BitInstant CEO and Bitcoin Evangelist Charlie Shrem Charged with Silk Road Money Laundering
Charlie Shrem, 24-year-old CEO of bitcoin exchange, BitInstant and a major figure in bitcoin circles was arrested in New York’s JFK Airport, on charges of running an illegal money transmission business, willful failure to report suspicious transactions, and conspiracy of money laundering.
Shrem allegedly helped Robert M. Faiella, aged 52, who was known as “BTCKing” on Silk Road, to get around Shrem’s own bitcoin exchange service, BitInstant’s anti-money laundering and compliance rules.
According to court documents, Shrem was both the CEO and Compliance Officer in charge of ensuring compliance with anti-money laundering laws at BitInstant.
Feds accuse him of deliberately circumventing, what the documents call “the Company’s,” (presumably BitInstant’s) safeguards against money laundering and suspicious activity.
This includes allowing Faiella to continue services with “the Company,” hiding his activities from the co-founder and cash processor, allowing Faiella to use the service while anonymous, and even negotiating and granting Faiella discounts for higher volume transactions.
Faiella would regularly violate the $1,000 daily limit in cash deposits, which brought the suspicions of the cash processor and cofounder, who both wanted Faiella banned.
Shrem and Faiella together exchanged $1 million in cash to bitcoin; Faiella then used these bitcoins to sell on Silk Road.
Email conversations between Shrem and Faiella implicate that Shrem knew Faiella was using the anonymous bitcoin exchange company as a processor for bitcoin to resell on Silk Road, and that Silk Road was an illegal marketplace that allowed shoppers to purchase illicit goods and services through bitcoin.
Shrem was also the vice chairman of the Bitcoin Foundation a group dedicated to global bitcoin advocacy.
When reached for comment, a spokesperson for the Bitcoin Foundation said, “We are surprised and shocked by the news today. As a foundation, we take these allegations seriously and do not condone illegal activity.”
This incident may be a blow to bitcoin as it is still trying to gain a foothold on legitimacy and acceptance from governments and financial institutions, but it may be part of the growing pains in trying to institutionalize the digital currency.