The Canadian: “[D]ude, we’re criminal drug dealers – what line shouldn’t we cross?” – Explaining the Silk Road Money Laundering Case

By Christine Duhaime | June 10th, 2019

4th Anniversary of Silk Road founder’s Sentencing

The end of May marked the 4th Anniversary of the sentencing of Ross Ulbricht, aka Dread Pirate Roberts, the founder of the now-defunct darknet marketplace website based in California, called Silk Road that operated on TOR, which brokered sales of illegal goods and services, including narcotics like heroin, weapons, murders, and fake ID, payable only in Bitcoin. The complaint is here.

Ulbricht was convicted by a jury of seven crimes – narcotics trafficking which carries a sentence of 10-years to life; distribution of narcotics online which carries a sentence of 10-years to life; conspiracy to trafficking narcotics which carries a sentence of 10-years to life; running and continuing a criminal enterprise (organized crime) which carries a 20-year sentence to life imprisonment; conspiracy to aid hacking which carries a sentence of 5 years; trafficking in fraudulent ID products which carries a sentence of 15 years; and money laundering which carries a sentence of up to 20 years. On minimum sentencing, he was facing life imprisonment if given consecutively.

The fact that he was charged with what is called the “super kingpin” law (e.g., operating a continuing criminal enterprise) meant that prosecutors were going for a term of incarceration of life without possibility of parole from the outset. The super kingpin law includes the death penalty in cases where the super drug kingpin has commanded, induced or procured the murder of another person.

On May 29, 2015, the Court vacated two of the convictions sua sponte and sentenced Ulbricht for the remaining 5 convictions to two life terms of imprisonment plus forty years at a federal prison in the US, with no possibility of parole. At sentencing, the Court ruled that in the unlikely event he was ever released, he must be supervised 24/7 for the remainder of his life and be prohibited from access to a computer because the Court determined that “he cannot be ever trusted to comply with the law in his lifetime”.

Ulbricht ran Silk Road with the help of a Canadian who was his right hand man and CEO of Silk Road (more on that below). Together, it appears, there was no line they would not cross in financial crime and otherwise, including allowing the sale of cyanide on Silk Road that they appear to have acknowledged could kill people.

Novel Case

The case was novel for many reasons including:

  • Ulbricht was the first prosecution of a founder of a darknet illegal goods and services marketplace;
  • it was one of the largest money laundering prosecutions;
  • it was one of the first prosecutions involving the introduction of evidence of the tracing of Bitcoin transactions;
  • it was the first (and probably the last) instance of a defence strategy that argued that the brokering of illegal drugs online was socially beneficial to society;
  • it appears to have been the first TOR money laundering case; and
  • it resulted in online hate, defamation and death threats on Twitter against the Judge presiding over the case, including incitements that she should be killed on the steps of the Courthouse, which caused the US Department of Justice to commence a criminal investigation and obtain a grand jury subpoena for the identity of the persons who incited violence against her.

Ulbricht’s Defence

Followers of the Ross Ulbricht case are divided on whether his sentence was just or whether it was punitive. Some believe his defence strategy was a gamble. That’s because his defence was, inter alia, that although he created Silk Road, he handed it off to someone else and was not its administrator or controller, and that he was framed for the crimes he was charged with by the unknown perpetrators of those crimes. Ulbricht resiled from that position after he was convicted, admitting he was the administrator of Silk Road. With respect to the tens of millions of dollars in Bitcoin in his possession, his defence was that it was capital gains from trading Bitcoin and did not originate from running Silk Road. He also made an argument at sentencing that was likely harmful, that the activities underlying his convictions (e.g., his drug trafficking, organized crime and his money laundering) were socially responsible and positive.

His defence was impacted by virtue of the fact the Court ruled to protect the identity of people testifying against him until just before the trial to protect them from intimidation, threats or attempted murder orchestrated by Ulbricht. This was before threats to kill the Judge were made on Twitter by anonymous persons.

Some people have publicly said they believe he should be set free because in their view, money laundering, serious drug trafficking, selling fake IDs for the commission of crimes, and organized criminal activities, are not serious criminal offences worthy of incarceration and that such crimes cause no harm to society.

Q – Are there any connections between Silk Road and Ross Ulbricht to Canada? 

A – Yes, there are numerous connections to Canada in the Silk Road story.

