Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist
The much anticipated trial of the alleged founder and operator of Silk Road, Ross Ulbricht, is scheduled to start on Tuesday in Manhattan Federal Court. Silk Road was an online marketplace in which sellers and purchasers could buy legal and illegal goods and services with Bitcoin. The types of goods and services for sale included drugs, guns, fake IDs, and hacking services. Silk Road was shut down in October 2013 by the FBI. Ulbricht was arrested and charged with money laundering conspiracy, computer hacking conspiracy and drug trafficking.
Ulbricht says they arrested the wrong person and he was not the operator of Silk Road. He was arrested on the basis of a criminal complaint and since then has been indicted in New York on lesser allegations but in Maryland with, inter alia, allegedly arranging for a hitman to murder someone.
Transactions totaling $1.2 billion in two years
Allegedly, Silk Road’s transactions using Bitcoin totaled $1.2 billion and generated commissions of $80 million to Ulbricht since 2011. It appears from the criminal complaint that the FBI monitored, tracked and collected transactional data on Silk Road since 2011. The majority of the buyers on Silk Road were from the US, U.K., Australia, Germany and Canada.
According to a study by a US professor whose team scraped the Silk Road site for several months before it was shut down, about 6% of the Silk Road transactions came from Canada (mostly Vancouver), both on the supply and purchase side, meaning that Canadians supplied drugs and other things and bought goods and services on Silk Road.
Turkish bazaar on TOR
Silk Road operated like something akin to a Turkish bazaar, only virtual, and is described as a “sprawling, black market bazaar where drugs and other illegal goods and services were bought and sold over the Internet …[in essence], an extensive and sophisticated criminal marketplace.”
The marketplace was designed for anonymity according to the prosecution, by allowing transactions only by Bitcoin. The purpose of it being a Bitcoin-only site, according to the complaint, was so that the identities and locations of users transmitting funds could be concealed. Ulbricht allegedly operated the online platform that offered the services and goods, in other words allegedly facilitated illegal commerce on the Internet. The site was only accessible on TOR.
Silk Road sold, or facilitated the sale of hundreds of kilograms of illegal drugs to over 100,000 buyers and laundered the proceeds of crime.
Ulbricht is also alleged to have bought several fake IDs from Canada that were intercepted by US customs and border agents. That package from Canada is what led to his arrest because it helped the FBI locate him.
Alleged to have ordered hits on 5 Canadians from Vancouver
The prosecution alleges that Ulbricht solicited six murder-for-hires to protect his business. It has no evidence that any of the murders were carried out. Despite its prejudicial effect, evidence of the solicitations will be admitted in the trial in New York.
Five of those alleged murder-for-hire plans involve Vancouver.
Ulbricht is alleged to have paid a member of the Hells Angels named “RedAndWhite” $150,000 for the murder of a drug dealer from Vancouver known as “Friendly Chemist” who allegedly tried to extort Ulbricht for $500,000.
The FBI says they consulted with Canadian law enforcement who informed them that no murder took place and no body was located. This seems to be subsequently confirmed by the Department of Justice in SDNY who later said they have no evidence that any murders occurred.
According to evidence filed in support of the charges, however, the funds were allegedly transferred by Ulbricht to RedAndWhite who confirmed the murder and supplied photos to Ulbricht of a deceased person when the mission was accomplished.
Subsequently, according to the evidence from the prosecution, Ulbricht allegedly re-hired the same Hells Angels hitman, allegedly for four more murders in Vancouver in exchange for the payment of 3,000 Bitcoin valued at $500,000. The four people were friends of the Friendly Chemist and had allegedly participated in the blackmailing scheme against Ulbricht.
The FBI recovered computer evidence, Bitcoin payments and personal logs allegedly from Ulbricht’s laptop that speak to the solicitation of the five Canadian murder-for-hire plans.
According to the court documents in the case, the connections to Canada include the following.
- Over 6% of the transactions on Silk Road were from Canada (mostly Vancouver).
- The alleged murder-for-hire solicitations involved the engagement of an alleged Hells Angels hitman from Vancouver who confessed to murdering one Vancouver-based man and allegedly supplied pictures of his dead body.
- Bitcoin exchangers in Vancouver were used to buy and sell Bitcoin for people to transact on Silk Road.
- The package of fake IDs that Ulbricht is alleged to have ordered that resulted in his arrest came from Canada.
- Also interesting is that, despite the Canadian connections, no one was arrested in Canada for allegedly supplying fake IDs or selling or buying drugs on Silk Road and no financial institutions or money services businesses were fined for lax compliance for providing financial transactional services to buyers and sellers on Silk Road. The volume of such transactions was likely close to $1 million and the amount allegedly paid to RedAndWhite in two installments was $650,000.
There are some legally unique aspects in this case as well. For one thing, the list of witnesses that the prosecution is calling was secret until last week. That is unusual obviously for due process reasons because a person has a right to know who his accuser is and to mount a defence to refute that person’s evidence. Not knowing who intends to testify against you until days before the trial is contrary to the rules of natural justice. This is not a case of national security where such a decision may be justified. However, in this case, the judge, Katherine Forrest, was threatened online over an earlier ruling she made and as a result, there may be security reasons to protect witnesses.
This is pure conjecture on my part, but in order to introduce evidence of the five Vancouver-based alleged solicitation of murder-for-hires, it seems likely that at least one person involved in the schemes will have to testify for the prosecution. That witness could only be RedAndWhite, the Hells Angel from Vancouver with whom someone, allegedly Ulbright, communicated on TOR.
People will be following the case closely to see how Silk Road was monitored and tracked by law enforcement on TOR, and how it traced and tracked Bitcoin transactions, and the extent to which Bitcoin transactors are proven to be anonymous.
The Silk Road case will be a seminal case for Bitcoin, TOR, Internet commerce, privacy, cyberhacking and money laundering.