The federal criminal complaint, from the Southern District of New York, charged Shrem, the 24-year-old CEO of Bitcoin exchange BitInstant, with three counts, including one count operating an unlicensed money transmitting business, one count of money laundering conspiracy and one count willful failure to file suspicious activity report.
Federal authorities have accused Shrem of being involved in what the Wall Street Journal has called “an alleged drug scheme involving his Bitcoin currency exchange and an online black market.”
At press time no trial date has been set.
For those who do not understand the intricacies of the Internet currency known as Bitcoin, here is a primer: BitInstant is a website that allows users to both buy and sell Bitcoin, which is the world’s first ever cryptocurrency. The value of the currency is in flux much in the same way the currency exchange rate of the Euro would be, fluctuating daily.
According to Bloomberg News, more than 140,000 web domains are used daily to process an average of 60,000 Bitcoin transactions per day. This is “roughly the same number as a year ago and about 0.1 percent the number handled by MasterCard. The current level of Bitcoin activity is low enough that a few thousand “invested” individuals can prop up the exchange rate. For outsiders, however, it looks increasingly as though Bitcoin should be viewed as an experiment, a test case. Other electronic currencies will rise, and be more widely accepted, after all the regulatory and technical issues are resolved.”
As the concept is relatively new, Bitcoin represents a brave new world of unregulated trading, buying and selling that legislation has yet to catch up with, much like how the legal landscape can’t catch up to the ever-evolving face of the Internet, which continues to evolve and outgrow legislation that did not predict the next incarnation of technology.
As Bitcoin is the first of its kind, the Wall Street Journal is correct in its assessment that “The legal trouble Mr. Shrem faces underscores the challenges faced by Bitcoin and its supporters as they try to expand the currency’s influence from a small coterie of technology nerds to the world of payments and widely accepted currencies.”
As Shrem’s new Bitcoin business began to take off, the WSJ explained that Shrem began drawing attention from “New York banking regulators last year as they scrutinized Bitcoin companies. BitInstant was one of roughly 20 firms that received subpoenas from the New York Department of Financial Services last year.”
Until his arrest, Shrem was vice chairman of the Bitcoin Foundation, a trade organization that promotes the virtual currency with regulators, law enforcement and other groups. So it would appear that Shrem has attempted to be transparent in his business dealings and to move within legal channels of any current regulations. The trouble is that there simply is not much legislation to support the charges he faces.
The charges against Shrem focus on a specific period of time. Specifically, “Shrem is charged with participating in a money-laundering conspiracy during most of 2012 that allegedly helped customers of the online black-market site Silk Road use more than $1 million of Bitcoin to anonymously purchase everything from narcotics to forged passports,” as the WSJ explained.
Yet the law for which he is being held in violation of stem from regulations from the Financial Crimes Enforcement Network (FinCEN). What is striking is that FinCEN did not issue guidance for Bitcoin exchangers until March 18, 2013. Yet the alleged violations of the law for which Shrem is being accused of allegedly occurred prior to the passing of FinCEN regulations.
Shrem’s attorney Marc Agnillo issued the following statement to the Jewish Voice:
“Charlie Shrem is trying to bring Bitcoin out of its infancy and make it attractive to legitimate business in the modern age. He welcomes regulation because it will help in his efforts to make this currency useful and accepted by the business community at large.”
And that is the core of the issue – making Bitcoin a legitimate currency rather then interpreting it as a threat existing to decentralize money the way the Internet decentralized information.
It appears that Shrem and his attorneys are encouraging the government to go forth so that a clear line will be drawn in the sand and law and order will follow.