(i) Bought Fake ID from Canada

First, in the summer of 2013, Ulbricht ordered almost a dozen pieces of falsified government identity products (passports and driver’s licences) for himself from Canada using his own website and paid for it in Bitcoin. Those falsified IDs were intercepted by the US Postal Service. That interception informed the FBI and Department of Homeland Security (“DHS“) as to his address, because he had the package shipped to his apartment in San Francisco. Before that, they did not know his location. This was several months before Ulbricht’s arrest. The DHS did what is called a controlled intervention with Ulbricht where they posed as US Postal Services personnel for the handoff of his fake IDs to photograph him, and engage him in conversation. After that point, they were able to trail him.

(ii) Hired Murderers in Vancouver

Second, in 2013, Ulbricht commissioned online several murders – one of a person living in White Rock, British Columbia, which he paid for in Bitcoin and which was recorded on the Blockchain. The murderer was said to be the Hell’s Angels in Vancouver. While his chats on TOR and Blockchain tracing prove the commissioning of the murders-for-hire, there was never concrete evidence of a homicide in White Rock, British Columbia that police could tie to this case, or at least no body ever located. So in other words, while he conceded ordering the murders and the payments were made in Bitcoin to Canada and are on the Blockchain, no actual bodies have been located and it is theoretically possible that someone took his Bitcoin and didn’t kill anyone.

Regardless, it is a serious criminal offence to plot the murder of someone and separate offences to pay the Hells Angels to perform such crimes. The FBI deposed that Ulbricht paid for six murders.

After hiring to have a person murdered in Vancouver, Ulbricht wrote: “I’m pissed I had to kill him. . . . I wish more people had integrity”, in which he meant that he had integrity and the victim did not.

(iii) More Canadians Per Capita Bought Illegal Stuff on Silk Road the Most

Third, over 6% of the Silk Road TOR site was used by Canadians, meaning that over 6% of the criminal element involved Canadian sellers who had accounts at digital currency exchanges and used it to sell illegal goods and services on Silk Road and correspondingly, over 6% of the buyers of illegal goods and services on Silk Road were Canadians, who also used digital currency exchanges holding Bitcoin to make their buys and have narcotics, weapons and such shipped to them in Canada. Canadians ranked 4th among number of users of Silk Road, which is a phenomenally high number considering the small population of Canada.

(iv) Most Prolific Drug Seller Allegedly in Vancouver

Fourth, one of the most prolific sellers of illegal drugs on Silk Road was allegedly a Canadian in Vancouver named James Ellingson, who allegedly sold over $2 million worth of cocaine, heroin and other illegal drugs online. The US has sought his extradition to face prosecution in the US for allegedly trafficking illegal drugs online through Silk Road.

(v) Silk Road CEO was Canadian

Fifth, according to US prosecutors, Ulbricht’s mentor and chief advisor was a Canadian named Roger Thomas Clark, who advised Ulbricht on all aspects of the operations of Silk Road, and how to avoid detection of US law enforcement. Clark was aka Variety Jones and figured prominently in the Silk Road chat evidence in the Ulbricht trial.

According to this investigative reporter, Clark was appointed CEO of Silk Road by Ulbricht.

In those chats, Variety Jones and Ulbricht mentioned using violence to keep people from cooperating with law enforcement and Clark wrote: “[D]ude, we’re criminal drug dealers – what line shouldn’t we cross?”

The two were aware that their activities triggered the super kingpin laws. On one occasion, Clark wrote to Ulbricht: ““Not to be a downer [but] …understand that what we are doing falls under Drug Kingpin laws, which provides a maximum penalty of death upon conviction. . . . The mandatory minimum is life.” Not to be deterred with the prospect of life in prison, Ulbricht replied: “All in my friend.”

In 2015, Clark was arrested in Thailand and eventually extradited to the US. He fought extradition for 2 1/2 years and lost. He is incarcerated in the US and faces money laundering, trafficking in falsified ID, and narcotics trafficking charges in the US.

Q – What has Ulbricht said about Silk Road and his role in its creation and operation? 

A – For his sentencing, Ulbricht submitted that he did create Silk Road and admitted he was its administrator and said he did it because he was a young idealist who wanted people to have the freedom to pursue their own happiness.

Q- Was he a money launderer? 

A – Yes, he was convicted of conspiracy to launder money with an underlying narcotics offence and specifically, of trafficking 60,720 kilos of illegal narcotics.

Q – Why did Ulbricht get two life sentences plus 40 years and is that normal? 

