In the latest development connected to the Silk Road case, U.S. officials have arrested the CEO of Bitcoin exchange, BitInstant.
BitInstant CEO Charlie Shrem arrested for money laundering. Image: Dustin Drakoski/vocativ
Charlie Shrem, co-founder and chief executive of BitInstant, was taken into custody in New York on Sunday and charged with money laundering, operating an unlicensed money transmitting business, and failing to report suspicious activity.
Robert Faiella, a 52-year-old man, was arrested in Cape Coral, Fla. on Monday in connection to the case and is accused of running an underground Bitcoin exchange on the Silk Road website under the name BTCKing.
According to the document filed by the Manhattan U.S. Attorney’s Office, Shrem, who personally bought drugs on Silk Road, sold Faiella bitcoins knowing that they would be used on the underground drug-trafficking website. The criminal complaint also states that Shrem gave Faiella discounts on high-volume transactions, personally processed his orders, and deliberately facilitated Faiella in avoiding anti-money laundering restrictions, even though it was his part of his role as the company’s Compliance Officer to enforce the laws and report suspected illicit activity.
Over a period of ten months, the pair exchanged over $1 million in bitcoins for Silk Road users before Faiella ended the partnership in late 2012, the IRS claims.
Last year, BitInstant received a $1.5 million investment from Cameron and Tyler Winklevoss’ venture capitalist firm, Winklevoss Capital.
The Winklevoss twins issued a statement earlier this week making it clear that when they invested in BitInstant, they company’s management made a commitment to “abide by all applicable laws – including money laundering laws – and we expected nothing less.” Nevertheless, they remain “deeply concerned” with the BitInstant CEO’s arrest and “support any and all governmental efforts to ensure that money laundering requirements are enforced.”
BitInstant aren’t the only ones affected by the allegations. Shrem, 24, was a well-known advocate for the crypto-currency and held a vice chairman position on the board of Bitcoin Foundation, a non-profit organization dedicated to raising awareness and promoting education on digital currency.
Though careful to acknowledge that Shrem has yet to be proven guilty, executive director Jon Matoinis said the pending trial “would detract from advancing [the] core mission” of the foundation. Shrem’s resignation from the board of Bitcoin Foundation was mutually decided and has been accepted, effective immediately.
If convicted, Shrem and Faiella face up to 20 years in prison for conspiring to commit money laundering. Charges of operating an unlicensed money transmitting business could carry an additional five-year sentence for each man.
Schrem could earn another five years for failing to file a suspicious activity report on Faiella’s activity.
The recent arrests have heightened the already palpable concerns of governments and lawmakers pushing for regulation of virtual currencies, given Bitcoin’s culture of anonymity.
