Monday was certainly not a happy day in the world of virtual currency, Bitcoin in particular. Bitcoin champion, Charlie Shrem, was arrested at JFK Airport in New York on a criminal complaint charging him in a money laundering conspiracy stemming out of his company’s alleged involvement in exchanging cash for bitcoin, ultimately to be used to purchase illegal drugs on the ill-fated Silk Road website.
What follows are my thoughts and analysis of the government’s case based on what I know at the moment, and my commentary on what Shrem’s prosecution might mean for bitcoin in general. Perhaps a few might find my analysis and commentary somewhat helpful, given the fact that I am an attorney, a former federal law enforcement official, a virtual currency anti-money laundering specialist /consultant, as well as a college professor of legal studies and criminal justice.
Though Charlie Shrem is certainly presumed “not guilty” until proven otherwise, the criminal complaint is nightmarish from the perspective of anyone that wants to see bitcoin thrive and to be shown in the best light possible. The government’s unsealed criminal complaint is a far cry from the Charlie Shrem portrayed as a conscientious entrepreneur, co-founder, and AML/BSA compliance officer of a successful and well-known bitcoin exchange. Instead, the government portrays Shrem as a bad actor, one who consistently and repetitively evaded his responsibilities under the BSA through such unlawful activities as advising a co-defendant how to structure deposits to avoid triggering AML reporting requirements. Not a pretty picture.
Herein lies a question. If, in fact, Shrem knowingly broke the law, then he should be found guilty and face punishment. However, where are the money laundering prosecutions of the Wells Fargos (Wachovia) and the HSBCs of the world? Where are the prosecutions of the bank officials that facilitated the illegal transactions on behalf of these financial institutions? I haven’t seen any. Sure, the government initiated formal proceedings against the banks in those cases; however, all too often they have been disposed of through tidy deferred prosecution agreements and consent decrees. Certainly, no bank officials to my knowledge have felt the cold steel of the handcuffs and none of them have personally faced criminal prosecution.
Let’s see, how much money did Wachovia launder? Was it $150 million? What about HSBC? Billions. HSBC’s fine, after all, was $1.9 billion. How much did Shrem allegedly assist in laundering? According to the criminal complaint, “over $1 million.” Is this selective prosecution? Though Shrem’s prosecution smacks of selectively targeting the “little guy” (relative, at least, to the billion dollar banker-criminals), based on the facts presented, the selective prosecution moniker does not pass muster jurisprudentially. Usually for such a defense to be raised successfully, the defendant must show that he was singled-out for prosecution based on a protected status under the 14th Amendment such as race, religion, or gender. Too bad for us bitcoiners that “Bitcoin entrepreneur” is not included on the list.
From my perch, it looks like just more of the same old government behavior, i.e. get the low-hanging fruit, target industries and individuals with relatively little money and political clout while leaving the big boys to their own devices, wreaking havoc and misery across the planet and its economies while they’re at it.
Now, what does this mean for bitcoin and the overall virtual currency space? The Shrem arrest and prosecution is certainly not good for bitcoin from the standpoint of convincing legislators and regulators that the industry is prepared to play by the rules. Sure, cash is utilized in criminal activities everyday and no one is arguing it should be banned or regulated out of existence. However, that’s not really the issue. Cash is a known entity. Let’s face it; though Bitcoin has made tremendous strides and is gaining acceptance by many in the business world, it is still a relatively unknown entity, High profile arrests like this one do not serve to minimize already existing knee-jerk impulses to relegate bitcoin to relative obscurity through government bans or over-regulation.
Could this prosecution impact the fate of regulations that might be currently under consideration? Absolutely. Regulators might well be keen to hear how the industry plans to police itself since one of its own leaders is alleged not to have been so fastidious about following the law.