Two men have been charged by federal prosecutors for selling more than a $1 million dollars in Bitcoins for use on the Silk Road website, an online market for illegal drugs. The connection to Silk Road was the unfortunate introduction the government got to Bitcoin, and colored the early perception of many in law enforcement to the digital currency.
One man, 52-year-old Robert M. Faiella of Cape Coral, Florida, was charged with operating the underground Bitcoin exchange for Silk Road from 2011 to 2013. Another man, 24-year-old Charlie Shrem of New York City, was alleged to be the CEO of a Bitcoin exchange company.
Federal indictments against the pair indicate that they allegedly conspired to launder more than a $1 million in Silk Road transactions. The website was shut down in October after allegedly brokering more than a $1 billion in heroine deals, along with an assortment of other illegal drugs.
If you’re not using your Bitcoins to buy drugs, launder money, or avoid paying income taxes, you have little to fear…
Prosecutors say Faiella operated under the online name “BTCKing,” and advertised his services on Silk Road. An undercover agent, posing as a Silk Road user, made two cash deposits that were converted to Bitcoin and deposited into a Silk Road account by Faiella operating as BTCKing. Deposits were limited to less than $1,000 per day to avoid disclosure requirements under anti-money laundering laws.
Each defendant is charged with one count of money laundering and one count of operating an unlicensed money transfer service. In addition, Shrem is charged with one count of deliberately failing to file a suspicious activity report. If convicted on all counts both face a maximum of 20 years in prison.
Honest Bitcoin brokers and traders should regard this case the same way any reasonable person would regard drug dealers exchanging cash. Both parties charged in the case had a reasonable suspicion they were facilitating illegal activities.
Whether this incident will prompt further investigation of regular Bitcoin traders by the Feds is not known, but the indictments in this case seem fairly focused. If you’re not using your Bitcoins to buy drugs, launder money, or avoid paying income taxes, it would seem you have little to fear from federal prosecutors.
With Bitcoins being accepted by an ever-expanding network of retailers, including Overstock.com and TigerDirect, the digital currency is quickly finding a niche as just another payment option for both online and brick-and-mortar retailers. Online game developer Zynga is also accepting the digital currency for in-game upgrades.
Revel Systems is developing a mobile iPad-based Point of Sale (PoS) system that will allow any retailer to accept Bitcoins at checkout, without installing any additional equipment.
The value of Bitcoin lies in the efficiency of financial transactions. Users exchanging Bitcoins cut out the middlemen in financial transactions, so-called interchange fees charged by the companies that run the backbone of the credit and debit point-of-sale systems. Retailers are anxious to find alternatives to those interchange fees, which amount to a stealth corporate tax on nearly every transaction.