Saturday, October 31, 2020

Ohio man accused of trying to launder $19 million of bitcoin from the dark web

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Silk Road, the infamous dark web black market where users bought and sold practically everything — including fake passports, illegal narcotics, weapons, hacking software and dangerous chemicals — was shut down in 2013. But that’s not the end of the story.

Nearly six years later, an Ohio man was arrested Thursday on charges of trying to launder more than $19 million worth of bitcoin he allegedly earned via drug deals on Silk Road.

The federal government alleges that Hugh Brian Haney of Columbus, Ohio, was “involved in large-scale narcotics trafficking on Silk Road” during a period when Homeland Security Investigations agents were monitoring it in 2011 and 2012.

Silk Road was founded in 2011 by Ross Ulbricht when he was just 26 years old. Ulbricht, who operated on the site under the pseudonym “Dread Pirate Roberts,” later claimed he wanted to create a “freewheeling, free market site,” where users could buy and sell anything they wanted. The more than $200 million in transactions on the site were conducted using bitcoin, which allowed users to remain anonymous and relatively untraceable.

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By the summer of 2011, Silk Road had begun to generate considerable buzz online, and a profile on Gawker drew more attention to the site, which led to investigations by the Justice Department and Drug Enforcement Administration. Silk Road was shut down in October 2013 by the FBI. Ulbricht was sentenced to life in prison in 2015 after being found guilty on charges including drug trafficking, computer hacking and money laundering.

According to the government, “several thousand drug dealers” used Silk Road to sell drugs and other illegal products to over 100,000 anonymous buyers and to launder hundreds of millions of dollars earned from those illegal sales. After the site was shut down, the FBI seized bitcoins earned through illegal transactions that the government later sold for more than $48 million.

Read More: In New Jersey’s Largest Ever Pill Bust, Three Men Accused of Laundering $2.3 Million Using Bitcoins

The feds say Haney was one of those users.

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“As alleged, Hugh Haney used Silk Road as a means to sell drugs to people all over the world. Then he allegedly laundered his profits — more than $19 million — through cryptocurrency,” said Geoffrey S. Berman, the U.S. Attorney for the Southern District of New York. ”[The] arrest should be a warning to dealers peddling their drugs on the dark web that they cannot remain anonymous forever, especially when attempting to legitimize their illicit proceeds.”

Haney allegedly operated on Silk Road under the pseudonym “Pharmville.”

The government alleges that between November 2011 and February 2012, Haney earned millions of dollars worth of bitcoin from transactions involving illegal narcotics, including OxyContin, ketamine and fentanyl. According to the criminal complaint, Haney transferred cryptocurrency proceeds worth more than $19.15 million from those transactions to an unidentified bitcoin exchange company in February 2018 , and exchanged the cryptocurrency for cash that he deposited in a personal bank account.

Haney told the exchange company that he had earned the bitcoin through his own “mining” of the cryptocurrency, according to the government. Federal agents subsequently seized that cash from Haney’s bank account.

He is charged with one count each of concealment money laundering and engaging in a financial transaction using illegally obtained funds. Convictions of the two charges carry maximum prison sentences of 20 years and 10 years, respectively, according to the Justice Department.

Haney has not entered a plea and a preliminary court hearing is scheduled for July 30 in Columbus. Haney’s attorney, George Chaney a public defender in Columbus, did not immediately respond to a request for comment from CNBC Make It.

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