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Show details Accused of Using Bitcoin to Launder Prostitution Revenue Accused of Using Bitcoin to Launder Illicit Ad Revenue

Reading Time: 2 minutes by on April 13, 2018 Bitcoin, Business, News, Regulation
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The online classified website Backpage, which was previously accused of facilitating prostitution, has finally been seized by American law agencies.

Prostitution, not Dating Advertisements

The move came after a grand jury in Arizona indicted seven employees of the company on March 28, 2018. It is alleged that executives of the website took no action despite having direct knowledge of the site being used for prostitution activities. The company raked in more than $500 million in revenue due to this illegal business model.

The Federal Bureau of Investigation (FBI), in coordination with the U.S. Attorney’s Office for the District of Arizona, pulled down the website April 6, 2018 and seized its servers. The action then resulted in an indictment charging the two founders, Michael Lacey and James Larkin, along with five others.

Backpage Seizure

(Source: Backpage)

The allegations explain that the company falsely portrayed advertisements related to prostitution as dating or matching advertisements while continuing to do business. Furthermore, the company’s top executives also admitted in internal company documents that they were complicit in facilitating these illegal activities.

This activity was first brought to the notice of authorities in 2015. It even resulted in MasterCard announcing the removal of its payment method from the website. According to an estimate by IBT, Backpage had sold 1.4 million advertisements, charging anywhere between $5 and $17 for each ad.

As a result, the company generated $100 million worth of revenue in 2015 alone. Since then, this number has increased significantly. The indictment alleges, “Virtually every dollar flowing into Backpage’s coffers represents the proceeds of illegal activity.”

Bitcoin as Illicit Means of Payment

Given that MasterCard discontinued support for Backpage soon after the discovery of the platform’s illegal activity, bitcoin became the primary payment option. This kind of adoption is not the first instance of the cryptocurrency being used for unlawful activities.

Authorities across the globe have long argued that bitcoin’s characteristic property of pseudo-anonymity has made it a favorite for those involved in illicit dealings.

Even though several women have filed civil lawsuits against Backpage in the past, this is the first time that the FBI has taken any action. The website has also been accused of soliciting child prostitution.

Defending the Culprit

In the platform’s defense, Backpage lawyers argued that the website and its developers were in no way involved in running a prostitution network through the website and that the advertisements were set up by users.

The defending party also stated that it would be incorrect to blame the company for illegal user actions as it only hosted the ads rather than sponsor them outright.

The indictment said, “In addition to facilitating prostitution through its U.S. website, Backpage also facilitated prostitution through its websites in foreign countries.”

The Washington Post reported that “Backpage had hired a contractor in the Philippines to solicit ads from prostitutes advertising on other websites, creating ready-made ads for them on Backpage, though Backpage had said it was not involved in creating content.”

The indictment also mentioned the Philippines-based operation, highlighting that internal emails showed that it was part of a five-year business plan and that the primary task was to expand into international markets.

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