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Bitcoin Leader Arrested On Money-Laundering Charges

Submitted by on January 29, 2014 – 9:49 am20 Comments
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The founder of a major bitcoin exchange was arrested this week on money laundering charges in connection with shuttered underground commerce site Silk Road. It’s the latest problem for burgeoning online currencies and covert marketplaces.

Charlie Shrem, 24, was arrested at John F. Kennedy International Airport in New York on Sunday. The founder of bitcoin exchange BitInstant was charged with money laundering and operating an unlicensed money transmitting business. He is accused of selling $1 million in bitcoin on SilkRoad with the help of Robert Faiella, another exchanger and reported millionaire.

“Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road,” Manhattan U.S. Attorney Preet Bharara said Monday. “Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act.”

In light of the arrest, Shrem resigned from the Bitcoin Foundation, the currency’s main advocacy group. Shrem was one of its founding members, and served as its vice chairman since 2012.

“While Charlie has contributed a great deal of personal effort and resources to enhance the adoption of Bitcoin worldwide, a prolonged legal dispute would inevitably detract from advancing that core mission,” said executive director Jon Matonis.

Bitcoin has grown tremendously since its founding in 2009. It is one of the only currencies not regulated by any government; it is “mined” by an algorithm. It exists only online, though the world’s first ATM for the currency opened recently, allowing users to exchange it for hard cash instantly.

Silk Road is a hidden online marketplace most known for the exchange of illegal drugs. It’s anti-regulation policy made it a perfect match for bitcoin. Silk Road itself was seized by the FBI, which became the largest owner of bitcoin in the world. The site’s founder, Ross William Ulbrict, was also arrested. But the site maintains it only connects buyers and sellers, and cannot be liable for their transactions. Silk Road is operated on Tor, a secure system.

[via Huffington Post]

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