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Bitcoin Exchange CEO Charlie Shrem Arrested On Money Laundering Charge 330

Posted by samzenpus
from the paying-the-price dept.
An anonymous reader writes "Charlie Shrem, the chief executive officer of bitcoin exchange BitInstant, has been arrested and charged with money laundering. 'In the federal criminal complaint, the Southern District of New York charges Shrem, the 24-year-old CEO of BitInstant, with three counts, including one count operating an unlicensed money transmitting business, one count of money laundering conspiracy and one count willful failure to file suspicious activity report. Robert Faiella, a Silk Road user who operated under the name “BTCKing,” was charged with one count of operating an unlicensed money transmitting business and one count money laundering conspiracy.'"
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Bitcoin Exchange CEO Charlie Shrem Arrested On Money Laundering Charge

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  • HSBC (Score:5, Insightful)

    by The Atog Lord (230965) on Monday January 27, 2014 @03:52PM (#46084035)

    I'm sure that the HSBC executives will also be arrested for their money laundering soon. Any time now.

    • Re: (Score:3, Funny)

      by torkus (1133985)

      No no no...as long as they strictly follow the "rules" they can do anything else that isn't specified without fear of recourse. There are some benefits to having a laundry list of stupid rules and regulations...you can easily play dumb about anything else. /sarcasm

      • Re:HSBC (Score:5, Insightful)

        by lgw (121541) on Monday January 27, 2014 @03:57PM (#46084087) Journal

        You were sarcastic, but that is the whole freaking point of the rule of law: a list of rules such that, if you follow those rules, you won't be arrested. It makes for a far better society than one where you can be arrested whenever you annoy someone important, regardless of the rules.

        • Re:HSBC (Score:5, Insightful)

          by viperidaenz (2515578) on Monday January 27, 2014 @04:00PM (#46084123)

          You are under arrest on suspicion of treason!
          What did I do that amounts to treason?
          What ever the king decides!

          • by Sarten-X (1102295)

            Except the king can't decide it, because ex post facto laws are forbidden, and the king can't override that because of rule of law.

            • Re:HSBC (Score:5, Insightful)

              by pla (258480) on Monday January 27, 2014 @04:21PM (#46084439) Journal
              "Sorry, matter of national security. No, you can't see the evidence against you. No, we don't have to physically present you to the court to stand trial".

              And if you disagree with that... Better stay out of sight of the sky 24/7 or we might spot you "associating" with a terrorist leader and you know how that collateral drone damage works on you and your whole village... Er, neighborhood.
            • Except that's exactly what used to happen until ~500 years ago.

            • Re:HSBC (Score:4, Insightful)

              by CodeArtisan (795142) on Monday January 27, 2014 @05:29PM (#46085283)

              Except the king can't decide it, because ex post facto laws are forbidden, and the king can't override that because of rule of law.

              Except the ones regarding telecoms companies and illegal wire tapping you mean?

              • Re:HSBC (Score:4, Informative)

                by vux984 (928602) on Monday January 27, 2014 @09:45PM (#46087477)

                That's the inverse case. The government can take something illegal and make it legal retroactively and then let you get away with it. This is what happened with the telecoms. And while it wasn't all that good in this case, it is a good thing in general.

                The "bad" case is the opposite, where they make something legal illegal retroactively and then charge you for it. This would not be a good thing.

        • Re:HSBC (Score:4, Interesting)

          by Anonymous Coward on Monday January 27, 2014 @04:06PM (#46084201)

          The problem is that the formulation of the rules enable them to be arbitrarily interpreted, which means that the rules don't really matter. It's up to the persons doing the interpretation. The recent revelations about NSA highlights this pretty well I think. The government clearly disregards the constitution but nothing happens.

          • Re:HSBC (Score:4, Insightful)

            by lgw (121541) on Monday January 27, 2014 @04:34PM (#46084597) Journal

            Yes, all quite true. I was merely highlighting that the rule of law is a good ideal to aspire to, not claiming that we had it today in America. The growing trend under by current and former presidents to simply ignore or change laws by "executive order" was proof enough of that, even before the NSA scandal.

            You should be able to get away with doing something bad "merely" by following all the relevant laws, because the other way of doing things leads inevitably to dictatorial control of the state (what power has the legislative branch when laws don't matter?).

        • It makes for a far better society than one where you can be arrested whenever you annoy someone important, regardless of the rules.

          Or in New Jersey, if not arrested, at least not punished by the Governor's staff...

          • by Tanktalus (794810)

            Or in New Jersey, if not arrested, at least not punished by the Governor's staff...

            Or his whip. If you're into that kind of thing.

            Not that there's anything wrong with that.

