CEO OF BITCOIN EXCHANGE ARRESTED

[tvbcof]

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.

Agree with all of that, and especially the bolded part.  My main point is; can the stupidity be leverages as a 'get out of jail free (minus attorney fees) card'?  I think it just might be.  And if he's willing to play ball I'm certain of it.  If he's got anything better than what the released info shows at least, and the history of Bitcoin is such that I'm sure he's got plenty.

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[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.

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

Well, in case you want to view Preet Bharara as some kind of monotone villain, here's what he's doing when he isn't doing this current dumb shit.

Manhattan U.S. Attorney Preet Bharara said an agreement requiring JPMorgan Chase & Co. (JPM:US) to pay $2.6 billion to resolve criminal and civil allegations that it failed to stop Bernard Madoff’s Ponzi scheme isn’t “the last big” money-laundering case his office will bring.

In a speech yesterday to the Association of Certified Anti-Money Laundering Specialists in New York, Bharara said his office decided to prosecute JPMorgan because the New York-based bank and its predecessors for years “ignored red flags” and allowed suspicious transactions to occur in Madoff’s account.

The JPMorgan accord that was announced this month, which includes a record Justice Department penalty for a violation of the Bank Secrecy Act, highlighted inadequate programs for policing money laundering. Bharara said it was an “aggressive action to take against the nation’s largest bank, but it was appropriately aggressive.”

JPMorgan-Madoff Case Won’t Be Last Big One, Preet Bharara Says

Is it pathetically inadequate that banksters get a fine, however large, while someone like Shrem is facing prison?  Of course.

But frankly, these banksters cover their tracks better, as well as having better political connections.  They would never have left the series of emails that Shrem did.  Even though the internal communications of the banksters often do lead to adverse inferences that they know damn well that they're laundering drug money or Ponzi schemes, they have a whole language of euphemisms unique to themselves that their high priced white shoe lawyers can talk them out of if push comes to shove.

Shrem fucked up, pure and simple.  Banksters being scum has nothing to do with it.

And unfortunately for him, he's on the wrong end of the shotgun barrel here.  Preet Bharara is simply the fastest gun in the East on these issues, whatever you might think of him personally.  My personal opinion is he is a highly talented attorney and rather than being a cynical politician, actually idealistically believes he is doing the right thing.  That makes him more, not less dangerous, because he's fairly often actually doing the wrong thing.

[kik1977]

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.

You're right. Let's not think for a second about failing to submit a SAR, that's pretty obvious, he completely failed from that point of you and, if things as they're mentioned in the indictment are true and accurate (which is not always the case), there are pretty no justifications to explain in a lawful manner what he did -or better say- he did not.

I am reasoning now only about the ML part. You said "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 am playing now the prosecutors' role.. taking into account the particular nuance of ML I specified before.. In that case I (as a prosecutor) could argue that he: a) moved money or monetary instrument b) from the US to outside the US -not really sure about this..where Faiella was? In or outside the US?- c) to promote a crime..that's the tricky part, can they prove he KNEW what was going on and what Faiella was doing with those Bitcoin? At that point I (still as a prosecutor) will try and demonstrate that yes, there were some "legal" stuff sold on SR, but, to be honest, just a few (I logged in a few time for a research and I don't recall any, but apparently there was something legal, too).. Moreover, having Shrem himself bought something on SR, he can't say he was not aware of SR main interest...

Not sure if it makes sense, this is just my opinion but I'm looking forward to reading your comments..

[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.

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.

You are correct that 18 USC 1956(a)(2)(A) does not have the "proceeds of unlawful activity" limitation.  Instead it is "with the intent to promote the carrying on of specified unlawful activity".

Selling bitcoins in the US would not be illegal under section 1956(a)(2)(A).  The basis of the charge is that dollars were sent to MtGox, which is outside the US.

The question is, did Shrem or Faiella intend to promote the carrying on of specified unlawful activity?

The meaning of "promote" here is not entirely clear, and the Supreme Court seemed divided on the issue in US v Santos.  The justices generally believed that investment in growing the unlawful business is promotion, but there was some dispute over whether this included paying ordinary business expenses.  Pehaps there are other cases that I am unaware of that have addressed this issue, but Shrem and Faiella weren't in the business of selling drugs.  To claim that they were "carrying on" unlawful activity merely because some of their customers did, seems a bit of a stretch.

One interesting case is United States v. Monroe, 943 F.2d 1007 (9th Cir. 1991).  Monroe and McCabe arranged for money to be sent to Hong Kong to buy marijuana, and were charged with violating section 1956(a)(2)(A).  However the money was actually sent by a DEA agent, who gave it to McCabe in Hong Kong.  Apparently the DEA thought this was okay, since the DEA agent didn't intend to buy marijuana.  If it's legal for the DEA to transfer money knowing that the recipient intends to buy drugs, why not for Shrem?

