WASHINGTON — The co-founder and CEO of Backpage, a sex advertisement website shut down by the federal government last week, pleaded guilty in Arizona federal court late last week to conspiracy charges related to prostitution and money laundering, including the use of cryptocurrency.
Backpage is known as a hub for sex workers to advertise services, and, in darker circles, a platform for human sex trafficking.
A 93-count indictment filed nearly two weeks ago against Backpage in federal court alleged that Backpage used cryptocurrency companies like CoinBase, GoCoin, Kraken and Crypto Capital to launder money. Money laundering is the deposit of any money derived from illegal activities, according to Hope Lefeber, a criminal defense attorney in Philadelphia.
But with cryptocurrency, money laundering becomes more complicated because of blockchain technology. Blockchain technology relies on a peer-to-peer system in which only the “peers” have the key to the transaction, and the transaction—spread out via blocks—are often too complicated to hack.
Carl Ferrer, the chief executive of Backpage.com, confirmed in his plea that Backpage used cryptocurrency processing companies to launder money. Ferrer was not originally listed in the federal indictment, but pleaded guilty to conspiracy charges in three states. He agreed to testify against the men who co-founded Backpage with him.
A Justice Department spokeswoman declined to comment about how the agency learned Backpage used cryptocurrency companies to launder money.
Martin Mushkin, an attorney in New York who specializes in bitcoin law, said that it’s “effectively impossible” to track cryptocurrency like Bitcoin and thus “easier to disguise financial assets.”
In 2015, major credit card companies, including Mastercard, Visa and American Express, no longer allowed their cards to be used on the Backpage website, making cryptocurrrency more appealing for Backpage users.
“That’s probably why Bitcoin was used and why they’re charged with money laundering because it’s very hard to trace. The government is going to allege [Backpage] used sophisticated means to hide their illegal activities,” Lefeber said.
Among the other means was to develop ways for customers to purchase ads using gift-cards from outside vendors and mislead customers to send checks to a holding company through the mail.
A study from the Rand Corporation earlier this year found that $80 billion to $200 billion of cash generated by cybercrime is laundered every year. Law enforcement has only begun to seize the crypto-assets, but it’s unclear how police and federal officers identify the accounts due to the anonymity of bitcoin technology.
“While these types of investigations can be made more challenging with the use of virtual currency, offshore banking, and the anonymity of the Internet,” said Chief Don Fort of the Internal Revenue Service’s criminal division in a press release. “It should serve as an example to all criminals that there is not a place they can hide where we will not find them.”