        • Rule of Law is just Rule of man plus a god damn piece of paper.

      • by bloodhawk (813939)

        No no no...as long as they strictly follow the "rules" they can do anything else that isn't specified without fear of recourse. There are some benefits to having a laundry list of stupid rules and regulations...you can easily play dumb about anything else. /sarcasm

        Why mark that as Sarcasm? the whole point of law enforcement is that you are ok as long as you play by the rules. If your business model is clearly outside the rules then expect them to come down hard on you. It doesn't matter how much of a scumbag you are or your business practises are as long as they are within the rules. The current laws are a mess, but it would be a far bigger mess if people got to pick and choose which laws they would follow.

      • by jythie (914043)
        Or at minimal, if you have a bank of lawyers who can outspend the prosecution to explain why they stayed 'within the rules', then you have no fear of recourse. Time and time again we see the little guy still fail even if they stay within the strict or literal interoperation of the rules if they violate the 'spirit' of them.
      • by omnichad (1198475)

        laundry list

        I see what you did there.

    • by jythie (914043)
      Meh, the wealthy and well connected have always gotten a different brand of justice then the general population.
      • You get the same justice as they do. They avoided criminal charges by paying a fine from the coffers of the company they happened to be running. You can do the same thing when facing similar charges.
        • by jythie (914043)
          Only if I have enough lawyers and subtle political threats to explain why a corporate fine is more appropriate then jail time.
          • Meh, the wealthy and well connected have always gotten a different brand of justice then the general population.

            Only if I have enough lawyers and subtle political threats to explain why a corporate fine is more appropriate then jail time.

            The word you are meaning to use is "than": "...than the general population." "...than jail time." "Then" means something else entirely.

    • Re: (Score:3, Informative)

      by Ralph Wiggam (22354)

      HSBC was not a party to the money laundering. They were fined for insufficient oversight, which allowed other people to launder money.

      In this case, the guy is being charged with direct involvement in the money laundering.

    • by gatfirls (1315141)

      If they were sending messages back and forth with the launderers and fellow executives about their direct involvement in it, you are probably right.

    • They should really use the non-prosecution of HSBC execs during their sentencing phase to point out that any jail time would constitute cruel and unusual punishment.

    • by MaWeiTao (908546)

      Guys at that level get out of jail by writing a letter to the government stating that they'll be good next time and that they really, really mean it.

    • by Mashiki (184564)

      I'm sure that the HSBC executives will also be arrested for their money laundering soon. Any time now.

      Nah, they're too busy telling depositors they can't withdraw their money. [bbc.co.uk]

      Interestingly enough, in some of the currency market circles they're already making noise that this is to limit a run that's already going on. Being a trader myself, I put it at a 40% chance that it's true...it's enough to make me jittery on anything that they're involved in.

  • by erroneus (253617) on Monday January 27, 2014 @03:57PM (#46084091) Homepage

    It's a competing currency. The marketplace says "we have no faith in your dollars." Government says "so?" The marketplace says "we will replace the dollar." Government says "no."

    I just wonder how it took so long.

    • by jratcliffe (208809) on Monday January 27, 2014 @04:01PM (#46084137)

      If they were doing what they are alleged to have been doing using Yen, or Dollars, or Pounds, or whatever, it would still have been money laundering. Bitcoin doesn't change that.

    • by Ralph Wiggam (22354) on Monday January 27, 2014 @04:07PM (#46084227) Homepage

      Those money laundering rules apply to any currencies handled by US businesses, including casino chips. The government is not trying to shut down the casino industry. They just require you to record information from your customers.

    • by bloodhawk (813939) on Monday January 27, 2014 @04:09PM (#46084253)
      Actually what they have done is the opposite of what your claiming, they are treating it just like any other currency. If you move currencies around there are very strict reporting and tracking rules that apply to transactions and breaching those rules results in what you see happening here. You get charged!
    • Re: (Score:3, Informative)

      by Anonymous Coward

      Who the fuck is modding this moron up?

      Do you even realise this action agaist specific people who provided Bitcoin exchange services for Silkroad, not Bitcoin per se? Did you even read the complaint?

      It's not some vague accusation, the guy - who was in charge of money-laundering laws compliance - and his boss had pretty much literally talk like this: "Hey, this guy's from Silkroad, shall we ban him again?" - "He brings a lot of business" - "Maybe we should just drop an advertisement at Silkroad?" - "Just leav

    • by gatfirls (1315141) on Monday January 27, 2014 @04:22PM (#46084451)

      ..has been proposed or enacted by the federal government on bitcoin.

      The problem is that this marketplace doesn't want a competing currency, they want a way to electronically move money around "anonymously".