[Phinnaeus Gage]

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.

At my bank, I have a $2,000 daily limit, reduced a year ago from $5,000, then to $3,000 a couple months later, currently at setting at two.

Question: Does the IRS read this forum?

[Phinnaeus Gage]

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.

In before somebody else: http://www.youtube.com/watch?v=wvJiYrRcfQo

[jballs]

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.

You are correct that 18 USC 1956(a)(2)(A) does not have the "proceeds of unlawful activity" limitation.  Instead it is "with the intent to promote the carrying on of specified unlawful activity".

Selling bitcoins in the US would not be illegal under section 1956(a)(2)(A).  The basis of the charge is that dollars were sent to MtGox, which is outside the US.

The question is, did Shrem or Faiella intend to promote the carrying on of specified unlawful activity?

The meaning of "promote" here is not entirely clear, and the Supreme Court seemed divided on the issue in US v Santos.  The justices generally believed that investment in growing the unlawful business is promotion, but there was some dispute over whether this included paying ordinary business expenses.  Pehaps there are other cases that I am unaware of that have addressed this issue, but Shrem and Faiella weren't in the business of selling drugs.  To claim that they were "carrying on" unlawful activity merely because some of their customers did, seems a bit of a stretch.

One interesting case is United States v. Monroe, 943 F.2d 1007 (9th Cir. 1991).  Monroe and McCabe arranged for money to be sent to Hong Kong to buy marijuana, and were charged with violating section 1956(a)(2)(A).  However the money was actually sent by a DEA agent, who gave it to McCabe in Hong Kong.  Apparently the DEA thought this was okay, since the DEA agent didn't intend to buy marijuana.  If it's legal for the DEA to transfer money knowing that the recipient intends to buy drugs, why not for Shrem?

That last question is rhetorical? Not sure but controlled delivery is standard procedure for DEA. They buy drugs, they smuggle them into the country too. There is some evidence the Lockerbie bombing was a controlled delivery gone bad, also there was a pretty well documented affair in Baltimore where it turned out just about all the heroin in the city was brought in through controlled delivery, then distributed through lower level drug dealer channels. The DEA had inadvertently(?) become the kingpins, similar to Fast and Furious mentality but with drugs.

Then there' is Michael Ruppert and the CIA/Crack dealing, which also happened. And the recent revelations that the DEA has been in cahoots with the Sinaloa for like the last 10 years... add HSBC, well it's honestly embarrassing that the public cannot seem to figure out that drug enforcement and drug dealing are the same organization and they are footing the bill for all of it.

[leopard2]

Bharara must know that this case is about peanuts; $1M? Ridiculous. Even if the wins the case its a joke; his other cases were 1000 times larger or more. Who is behind him, forcing him to destroy a young entrepreneurs life? I am 100% sure this is only happening because it is about BTC.

If it was about USD no one would give a damn.

It's all about priorities and right now a mouse is given priorities over a herd of elephants. 

[darkmule]

Moreover, having Shrem himself bought something on SR, he can't say he was not aware of SR main interest...

Not sure if it makes sense, this is just my opinion but I'm looking forward to reading your comments..

That's actually a seemingly strong argument, to the point you've seen it over and over again in news stories, i.e. Shrem bought pot brownies from Silk Road, so he must have known it was nothing but a crime operation.

If this is actually their strongest argument, though, it's really weak.  It's sort of like arguing that because the co-owner of a mall once scored weed at the food court there, this is proof he knew the mall itself was actually just a drug operation in disguise.  It looks good on paper the first time you see it, but not if you actually think about it much.

I don't see enough to convict on money laundering just because the dude scored some pot brownies.  I can even see some juries getting pissed off at having their time wasted on a case like this where the prosecution's lead argument is basically bullshit.

[darkmule]

Bharara must know that this case is about peanuts; $1M? Ridiculous. Even if the wins the case its a joke; his other cases were 1000 times larger or more. Who is behind him, forcing him to destroy a young entrepreneurs life? I am 100% sure this is only happening because it is about BTC.

Yep, and as I have pointed out probably in this thread before, Bharara generally goes after cases where the numbers concerned are billions, not millions.  You frankly would not see a case like this against a bank that did the same thing for the same amount of money.

This case is about making examples of people.  It's about putting heads on pikes.

Justice need not apply.

[asweetnessa]

This doesn't make sense. How would it be proven the owners "knew" it was going to the silk road and not other places?

