Bitcoin exchange chief arrested for money laundering
29 January 2014
Less than a year after he raised $1.5 million for his Bitcoin exchange start-up BitInstant, CEO Charlie Shrem faces charges of money laundering. According to a news release from US prosecutors in Manhattan, Shrem knowingly facilitated illegal purchases on the now-closed underground drug marketplace Silk Road.
Silk Road, a web site, allowed users to buy everything from heroin to fake IDs and to allow user anonymity, all transactions had to be conducted in bitcoins.
The government said, a man named Robert Faiella worked with Shrem to sell bitcoins to Silk Road users and the duo allegedly sold over $1 million worth, with Shrem giving Faiella a volume discount on BitInstant's fees.
According to the government, upon the receipt of orders for Bitcoins from Silk Road users, Faiella filled the orders through BitInstant, which was designed to allow customers to exchange cash for Bitcoins anonymously, providing no personal identifying information, and charging a fee for its service.
According to the government, the modus-operandi ran afoul of US money laundering laws, requiring payment companies like BitInstant to collect information about their customers, monitor their transactions, and report "suspicious" transactions to the government, which Shrem failed to do.
Shrem was arrested at John F Kennedy International Airport in New York on Sunday, while Faiella's was arrest came at his home in Cape Coral, Florida, on Monday, according to prosecutors.
Both face charges of conspiracy to launder money and operating an unlicensed money transmitting business. Shrem also faces a charge for not tipping off the feds to what was allegedly going on.
The 24-year old Shrem is a major operator in the Bitcoin world. The New York City-based BitInstant exchange allows people to buy bitcoins locally at over 700,000 locations in the US, Brazil, Russia and elsewhere.
The exchange received a $1.5 million investment last year from Cameron and Tyler Winklevoss.
The Winklevoss twins expressed "deep concern" over Shrem's arrest, in an emailed statement.
They said, when they invested in BitInstant in the fall of 2012, its management made a commitment to them that they would abide by all applicable laws - including money laundering laws.