      The government is saying no to sidestepping financial regulations and other laws. You're right about one thing. I seemed to take much longer than expected.

      • by Animats (122034) on Monday January 27, 2014 @04:46PM (#46084771) Homepage

        Mod parent up. A U.S. Senate commitee held a hearing on Bitcoin a few months ago. All the regulatory agencies were there.

        FinCen: We're watching it, no big deal.
        DEA: the big cartels aren't using it, the street dealers aren't using it.
        FBI: We took down Silk Road, which was using Bitcoin, and Bitcoin didn't make it harder to do that.
        Secret Service: No big deal.
        Homeland Security: terrorists don't seem to be using it.
        IRS: Taxable income is taxable income; we'll deal with it.
        SEC: Trading Bitcoin is just like trading anything else. We busted one guy running a Ponzi scheme with Bitcoins and the judge agreed that using Bitcoins didn't make it special.

        Conclusion of the Senate committee: no need for special Bitcoin legislation.

        All the US law enforcement action involving Bitcoins has been for doing routine crook stuff. Now, China is cracking down on Bitcoins, but they have exchange controls; you have to get permission to swap yuan for dollars or euros. The US has an open market in foreign currencies; you can swap dollars for yen without asking anyone's permission. There are reports to make to FinCen, but they just log the info.

        • by lgw (121541)

          This is really monumental IMO - not because of bitcoin per se, but because the government is finally realizing that if the law already covers X, you don't need new laws for X on the internet. It's about time,

    • It's a competing currency. The marketplace says "we have no faith in your dollars." Government says "so?" The marketplace says "we will replace the dollar." Government says "no."

      I just wonder how it took so long.

      There are a finite number of bit coins. You can only get more by getting them from other people. Let me guess - you're one of those gold standard people too, right? The dollar is in no danger of being replaced by bitcoin, as if such could ever happen. Shrem seems to have believed that he could act as an intermediary for transactions that he knew were in violation of US law and not be held responsible. He can test that assertion in a court of law. When bitcoin exchanges that don't have ties to Silk Roa

      • Currently you can still mine bitcoins (i.e. get them but not from other people). But it doesn't really matter if there is a finite number of gold or bitcoins or dollars, as long as it has enough granularity to facilitate small transfers, and seeing as how you can divide a bitcoin in to 100,000,000 bitcents, I think it's fine.
        • by lgw (121541)

          Some people think bitcoin is deflationary because there is a cap to the supply. That's naive of course - the money supply has little to do with the amount of physical currency, and everything to do with fractional reserve banking. But then, people make the same mistake about gold. For bitcoin to "go mainstream" there would need to be BTC-denominated savings accounts and CDs, meaning fractional reserve banking would be happening (well, 0-reserve banking would be happening, but USD is the same way).

          • Re: (Score:3, Interesting)

            by Eskarel (565631)

            Bitcoin will eventually be deflationary because of the limited supply cap. The fact that we have things like fractional reserve banking increases the amount of time it could theoretically remain non deflationary, but there comes a point where if you made any more imaginary money the whole system will collapse and you need to make some more real money which bitcoin doesn't do.

            The major problem with bitcoin however is that a fairly small number of people already have the vast majority of coins that can ever b

    • by pla (258480)
      I just wonder how it took so long.

      You mean, "How much longer it will take", since this has nothing to do with Bitcoin except as a buzzword tangentially related to the case, and has no bearing on the current or future viability of Bitcoin as a currency.

      You would have heard the exact same story if he had helped Silk Road exchange Yen for Dollars... Well, except that you wouldn't have heard of it because run-of-the-mill laundering doesn't make the news, but HURP BITCOIN DURP!
    • by phantomfive (622387) on Monday January 27, 2014 @04:44PM (#46084739) Journal
      I'm not sure this is an attack on bitcoin itself, it looks like this is related to the Silk Road dragnet. We can expect to see more arrests related to Silk Road as the FBI goes through documents they've confiscated.

      All the same, if I were operating an exchange, right now I would be looking through and making sure I'm complying with the law exactly. Just like bankers do.
    • by DrXym (126579)
      Bitcoin is a financial instrument and subject to the same laws that govern taxation, property and money laundering as other forms of financial instruments. Anyone running an exchange from the US is obligated to follow those laws. The general attitude so far has been "la la these laws don't apply to me" and strangely enough the authorities seem to have an issue with that, particularly when the exchange is laundering criminal proceeds.
    • by sirwired (27582) on Monday January 27, 2014 @05:22PM (#46085201)

      The US Govt. literally Does Not Care what currency you use to transact your daily life. You can use USD, EUR, JPY, Gold, Seashells, whatever, or yes, BitCoins.

