Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Angel M. Melendez, the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (“HSI”), announced the arrest and unsealing of a complaint charging HUGH BRIAN HANEY with money laundering, derived from the proceeds of his narcotics trafficking on the Dark Web site known as “Silk Road,” where illegal drugs and other illicit goods and services were regularly bought and sold by the site’s vendors and customers.  HANEY was arrested this morning near Columbus, Ohio, and was presented before a magistrate judge in the Southern District of Ohio.

U.S. Attorney Geoffrey S. Berman said:  “Working side by side with our law enforcement partners, our Office has shut down Silk Road, the secret online marketplace for illegal drugs, hacking services, and a whole host of other criminal activity.  As alleged, Hugh Haney used Silk Road as a means to sell drugs to people all over the world.  Then he allegedly laundered his profits – more than $19 million – through cryptocurrency.  Today’s arrest should be a warning to dealers peddling their drugs on the dark web that they cannot remain anonymous forever, especially when attempting to legitimize their illicit proceeds.”

HSI Special Agent-in-Charge Angel M. Melendez said:  “In 2013, Silk Road was put out of business, and as a result of that, cyber criminals sought ways to continue their criminal activities and more importantly launder their illicit digital currency.  Haney was allegedly one of those criminals  who was still holding on to a stash of cyber gold.  HSI special agents employed blockchain analytics to uncover and seize bitcoins valued at $19 million and usher Haney out of the dark web shadows to face justice in the Southern District of New York.”

As alleged in the Complaint to be unsealed today[1]:

Silk Road was designed to be an online criminal marketplace outside the reach of law enforcement or governmental regulation.  All transactions on Silk Road could be completed only through use of the cryptocurrency Bitcoin.  During its two-and-a-half years in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to more than 100,000 buyers, and to launder hundreds of millions of dollars derived from these unlawful transactions. All told, the site generated sales revenue totaling more than approximately 9.5 million Bitcoins. 

One prominent narcotics vendor on Silk Road was called “Pharmville.”  The operators of Pharmville supplied a dedicated community of individuals who often traded illicit narcotics.  Agents and officers of the Drug Enforcement Administration made multiple controlled purchases of narcotics, including oxycontin, from Pharmville in 2011 and 2012.  Pursuant to a judicially authorized search of HANEY’s house in Ohio in 2018, agents with HSI found evidence that HANEY was a high-ranking member or administrator of Pharmville, involved in large-scale narcotics trafficking on Silk Road.

Because Silk Road’s payment system essentially involved a Bitcoin “bank” internal to the site, every user had to hold an account in order to conduct transactions on the site.  Vendors seeking to sell items, including narcotics, on Silk Road each had a Silk Road Bitcoin address, or multiple addresses, associated with the user’s Silk Road account.  Once a transaction was complete, a vendor who had been paid by another user through the transfer of the user’s Bitcoins could then withdraw Bitcoins from the vendor’s Silk Road Bitcoin address by sending them to a different Bitcoin address, outside Silk Road, such as the Bitcoin addresses the vendor personally controlled.

In 2017 and 2018, HANEY transferred Bitcoins representing narcotics proceeds he had earned through his control of Pharmville from Silk Road to an account held at a company involved in the exchange of Bitcoins and other digital currency (“Company-1”).  In correspondence with Company-1, HANEY claimed falsely that the source of these Bitcoins was his own “mining” of Bitcoins – which is the process by which new Bitcoins are created cryptographically – and from “individuals [he] met online,” while in truth and in fact, the Bitcoins were derived from transfers from Silk Road.  After HANEY transferred the Bitcoins to cash worth more than $19 million through Company-1, HSI seized the money pursuant to a judicially authorized seizure warrant from a custodial account at a bank (“Bank-1”) that was located in the Southern District of New York.

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HANEY, 60, of Columbus, Ohio,  is charged with one count of concealment money laundering, which carries a maximum sentence of 20 years in prison, and one count of engaging in a financial transaction in criminally derived property, which carries a maximum sentence of 10 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding investigative work of HSI. 

This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant United States Attorneys Samuel L. Raymond and Tara M. La Morte are in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.

 



[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.