[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]
I had just spent the last few days in Miami attending the North American Bitcoin Conference and it was an amazing experience. The crowds were overflowing and nearly three times the size of what organizers expected and the amount of geniuses, entreprenurial wizards and cutting edge venture capitalists was incredibly exciting to see and to be a part of.
I spoke on how I believe that cryptocurrency related businesses will be the next multi-billion dollar companies. The atmosphere reminded me of the excitement about the internet around 1996… and we all know how lucrative that was for many who invested in internet related companies at that time.
I warned during my presentation, however, that if you are a US citizen who lives in the US and operates a financially related bitcoin business (such as an exchange or payment service), you are crazy to do so because the US government is now, by far, the most criminal and dangerous government in the developed world.
There were quite a few nods of agreement but I also saw a few people give me a look like I was crazy or paranoid.
Well, you´re not paranoid if they are really out to get you… and just as the conference ended news came out that one of the leading entrepreneurs in the bitcoin space, Charlie Shrem, of BitInstant, was kidnapped just after leaving the conference and charged with "money laundering". (complaint is here. Read 14-17 for the nitty-gritty)
He and a "co-conspirator" is accused of selling $1 million in bitcoins to Silk Road users, some of whom then used them to buy drugs and other illegal items.
In the criminal complaint itself, Shrem is said to have even bought drugs himself! That's right, Shrem was pleasantly surprised when, after placing an order on Silk Road, the illicit substances showed up on his doorstep. What were the dangerous substances? Pot brownies…
"Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way," DEA agent James Hunt said in a release.
Those substantial profits? Judging between BitInstant's 5-9% fees, Shrem maybe brought in $100,000 in profit…maybe. For most kids his age, that's just enough to pay off student debt. He aided and abetted the sale of $1 million in bitcoins…a drop in the ocean when the Federal Reserve prints tens of billions of FRN's per month.
The Shrem persecution is an extension of the War On Drugs. Sure, the Silk Road connection might make this seem like a scary and dangerous scenario to the layman, but the truth is the War on Drugs itself is where the true danger comes in. Prohibition is wherefrom the violence and theft arises. As long as the War on Drugs exists, prices will stay high, and people will turn to illicit sources of money to fund their purchases.
Manhattan U.S. Attorney Preet Bharara said:
“As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road. Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”
- Shrem allegedly knew BTCKing (Robert Faiella) was a Silk Road exchanger
- Shrem allegedly gave him advice on how to get around Bitinstant's anti-money laundering restrictions
- Shrem allegedly offered him discounts due to the large volumes he was trading
Basically, Faiella is accused of buying bitcoins from Shrem, and then selling them to SR users, who allegedly bought drugs with the bitcoin. The logic is specious. If this type of activity is now deemed illegal then Ben Bernanke and every bank CEO in the US should be arrested whenever someone uses dollars to do something illegal.
We are talking trivial numbers here.
You'll recall that HSBC was given $1.9 billion in fines over money laundering for Mexican drug cartels. The state did not have to prove that the bank had done so. The bank simply could not prove it had not. The bank did not get fined for not following the regulations, but for not having the systems in place to prevent money laundering.
Major banks the world over are changing their operations to ensure they are not laundering money. This is causing the banking system to grow more inefficient and costly. This has made bitcoin a better solution than the banking system for sending funds to some of the poorer regions of the world
Why has this process become so difficult? Because banks are worried about not being bureaucratic enough so as to know where all funds are. This is fascism. Government policy has changed the environment within banks towards less freedom. Bitcoin businesses will feel this pressure as well, and have a so-called "duty" to follow what is laid out in the Bank Secrecy Act.
Why are bitcoin businesses more susceptible? The feds are not sensitive to preserving the bitcoin economy. They can take out key points of the bitcoin economy and paralyze it.
In the case of major banks, like HSBC, the feds are more sensitive to preserving the dominant economy.
"Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."
The fines major banks face are a mere cost of doing business. Several US banks have put aside cash to pay for potential legal costs in the wake of JPMorgan Chase & Co's massive $13 billion settlement with US authorities.
Bank of America, Citigroup, Goldman Sachs and Morgan Stanley have all added hundreds of millions of dollars to funds they have set aside to pay for the cost of litigation, including legal fees, fines and settlements. Bitcoin exchange businesses might want to consider putting away all of their profit into such legal funds if they plan on staying in the US.
The case against Shrem is an embarrassment to the US government. The entire world should point-and-laugh at the inexplicable wasting of resources this is. To go after Shrem here-and-now is to demonstrate the government is not interested in money laundering or the drug trade. It's interested in upholding the status quo.
I have stated it in the past and will state it again. If you intend to operate a financially related bitcoin operation the last place you should base that business out of is the US (it is very easy to open an internet related business in other countries and comes with the benefit of a 0% corporate tax rate – we can help at TDV Offshore). And, I highly recommend also getting your operations and yourself out of the US. One country on my radar for starting a bitcoin related business is Iceland who appear to be very open to allowing businesses such as these operate from their jurisdiction.
But the fact of the matter is that other than North Korea any country other than the US is safer for those trying to create wealth and jobs by being on the leading edge of the cryptocurrency revolution.
The FinCen guidelines from April are a farce, merely a means by which the US government could start going after players like Shrem retroactively.
This is not good news for the exchanges. Where does it stop? Who is next?
I was asked during my presentation in Miami if the government could shutdown bitcoin and if so, how. I responded, "The only way they could totally shutdown bitcoin would be to turn off the internet and take everyone here at this conference and put them on cattle cars."
Again, some people laughed at the idea but what they don't see is that they already have begun. They don't call them cattle cars nowadays for public relations purposes. They just call them federal marshalls. I have chosen and suggest you do too, to get every facet of my business and personal life as far away from the long arms of the most dangerous government on Earth. Join us in Panama at the TDV Wealth Management Crisis Conference, where one of the bitcoin companies that took my advice and moved from the US to Panama, Coinapult, will be joining us to talk about bitcoin and we'll have our team of experts there to tell you how you can legally and safely do the same… so you don't end up like Charlie Shrem.