Shrem pleaded guilty to helping users of the Silk Road black market anonymously buy bitcoins
Bitcoin entrepreneur Charlie Shrem has been sentenced to two years in prison after pleading guilty to taking part in a money-laundering scheme connected with the Silk Road black market.
Shrem formerly ran his own bitcoin exchange, BitInstant, and sat on the board of the foundation that oversees the digital currency, resigning after his arrest in January.
In September he pleaded guilty to taking part in a money-laundering arrangement with Robert Faiella of Florida, who allowed users of Silk Road to anonymously exchange cash for bitcoins. Faiella fulfilled these exchanges, a total of $1m (£640,000), using BitInstant.
Shrem, as chief executive and chief compliance officer of BitInstant, was required under US federal law to report substantial transactions or patterns of transactions that indicated suspicious activity, but he never filed any such reports. Government prosecutors claimed Shrem knowingly partnered with Faiella in these exchange activities.
As part of his sentence Shrem is to forfeit $950,000 to the US government.
Silk Road was an online black market that operated using the Tor anonymisation service, and is alleged by US government prosecutors to have been used as a platform for selling illegal drugs, amongst other activities. The site was shut down last year by the FBI, who arrested Ross Ulbricht on charges that he operated Silk Road under the pseudonym “Dread Pirate Roberts”.
In November of last year Silk Road 2.0 appeared online, run by former administrators of the first version; the second site was shut down last month as part of “Operation Onymous”, which targeted a number of Tor-based anonymous websites.
The Silk Road sites accepted bitcoins as their only form of payment in order to facilitate anonymity.
The trial judge said Shrem’s sentence reflected his “passionate” involvement in illegal activities.
“There’s no question that Mr Shrem, over a period of many months, was knowingly, wilfully, to some extent excitedly and even passionately involved in activities he knew were, in part, involved in serious violations of the law,” the judge said, according to Bloomberg.
Shrem said in a Twitter message he felt “justice has been served”, given that it was substantially less than prosecutors had asked for.
Next month Ulbricht is to stand trial for allegedly running Silk Road, facilitating the sale of illegal drugs and ordering the assassination of a business associate.
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