The Justice Department has formally charged the CEO of Bitcoin exchange Bitinstant.com with running an illegal wire service, and according to reports by the New York Post’s Kaja Whitehouse, he’s just been arrested at JFK airport. Uh oh.
The charges against Bitinstant’s 24-year-old CEO Charlie Shrem are more sophisticated than just “running a Bitcoin exchange”. Instead, they’re tied up with the sale of Bitcoins to users of “Silk Road”, whose propensity to spend it on drugs turns the whole thing a money-laundering scheme, so far as the Justice Department is concerned.
From the Justice Department’s press release:
…criminal charges in Manhattan federal court against ROBERT M. FAIELLA, a/k/a “BTCKing,” an underground Bitcoin exchanger, and CHARLIE SHREM, the Chief Executive Officer and Compliance Officer of a Bitcoin exchange company, for engaging in a scheme to sell over $US1 million in Bitcoins to users of “Silk Road,” the underground website that enabled its users to buy and sell illegal drugs anonymously and beyond the reach of law enforcement. Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business.
And it probably doesn’t help that Shrem can be identified as a “proud stoner“.
The problem is, separating the act of selling some Bitcoin from the fact that buyers might be spending that Bitcoin on drugs is problematic, near impossible. The same could be true of giving someone a cash loan or selling anything for cash, though the difference there is that you aren’t going outside of United States currency, or operating over the internet with complete anonymity.
The charges contained in the Justice Department’s release are only accusations, and Shrem will have to be proven guilty before they stick. But if it turns out that the operator of a well-known, well-funded, and well-connected Bitcoin exchange can be held accountable for money laundering if his buyers might take that ‘coin and immediately turn to a cyber drug ring, Bitcoin exchanges everywhere are going to have a huge uphill battle to fight. [Business Insider]