The FBI shut down the black market website Silk Road on October 2nd. The man allegedly running it, Ross William Ulbricht, was arrested in San Francisco and charged on multiple counts relating to his work on the site.
Silk Road: “The Ebay of Drugs”
Silk Road was known for its extensive array of illegal goods for sale and was called “the eBay of drugs” or “the Amazon.com of illegal drugs.” Federal prosecutors in New York characterized it as “the most sophisticated and extensive criminal marketplace on the internet.”
For sale on Silk Road were all kinds of drugs from around the world, including pot, cocaine, ecstasy, and heroin; computer hacking services and bank account information; fake IDs and passports; and guns–plus hitmen for hire.
The anonymity of the site allowed users to purchase and sell illegal items and launder money without compromising their identities. Federal investigators found more than one million user accounts registered to the site, though that does not necessarily mean there were one million users.
In the investigation, federal agents made more than 1,000 purchases of drugs and illegal software. They finally tracked down site mastermind Ulbricht, who went by the name Dread Pirate Roberts (DPR), and were able to arrest him after he made some mistakes that revealed his identity.
Ulbricht’s Mistakes Revealed His Identity
Ulbricht made at least two mistakes, according to court papers. First, he used his own personal Gmail address in a question-and-answer forum online. Second, he purchased fake documents from Canada that used his photo and real birth date which were intercepted in a routine search at the border.
Ulbricht ran the site since its inception in 2011 with help of administrators, whom he paid weekly and swore to secrecy. Ulbricht was worried that one of his administrators would talk to the police. He contacted someone through the site and said he wanted this employee tortured for stealing money from another user. Ulbricht then changed the order to execution and paid $80,000 to get the job done. What Ulbricht didn’t know was that he was communicating with an undercover officer posing as a drug trafficker. The officer sent staged photos of the hit to make it look like it had been done.
Ulbricht faces charges in two states. In New York, he is being charged with money laundering conspiracy, computer hacking conspiracy, and narcotics trafficking conspiracy. In Maryland, charges include conspiracy to distribute a controlled substance and attempted murder of a witness.
He does not face charges on another hit he ordered on another user and paid $150,000 for. The name and address of the intended victim was not legitimate, and no murder took place.
How Did Silk Road Stay Active for So Long?
Silk Road was able to stay under the radar by using technologies that aided anonymity. They used Tor (the onion router)–a network and open source software that helps protect privacy online. It prevents surveillance on the sites someone visits and prevents the sites from knowing the physical location of the computer visiting it. Users visiting Silk Road had to use Tor to access it.
Users on Silk Road also used Bitcoin, a digital currency, for transactions. Bitcoin is used for legitimate purposes but is also attractive to criminals because it is transferred person-to-person directly (without going through a bank or clearing house), a person’s account can’t be frozen, and it can be used in any country. Because Bitcoin is transferred person to person over a network, it’s more difficult to trace than other financial transactions. Still, every transaction is recorded by someone in the Bitcoin community, to prevent users from doing the equivalent of writing multiple bad checks, so while tracing isn’t easy, it’s possible.
Although Bitcoin is a digital currency, it has value in the real world. Users can trade in their Bitcoins for money on special exchanges. Exchange rates and value can vary drastically – when Silk Road was taken down, Bitcoin saw a 20 percent drop in value (but recovered quickly). As of this writing, 100 Bitcoins go for $13,071 or €9,671. There are currently nearly 12 billion Bitcoins in circulation today.
In over two and a half years of operation, Silk Road made 600,000 Bitcoins in profit and 9.5 billion Bitcoins overall. Using the exchange rates valid at the time of the bust, federal authorities estimate that Silk Road made $80 million in profit and $1.2 billion overall.
Ulbricht Awaits Indictment
Ulbricht made a short appearance in federal court on Friday in San Fransicso. If indicted, he will be transferred to New York for arraignment. He faces life in prison if convicted.
