Bitcoin Promoter Gets 2 Years for Silk Road Money Laundering

http://www.bloomberg.com/news/2014-12-19/ex-bitcoin-foundation-s-shrem-gets-2-year-term-in-silk-road-case.html

by prostoalex • 12 years ago

90 45 12 years ago

ilamont• 12 years ago

“I screwed up,” Shrem told U.S. District Judge Jed Rakoff. “The bitcoin community, they’re scared and there is no money laundering going on any more."

Does this claim have any basis?

Meekro2• 12 years ago

It has some. Back in 2011 or so when mtgox/bitinstant were big, none of them really knew what they were supposed to do. Nobody even knew if bitcoin was enough like "money" to qualify under money transmitter laws. The state and federal regulatory agencies didn't know what bitcoin was, and certainly didn't provide any guidance for the exchanges on what they were supposed to do to comply with the law.

Now, we have more regulatory guidance and the exchanges are, by and large, complying with it. The dominant companies are Bitstamp, Coinbase, and Circle, and they are all demanding identification info from their customers and notifying the regulatory bodies of any suspicious activities.

meowface3• 12 years ago

If you deal with legitimate US companies like Coinbase, then yes, it does. Bitcoin is now seen with some degree of legitimacy by the US government and the parts of the US public that are aware of it.

Bitcoin, like anything else built on strong cryptography and/or decentralization (Tor, BitTorrent), is of course still used for nefarious purposes including money laundering and funding of criminal enterprises. But the legitimate use likely outweighs the illicit use. And the bulk of the illicit use is primarily for what I would consider very minor crimes (like buying drugs for recreational use in one's own home).

kiba• 12 years ago

US dollars are used for illicit purposes, in much greater volume than Bitcoin in its entire history. I don't see how this change anything with bitcoin.

downandout2• 12 years ago

He's lucky he didn't also catch a case for ripping people off through Bitinstant. While no one knows the total of orders that they failed to deliver, it's likely to be in the hundreds of thousands of dollars. A class action suit was filed against the company before it folded. I'm guessing a big chunk of the stolen money went into this guy's pocket.

Curiously, it looks like he's also asking for donations on Twitter: https://twitter.com/CharlieShrem/status/546367889625079808

eof4• 12 years ago

He's lucky

I'm not sure about that. I don't know the details; but I strongly suspect that while Shrem very likely knew he was laundering 'illegal' money (at least, I think he would have done it whether he knew or not), he was not ripping people off on purpose.

Personally, I find it hard to feel too bad for Shrem; since he was sloppy and loud.. and kind of just had it coming. That being said, I don't think he did anything morally wrong w/r/t what is he is being convicted of.

This is more a case of a bad law and a stupid person than a bad person. In a more reasonable world where people are legally allowed to enter into mutual, private contracts without a nanny state policing people's morals.. what Shrem did could not even be considered a crime.

His fault? sure. Stupid of him? Sure.. but laundering money for drug dealers is not morally reprehensible in its own right (unless they are violent drug dealers); it's just dumb to do in an obvious way with thousands of people watching you (and not even charging a ridiculous mark up!)

downandout2• 12 years ago

The last ~200 pages (like 2,000 posts) of the Bitinstant support thread at Bitcointalk.org before they shut down were essentially all complaints about undelivered orders and excuses by staff, including Charlie Shrem, about why orders weren't being delivered. Things got so bad that they hired someone specifically to respond to complaints in that thread, and then after a month or two he quit.

mike_hearn3• 12 years ago

laundering money for drug dealers is not morally reprehensible in its own right (unless they are violent drug dealers);

Given the multiple pending murder-for-hire charges against Ulbricht, I don't think you can use "Silk Road is all about peace and love" as a get out clause here.

Shrem is on record as saying "Let me help you, BTCKing, avoid getting caught because I think Silk Road is cool". Not entirely surprising what the outcome was there ...

arto• 12 years ago

Reddit thread on /r/Bitcoin:

http://www.reddit.com/r/Bitcoin/comments/2pu0b2/american_jus...

wyager• 12 years ago

So can someone clarify this for me? It sounds like he didn't actually do any money laundering, but sent money on behalf someone who was accused of being a money launderer? 2 years seems pretty harsh for that.

Meekro2• 12 years ago

It was harsh, doubly so because nobody at the time knew what the money laundering rules for bitcoin were supposed to be.

They were trying to bring down Silk Road, and this guy was accused of buying/selling bitcoins for a major Silk Road dealer. This isn't about banking, it's about the war on drugs.

ChuckMcM• 12 years ago

I think you are being a bit too charitable. If you send something which is being traded into and out of currency on behalf of someone else, or on your own behalf, you are have to ask the question if this is legitimate or not.

