by Tyler Durden – Zero Hedge –
The US crackdown on Bitcoin has been long in coming, with ebbs and flows of enforcement as regulators have been unsure exactly how to proceed with dismantling the digital fiat alternative. This morning the ebb became a rising tide, after U.S. prosecutors announced charges against two men operating Bitcoin exchange businesses for attempting to sell $1 million worth of Bitcoin to users of the underground black market website Silk Road, which was shut down by authorities in September.
Reuters reports that the U.S. Attorney’s office in Manhattan said in a statement that authorities arrested Charlie Schrem, chief executive officer of the exchange BitInstant.com, on Sunday and Robert Faiella, who ran an underground Bitcoin exchange called BTCKing, on Monday. The two were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. Schrem is also vice president of the main Bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation’s website and Schrem’s LinkedIn profile.
Some details from the charge against the defendants:
Federal prosecutors charged Faiella, 52, and Shrem, 24, with engaging in a scheme to sell more than $1 million of Bitcoins to users of Silk Road. Each defendant was charged with conspiring to commit money laundering, which carries a maximum prison sentence of 20 years. They are additionally charged with operating an unlicensed money transmitting business, which has a max sentence of five years in prison.
The U.S. also charged Shrem with violating the Bank Secrecy Act by “willfully failing” to file suspicious activity reports on Faiella’s questionable transactions. This charge carries a maximum sentence of five years in prison.
In addition to the Manhattan U.S. Attorney, the charges were announced by the Drug Enforcement Agency and the criminal investigation division of the Internal Revenue Service.
“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.
Schrem was apprehended by authorities at JFK International Airport in New York on Sunday and is set to appear in federal court in Manhattan later on Monday. Faiella was arrested at his Cape Coral, Fla., home on Monday and is expected to appear in federal court in the Middle District of Florida.
The court documents allege Faiella operated an underground Bitcoin exchange on the Silk Road website between December 2011 and October 2013 that sold the crypto currency to users who wanted to buy illegal drugs on the site. After receiving orders, he filled them through a New York company designed to enable customers to exchange cash for Bitcoins anonymously, the U.S. alleges.
Shrem served as the New York Bitcoin company’s CEO during much of that timeframe and was “fully aware that Silk Road was a drug-trafficking website” and that Faiella was operating an exchange service for Silk Road users, the documents say.
Prosecutors say Shrem still did business with Faiella to maintain a “lucrative source” of revenue. He personally processed Faiella’s orders, gave him discounts on high-volume transactions, failed to file a single suspicious activity report and even helped Faiella “circumvent” the company’s anti-money laundering policies, the documents allege.
Bharara said the investigation remains ongoing.
