Bitcoin: no ML charges for Bitcoin exchangers

Source: Law360, New York (September 04, 2014, 7:00 PM ET) — Two prominent Bitcoin exchangers pled guilty in New York federal court Thursday to unlicensed money-transmitting charges, but escaped more serious money laundering allegations under deals with the government.
Charlie Shrem, the CEO of a Bitcoin exchange company and a prominent supporter of the virtual currency, pled guilty to aiding and abetting the operation of a money transmitting business that was not registered with the U.S. Treasury Department. Co-defendant Robert Faiella also pled guilty to operating an unlicensed money transmitting business.FCA - Bitcoin

Prosecutors had initially charged the defendants in January with scheming to sell and launder $1 million in Bitcoins. According to the indictment, Faiella sold the currency to anonymous users of the website Silk Road, a marketplace for illegal drugs. Faiella filled the Bitcoin orders through an exchange firm called BitInstant that was operated by Shrem, prosecutors said.

Both Shrem and Faiella admitted Thursday that they knew the Bitcoins were being used to buy and sell narcotics.

“I know that what I did was wrong,” Shrem told Judge Jed Rakoff during a hearing in Manhattan court. “I am pleading guilty because I am guilty.”

Sentencing for the defendants was scheduled for Jan. 20. The unlicensed money transmission charges each carry a maximum potential sentence of five years in prison. The money laundering conspiracy charges had carried a maximum punishment of 20 years in prison.

Marc Agnifilo, an attorney for Shrem, said after the hearing that the criminal conduct was “an aberration.” He added that Shrem hoped to continue working in the Bitcoin industry.

“For the most part, Charlie Shrem is on a path to making Bitcoins a more useful and acceptable currency,” Agnifilo said.

BitInstant ceased operating in July. The startup had been backed by Cameron and Tyler Winklevoss, the twin Harvard graduates who famously sued Facebook Inc. founder Mark Zuckerberg for purportedly stealing the idea for the social-networking company.

The Winklevosses said that when they first invested in BitInstant in the fall of 2012, its management assured them that it would abide by all applicable laws, including anti-money-laundering statutes.

U.S. officials shut down Silk Road in October 2013 and filed criminal charges against Ross William Ulbricht, the alleged founder of the site. According to prosecutors, Ulbricht went by the nickname “Dread Pirate Roberts,” coined after the fictional character in the 1987 cult classic “The Princess Bride.”

Ulbricht has pled not guilty.

The government is represented by Serrin Turner.

Shrem is represented by Marc Agnifilo of Brafman & Associates PC. Faiella is represented by Timothy Treanor of Sidley Austin LLP.

The case is USA v. Faiella et al., case number 14-cr-00243, in the U.S. District Court for the Southern District of New York.

–Additional reporting by Igor Kossov. Editing by Rebecca Flanagan.


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