[Nathonas]

This reminds me a lot of the Aaron Swartz case. Another brilliant man being put away for something questionable. Yes it's breaking the law, but people will get drugs anyway, and it was their decision to use their money that way...and don't even get me started on the whole war on drugs..shit is just a giant money-generating operation for the US government and the prison "industry".

[darkmule]

This reminds me a lot of the Aaron Swartz case. Another brilliant man being put away for something questionable. Yes it's breaking the law, but people will get drugs anyway, and it was their decision to use their money that way...and don't even get me started on the whole war on drugs..shit is just a giant money-generating operation for the US government and the prison "industry".

I'll have to disagree on that.  Aaron Swartz was a fucking hero.

Shrem is at best a goddamn jackoff who ran a shady business that made bogus claims, called itself BitInstant despite often taking days to process transactions, and had no interest but making money for himself.

He does not deserve to be anywhere in the same sentence as Aaron Swartz.

[jballs]

This reminds me a lot of the Aaron Swartz case. Another brilliant man being put away for something questionable. Yes it's breaking the law, but people will get drugs anyway, and it was their decision to use their money that way...and don't even get me started on the whole war on drugs..shit is just a giant money-generating operation for the US government and the prison "industry".

I'll have to disagree on that.  Aaron Swartz was a fucking hero.

+1

Don't know anything about Shrem but seldom a day passes I don't think of Aaron.

[Honeypot]

Aaron Swartz, Shrem, what do all these 'heroes' have in common?

Complete inability to deal with the situation when reality comes knocking at the door and you don't have a monitor and keyboard to hide behind.

'Heroes' on the internet, impotent kids with no experience in reality.

Stop making 'heroes' and 'martyrs' of these fools and get your head out of your asses. Crypto needs someone with actual backbone, balls, and experience not to mention competence to carry itself through storms of regulations and public misconceptions, not a bunch of internet jackoff kids who can't even handle a lawsuit and fold like a bitch with spine of a jellyfish when they actually have to deal with people.

Fuck's sake DPR got nabbed thinking he could play internet drug boss and trying to off somebody. A 29 year old computer kid thought he could bite off more than he could chew. Now he is paying the price, getting fucked over when the people came to grab his ass while trying to arrange a hit sipping a fucking soy latte in starbucks.

Time's come to stop being kids and start acting like professionals.

[jballs]

Aaron Swartz, Shrem, what do all these 'heroes' have in common?

Complete inability to deal with the situation when reality comes knocking at the door and you don't have a monitor and keyboard to hide behind.

He said, from behind a monitor and keyboard.

[darkmule]

Aaron Swartz, Shrem, what do all these 'heroes' have in common?

Complete inability to deal with the situation when reality comes knocking at the door and you don't have a monitor and keyboard to hide behind.

He said, from behind a monitor and keyboard.

Quoted for truth.

[BCB]

Interesting follow up article.

The coin prince: inside Bitcoin's first big money-laundering scandal
What last week’s arrest of Charlie Shrem means for the virtual currency

By Adrianne Jeffries and Russell Brandom

http://www.theverge.com/2014/2/4/5374172/the-coin-prince-charlie-shrem-bitinstant-bitcoin-money-laundering-scandal

[darkmule]

Aaron Swartz, Shrem, what do all these 'heroes' have in common?

Complete inability to deal with the situation when reality comes knocking at the door and you don't have a monitor and keyboard to hide behind.

Swartz didn't commit his "crimes" from behind a monitor and a keyboard, since you appear ignorant of basic facts about the case.  He physically walked into MIT's labs and installed hardware and software to "liberate" the JSTOR archives.

Subsequently, JSTOR has, in fact, actually done exactly what Swartz wanted and made its archives public.

In other words, they basically ultimately agreed he was right.

It was the government that insisted on hounding him to death, despite there being no victim at all by that point.

So kiss my ass you ignoramus.

[HELP.org]

Interesting follow up article.

The coin prince: inside Bitcoin's first big money-laundering scandal
What last week’s arrest of Charlie Shrem means for the virtual currency

By Adrianne Jeffries and Russell Brandom

http://www.theverge.com/2014/2/4/5374172/the-coin-prince-charlie-shrem-bitinstant-bitcoin-money-laundering-scandal

It is not interesting at all, it just shows some of the idiots that are involved with The Foundation and how they don't live in the real world.  You also now have Vessenes and his bankruptcy issues.  The judge is accusing him of trying to deceive the court.  I tried to bid on the mining rigs at issue but they refuse to give me specs or a picture after I questioned some of their ridiculous claims that they made to the court.

The Foundation needs to be dissolved ASAP so legitimate companies can form a reasonable organization.