Now if you sell PEZ collectibles on Ebay for others, and find they start sending you back the same collectable you sold before, you have to sit back and ask, Hmm what is really going on here? And if you don't do that, then you risk finding yourself, like Shrem did, in a place which really wasn't a legal place to be. The key here was the judges observation, "months and months" of activity. If you do this and stop for a second and say "Hmm, why is this so profitable for me, what is the deal here?" a couple of weeks in, maybe even a month in, and you document seeking legal advice. Then you get off with a wrist slap. It was like the bitcoin for gift cards site that someone here said was "amazingly profitable", you have to stop and ask yourself where is the "value" here that I'm getting to keep so much of it.

wmf• 12 years ago

Shrem was the compliance officer for a company and he deliberately broke the company's own compliance policies. He wasn't even trying to follow the law.

yawaworht_• 12 years ago

IIRC, Charlie Shrem gave Faiella (BTCKing) explicit instructions on how to avoid the AML rules he was required to enforce as Chief Compliance Officer of BitInstant.

patrickg_zill2• 12 years ago

Where are the criminal convictions for HSBC and Wachovia's money laundering for the Mexican drug cartels? They laundered over $300 Billion USD over the years, and no one went to jail?

hurin• 12 years ago

Because criminal convictions against a major bank could have serious repercussions, probably both in terms of international relations and economically.

In the same spirit - Silkroad the great online evil of the drug trade, had a yearly turnover of less than .1% of the world drug market.

higherpurpose2• 12 years ago

Not as serious as sending them the message that they can continue uninhibited.

epscylonb• 12 years ago

If you owe me 100 dollars you have a problem, if you owe me a million dollars I have problem.

api• 12 years ago

Laws are for little people.

hfx902• 12 years ago

"Little people" may take offence to that. The correct saying would be "Laws are for poor people"

stevedekorte• 12 years ago

Or for Standard Chartered, ING, Credit Suisse, RBS, Llyods Banking Group and Barclays?

shalbert• 12 years ago

Unfortunately the answer is simple: "Too big to fail" I wish things were better justified than that, but they seemingly are not.

rayiner2• 12 years ago

To get a criminal conviction, you have to show requisite intent beyond a reasonable doubt. The basis of the HSBC indictment was failure to classify Mexican operations as "high risk" and follow the higher standard for suspicious activity reporting. Maybe negligence, but big leap from there to knowledge or intent. There was some evidence that some people in Mexico may have known, in the abstract, that there as laundering going on. But what was missing was evidence that anyone in the US had actual knowledge of specific illegal transactions. That's what they did have in this case.

I read the indictment in HSBC. They didn't have the kind of spam dunk evidence they would've needed to get convictions in that case. They did here.

patrickg_zill2• 12 years ago

IIRC, there was so much cash to move, that the cartel made custom-sized, reusable tote boxes, that fit precisely through the teller windows. To not notice that, when you have continuous video of all teller windows?

Further, bank software makes a distinction between different financial instruments, for instance, if you deposit $8K in cash, or in cheque, or in wire transfer the deposit information will capture that difference.

Even $10 billion in 100s, per year, divided by say 200 days that a bank is open, is $50 million per day. That is, 500,000 x 100 dollar bills, being deposited and counted, each and every day the bank is open.

Does it sound reasonable to you, that their software wouldn't record that, and it would seem shall we say "odd" with even minimal review of their bank branches? It would take multiple tellers an entire shift to count such money.

EDIT to add: even counting 1000 bills per minute with high speed counters, you have 500 minutes, which is 20 minutes more than an 8 hour shift with no break.

ginseg• 12 years ago

Popular justifications:

-Banks are a matter of "national security".

-Banks have heavy lobbies that we don't want disrupted. See also, "national security".

-Bitcoin is a tool used for hacking.

-Bitcoin is only good for drug deals.

-Bitcoin upsets centuries of tax-optimized bondage imposed on money flow and markets.

-Computer crimes are easy to find evidence for using Enhanced Evidence Procurement Measures (tm).

-Press releases associating criminal activity with Bitcoin are great for defeating morale and dissent.

gedrap• 12 years ago

Financial crimes at this scale are extremely complicated and it's not as straightforward to just say 'send HSBC to jail'. Who's guilty and guilty of what is outside my armchair lawyer knowledge, maybe you are in a better position.

Many people comment like 'law is for small people', etc. But it's just simply not understanding the crime of that nature. Huge money laundering operations are much more complicated than one guy treating bitcoin like monopoly money.

marlinspire• 12 years ago

He was threatened with 30 years so he took a plea-deal.

It is a shame he was denied a trial.

May or may not have been guilty - taking a plea under such extreme duress is hardly an admission of guilt.

higherpurpose2• 12 years ago

Yet people here keep defending these ridiculous charges because they "don't matter", and "aren't real anyway". Yeah, tell that to the person that had to hear that charge and then got scared shitless into accepting "only 2 years" of prison time.

spacemanmatt• 12 years ago

I haven't seen that. Prosecutorial abuse is better understood around HN than most of society, that I've seen. YMMV.

Zigurd• 12 years ago

Hey! He wasn't driven to suicide so it's a success story.

shiven• 12 years ago

For those who may have read ‘The Billionaire’s Apprentice'[1], Jed Rakoff is the same judge who was involved in sentencing Rajat Gupta.

[1] http://www.nytimes.com/2013/06/30/books/review/the-billionai...

consz• 12 years ago

This guy doesn't sound too bright. His best plea to the judge was, what, that he could be a motivational speaker for not obviously flaunting AML laws? He really couldn't come up with anything better than that?

Bitcoin Promoter Gets 2 Years for Silk Road Money Laundering

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