IS money laundering.

Yes, but to come under the ambit of the money laundering laws, there generally has to be an actual intent to facilitate illegal activity, or at least "willful blindness."  "Willful blindness" is fairly tough to prove, and that's where they'd have to go on this, because nothing in the evidence (so far) cited shows that Shrem actually knew specifically and intended to effect drug trafficking.

...

I have been in the Bitcoin ecosystem since 2011 and know a fair amount of the mechanics.  Even so, I have scratched my head about the best way to buy and sell bitcoins.  I value my identity documents and it has nothing to do with trying to hide anything.  It has everything to do with not trusting the operators in the space and considering any data I send them, or even my access patterns, to be at great risk for sale to criminals.

This is key because I myself would not rule out using a 'darkweb' service such as Silk Road simply to obtain BTC in a safe way.  There is nothing illegal about obtaining BTC, and history has proven that it would have been a shrewd economic move at times.

All this is to say that it would be perfectly understandable if Shrem did not assume that the bitcoin he released and knew were going to be sold on Silk Road were going to be used to buy illicit substances or anything else which was illegal.  He clearly failed at his job duties, but 'big whoopee.'  It would be a dangerous precedent to put people in jail for that.  Won't happen.  I have to admit that I've not used Silk Road and don't know it to be the case that BTC bought there could be withdrawn in a normal manner, but I assume so.

If the bar is 'reasonable doubt', and Shrem has good legal council (which I'm sure will be the case), he might flat out win based on the material I read in my skim of the stuff that has been released.  I'll bet that if they bring a case against him at all, they'll need (and have) witnesses that can attest to more egregious behavior.  In this case I'm betting that Shrem's role will be on the other side of the equation.  IOW, he'll be a witness against bigger fish...and I'm hopeful that at least on of the big fish will be Karpeles since he's fucked me personally for $5k.

[darkmule]

IOW, he'll be a witness against bigger fish...and I'm hopeful that at least on of the big fish will be Karpeles since he's fucked me personally for $5k.

You've kind of stated the issue as it is for most people.  Nobody around here has much reason to like Preet Bharara.  But in this case, he's going after people nobody likes much.  Good jerb, Preet.

[Bitco]

I have been in the Bitcoin ecosystem since 2011 and know a fair amount of the mechanics.  Even so, I have scratched my head about the best way to buy and sell bitcoins.  I value my identity documents and it has nothing to do with trying to hide anything.  It has everything to do with not trusting the operators in the space and considering any data I send them, or even my access patterns, to be at great risk for sale to criminals.

This is key because I myself would not rule out using a 'darkweb' service such as Silk Road simply to obtain BTC in a safe way.  There is nothing illegal about obtaining BTC, and history has proven that it would have been a shrewd economic move at times.

There are legitimate reasons to not want to identify oneself when buying bitcoins.  Aside from the risk of identity theft, some people who buy porn or donate to controvertial organizations don't want to be identified.

There's a right way and a wrong way to approach the legal issues here, and Shrem went about it the wrong way.  The right way is just file the SAR and say someone might be structuring transactions, but we don't know who it is.  If FinCEN says you have to get ID then you find a plaintiff who's adversely affected by that and sue.  If 25% of porn.com subscribers are paying with bitcoin then surely there's someone who could make a case for a chilling effect under the First Amendment.  Or there's a case for lack of equal protection for the homeless guy who can't get an ID because of no permanent address.  There are a lot of potential justifications for BitInstant's business model, but what Shrem did was just stupid.

[TheButterZone]

IOW, he'll be a witness against bigger fish...and I'm hopeful that at least on of the big fish will be Karpeles since he's fucked me personally for $5k.

You've kind of stated the issue as it is for most people.  Nobody around here has much reason to like Preet Bharara.  But in this case, he's going after people nobody likes much.  Good jerb, Preet.

http://en.wikipedia.org/wiki/First_they_came_..., divide and conquer, and all that jazz.