A – Ulbricht’s sentence was partly for deterrence. The Court noted specifically that what Ulbricht did was unprecedented in terms of the operation of a vast criminal enterprise and for anyone thinking about copying Ross Ulbricht, they needed to understand, without equivocation, that if they break the law like he did, there will be “very, very severe consequences.”

It is not unprecedented in the US for defendants who super kingpins of narcotics trafficking organizations to receive a life sentence.

According to the United States Sentencing Commission, in 2013, the relevant year for Ulbricht’s sentencing, 153 offenders in the US received terms of life imprisonment from federal judges and another 168 received terms that were so long, it was akin to a life sentence because it surpassed a life sentence. The most common type of conviction to receive a life sentence was for drug trafficking, similar to Ulbricht. Ulbricht is among 4,500 inmates in the US who are serving life sentences.

The drug trafficking guidelines, which are applicable to Ulbricht, provide for a sentence of life imprisonment for drug trafficking offences where death or serious injury resulted from the use of the drug and the defendant was previously convicted of a drug trafficking offence. In some cases, however, if there is a very large quantity of drugs trafficked, the sentencing range can include life imprisonment.

In Ulbricht’s case, the fact that he was convicted of continuing a criminal enterprise and the Court found that his enterprise sold illegal narcotics to underage teenagers, meant that under the sentencing guidelines, the severity of the punishment was increased.

Followers of Ross Ulbricht have called for his sentence to be reduced. The Judge found that given the gravity of the offences, it was not possible for him to be rehabilitated into a law abiding person.

Q – Wasn’t Silk Road just like an Amazon, so what was the harm?

A – At one point post trial, Ulbricht did raise this argument, arguing that he was like a landlord who let his tenants sell drugs. His lawyer argued at sentencing that his conduct was equivalent to the owner of a crackhouse and that he should be held criminally liable, at most, for the use of his premises for criminal purposes with his knowledge, taking into account that the premises were a website.

The prosecutor countered that with evidence that Ulbricht had himself said in his own words that he was “lead[ing] an international narcotics organization” and that the drug dealers selling on Silk Road were his “business partners.” The prosecutor noted that like all heads of a TCO, the defendant did not sell drugs himself because he did not have to; he had an entire online network of persons under his umbrella who did the selling, and like any drug kingpin, he earned commission from every sale in Bitcoin.

Q – Is it true Ulbricht allowed cyanide to be listed on Silk Road for sale after acknowledging he knew it would be used to kill people? 

A – Yes.

Q – Did Ulbricht believe that what he was doing was criminal and against the law?

A – Yes, he said so in his TOR chats, and was aware that the risk was life imprisonment if ever caught, prosecuted and found guilty. At sentencing, though, he expressed remorse for having set up Silk Road and said that he threw away his life doing it.

Q – Can Ulbricht appeal his case? 

A – He has exhausted all appeals and was unsuccessful on all his appeals.

Q – Is it true teenagers died as a result of Silk Road? 

A – Yes, the prosecution at trial introduced evidence of six drug overdose deaths tied to Silk Road, and two of those were teenagers. Ulbricht argued that some teenagers had previous health issues and even if they died of drugs acquired from him, he was not responsible for those deaths because of their pre-existing medical conditions.

Under tort law, though, a drug dealer takes his customers as he finds them and is responsible for drug-related deaths his drugs caused irrespective of the health of the user. Ulbricht did not dispute the evidence that teenagers and others had purchased illegal drugs from Silk Road and that those purchases contributed to their deaths.

Q – What was the defence Ulbricht instructed his lawyer to argue that Silk Road was a responsible enterprise? 

A – The defence was instructed to argue, inter alia, that he “did not create the world” and his sentence should not be enhanced just to stem the evolution of sales of illegal drugs on the darknet, because a sentence of deterrence would not curb illegal drug sales using TOR sites and such a sentence would be akin to trying to stop the world from spinning.

The defence at sentencing also submitted that Silk Road was an example of responsible drug dealing because it had harm reduction protocols in place and, they submitted, Silk Road’s drug sales had a positive and progressive element, making drug sales safer for everyone.

The Judge called these arguments fantasy, noting that “no drug dealer from the Bronx selling meth or heroin or crack has ever made these kinds of arguments to the Court”, and noting that it was an argument from a person with a privileged life. The Judge noted that Ulbricht made illegal drugs available over the Internet to communities around the world that previously had no access to such drugs and rather than making the world safer with his drug activities, he expanded the availability of narcotics globally and made it a more dangerous place for teenagers and everyone else.

A timeline (hard to follow) is here.

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