      As long as you pay your taxes, and, if operating a money transfer business (like a bank or currency exchange) you comply with a very long list of money laundering laws, you are in good shape. Ignore those laws at your peril.

      And complying with these laws is hard. Banks have entire large departments that do nothing but shuffle that particular bit of paperwork; it's not a trivial task, and .com entrepreneurs setting up shop from scratch are rather unlikely to get it right (Mt. Gox didn't), if they pay attention at all.

  • by Anonymous Coward

    I recommend reading the full complaint before quickly firing off a reply comparing Shrem to HSBC. Shrem was deeply involved in avoiding AML controls.

    Full complaint here:
    http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR/Faiella,%20Robert%20M.%20and%20Charlie%20Shrem%20Complaint.pdf

    • by funwithBSD (245349) on Monday January 27, 2014 @04:10PM (#46084269)

      Indeed.

      When BofA and HSBC, etc. screw you over, they do it by the book.

      The book they helped to write.

  • WINNI...

    Nevermind.

  • Perhaps I just don't understand what "money laundering" means, but I don't really see how bit-coin is of any use whatsoever for money laundering.

    Money-laundering, as I understand it, means to disguise the true origin of ill-gotten funds, so as to make the income appear legitimate.

    I think there's confusion in the two different means of the word "disguise". In one sense, it means simply to hide or obscure. In another sense, it means to make something or someone appear to be something else.

    Bank robbers wear

    • by JDG1980 (2438906) on Monday January 27, 2014 @04:20PM (#46084423)

      What you need to understand is very simple: financial privacy is illegal in the United States. If you run a bank, or any other form of money-transmission service, then you are legally required to report all transactions over a certain amount (I think it might be $10,000, but I'm not sure) to the U.S. government. You are also required to obtain and keep personally-identifiable information on all of your customers, and to report if someone is "structuring" transactions to get in under the limit.

      If you don't do these things, you can get arrested even if you knew nothing about the illegal activity your customers were involved in.

  • by Animats (122034) on Monday January 27, 2014 @04:20PM (#46084415) Homepage

    This is about normal for Bitcoin exchanges. All of them are flaky. Most of them don't even have a legit business address. About half of all Bitcoin "exchanges" so far have failed. The problem is that they're not just exchanges, they're also deposit-taking institutions holding customer funds. With no regulation. A sizable number of Bitcoin "exchanges" just took the money and ran. With the arrest of the CEO, "bitinstant.com" dropped offline.

    Right now, the formerly biggest Bitcoin exchange, Mt. Gox, in Tokyo, is tanking. They stopped US dollar withdrawals back in June 2013, then EUR withdrawals slowed down, then JPY withdrawals, and now Bitcoin withdrawals. There's much discussion over whether they're broke, crooked, or merely incompetent. Right now, Bitcoins on Mt. Gox are priced 25% higher than on the other exchanges, because if you sell Bitcoins on Mt. Gox, you can't get the money out, and that spread has been climbing rapidly for the last few days.

    Irrevocable anonymous remote transactions are the scammer's dream. Scammers can rip people off without ever meeting the marks and with a low chance of getting caught. That's Bitcoin's big problem. It takes ten honest people to support one crook, and Bitcoin's ratio of crooks is much higher than that.

    • Re: (Score:3, Insightful)

      by Anonymous Coward

      Exactly - bitcoin is always talking about how it is anonymous blah blah blah - well, what do you think happens when people can start moving money around, across international borders, with anonymity? It doesn't take a rocket scientist to predict who is going to flock to it. And since when is it a good idea to put ones money into completely anonymous 'banks' (read - 'bitcoin exchanges') which are who knows where, run by who knows whom with no oversight or recourse for fraud? When the sheep decide to go sl

  • You're supposed to become CEO of a billion-dollar bank and then start money laundering. The government's fine with it if you do it that way.
  • by Gareth Iwan Fairclough (2831535) on Monday January 27, 2014 @06:04PM (#46085683)
    At first, I thought "What?! Charlie Sheen deals with Bitcoin?!"..
  • by ikhider (2837593) on Monday January 27, 2014 @06:33PM (#46085987)
    Other banks are equally guilty of money laundering. CITIbank (among others) is involved with money laundering as well. To start with, read Charles Bowden's 'Down By The River' and ''Murder City: Ciudad Juarez and the Global Economy's New Killing Fields'. This is also interesting: http://www.youtube.com/watch?v... [youtube.com] In the land of many laws, many laws are broken.
  • by theendlessnow (516149) * on Monday January 27, 2014 @07:30PM (#46086547)

    Did anyone else see that as Charlie Sheen?

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