Florida's state authorities announced last Thursday that three men were facing criminal charges, in which they clandestinly moved large amounts of cash in and out by using the Bitcoin virtual currency. Experts said these instances of money laundering are just the types, which could shut down one of the last remaining avenues for purchasing Bitcoins anonymously, as reported by RT. It also has undermined the strength of Bitcoin as a legitimate form of currency worldwide.
The anonymity of the decentralized digital currency lends itself to allow such black market style transactions to take place.
The Bitcoin essentially uses "peer-to-peer technology to operate with no central authority," providing a powerful substitute to paypal or to credit cards. Its encryption code eliminates the hassles of banks serving as its middle men," according to its web site.
"Companies that transact in Bitcoins need to be aware of the existing (and still developing) regulatory matrix, and establish appropriate compliance systems. From a regulatory standpoint, Bitcoin and related products may be subject to anti-money laundering and anti-terrorist financing laws administered by the Financial Crimes Enforcement Network," as reported in The New York Law Journal.
Undercover officers and agents from the U.S. Secret Service's Miami Electronic Crimes Task Force, working in tandem with the Miami Beach Police Department and the Miami-Dade State Attorney's office "contacted several individuals who were facilitating high-dollar transactions via localbitcoins.com, a site that helps match buyers and sellers of the virtual currency."
One of those charged was a user known as "Michelhack' on localbitcoins.com. This user allegedly had at least 100 confirmed trades in the past six months involving more than 150 Bitcoins. An undercover agent and 'Michelhack' arranged for a face-to-face meeting with one another. According to court documents, the agent told 'Michelhack' that he wanted to use the Bitcoins to purchase stolen credit cards on-line.
The undercover agents were able to tie 'Michelhack's' transactions with 30-year-old Michell Abner Espinoza of Miami Beach. Espinoza was charged with felony violations of Florida's law against unlicensed money transmitters - which prohibits "currency or payment instruments exceeding $300 but less than $20,000 in any 12-month period - and Florida's anti-money laundering statutes, which prohibit the trade or business in currency of more than $10,000," according to news reports.
Pascal Reid, a Canadian citizen had his home in Miramar, Florida raided by police. There, they seized computer systems and digital media. Reid was arrested while meeting with an undercover agent. The two had a finalized deal in the works, which equaled about $30,000 worth in Bitcoins. Reid allegedly operated under the name 'proy33' on localbitcoins.com.
Nicholas Weaver, a researcher at the International Computer Science Institute (ICSI) and at the University of California, Berkeley said the risks are high with Bitcoins.
"The biggest problem that Bitcoin faces is actually self-imposed, because it's always hard to buy Bitcoins," said Weaver.
"The reason is that Bitcoin transactions are irreversible, and therefore any purchase of Bitcoins must be made with something irreversible - namely cash. And that means you either have to wait several days for the wire transfer or bank transfer to go through, or if you want to buy them quickly you pay with cash through a site like localbitcoins.com," Weaver added.
Last month, BitInstant CEO Charlie Shrem was arrested for money laundering, "following allegations that he helped a man in Florida convert more than a million dollars in Bitcoins for use on the on-line drug bazaar Silk Road." RT also reported. The Silk Road web site became a black market for purchasing illegal products, such as drugs, weapons, as well as a place to hire a mercenary.
Despite such illegal activity, Silk Road had over 957,000 registered users before being ordered to shut down by the FBI.
Shrem has since resigned as the vice chairman of the Bitcoin Foundation.
Federal prosecutors also formally indicted Ross Ulbricht on February 4, charging him with narcotics trafficking conspiracy, continuing a criminal enterprise, computer hacking conspiracy and charges of money laundering.
Ulbricht's case, along with the aforementioned arrests underscore the growing fear among those who are proponents of Bitcoins. Such cases reflect the inherent perils of the secrecy of Bitcoins becoming the perfect instruments to allow such transgressions, like money laundering and black market transactions.
"The only regulator to issue a formal guidance on a virtual currency such as Bitcoin remains FinCEN, which, in March 2013, issued guidance clarifying provisions of the Bank Secrecy Act and related regulations. Without specific virtual currency laws enacted by Congress, law enforcement agents have relied on existing anti-money laundering, anti-terrorist financing, anti-fraud and securities laws to prosecute various illicit schemes involving virtual currencies," as reported in The New York Law Journal.
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