Sex Marketplace ‘Backpage’ Used Bitcoin For Money Laundering: DOJ

April 13, 2018 15:55 UTC

The classified sex-advertising website Backpage.com used cryptocurrency exchanges to launder millions of dollars in bitcoin. That’s what the U.S. Department of Justice alleged in a bombshell 93-page federal indictment which accused the online sex marketplace of money-laundering, conspiracy, and facilitating prostitution.

The Department of Justice shut down the website last week amid findings that it promoted underage prostitution and sex trafficking since its launch in 2004. Moreover, the site laundered tens of millions of dollars using cryptocurrency, the DOJ said.

“[Illegal prostitution ads] have enabled Backpage to earn over $500 million in prostitution-related revenue since its inception,” the indictment read. “Virtually every dollar flowing into Backpage’s coffers represents the proceeds of illegal activity.”

Coinbase Customer

The Justice Department continued: “Backpage also furthered its money-laundering through the use of bitcoin processing companies. Over time, Backpage utilized companies such as Coinbase, GoCoin, Paxful, Kraken and Crypto Capital to receive payments from customers and/or route money through the accounts of third parties.”

Named as defendants were Backpage co-founders Michael Lacey and Jim Larkin and five of their associates. Backpage has a sprawling international operation that ran sex-marketing sites in 97 countries, according to a recent U.S. Senate report.

In 2015, payment processors Visa, American Express, and Mastercard stopped processing transactions on the site, citing “moral, social, and legal reasons.”

That’s when bitcoin use became popular on the site. In fact, the use of bitcoin surged so much that it fueled a movement among sex workers called “The Backpage Effect.”

While the nascent cryptocurrency industry is exploding thanks to soaring interest from consumers and investors, it has been hamstrung by the reality that criminals use crypto to launder money and evade taxes.

Regulators Turn Up Heat

In March 2018, Arizona-based bitcoin trader Thomas Mario Costanzo was found guilty of money-laundering. In a sting operation with undercover police, Costanzo encouraged the purchase of illegal drugs with crypto.

To stamp out fraudsters, regulators are turning up the heat in the United States, Asia, and Europe as crypto continues to gain traction.

Despite the con artists in the industry, Old Money is starting to trickle in. The Rockefeller family (estimated net worth: $1 trillion) just announced it’s taking a long position in cryptocurrencies by investing in blockchain startups.

Featured image from Shutterstock.

Last modified: April 13, 2018 15:58 UTC

More of: Backpage
@Samantha_Chang

Samantha Chang is a New York City-based financial editor who writes about crypto and business at . She is a law school grad and an alum of the University of Pennsylvania. You can reach her on Twitter at Samantha Chang or email her at schang121@juno.com.