Another Alleged Member Of “Operation Silk Road” Returning To The U.S. To Face Federal Charges
Federal prosecutors allege Clark Davis was a key figure in the development of Silk Road and advised Ross Ulbricht on all aspects of the criminal enterprise.
The U.S. Attorney’s Office for the Southern District of New York for a long time has been seeking the extradition of Clark Davis to the United States from Ireland to face charging of a number of offenses relating to his alleged association with Ross Ulbricht. Ross Ulbricht is the creator and operator of the first anonymous free market “Silk Road”.
Mr. Ulbricht created Silk Road in January 2011. He owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet at the time, serving as a sprawling black-market bazaar where unlawful goods and services, including illegal drugs including cannabis, were bought and sold regularly by the site’s users. While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to well over 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.
Silk Road enabled its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement. Silk Road was operated on what is known as “The Onion Router,” or “Tor” network, a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the network’s users. Silk Road also included a Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.
Mr. Ulbricht was eventually convicted and is serving a life sentence without the possibility of parole. His appeal to the Supreme Court of the United States was denied on June 28, 2018. Already he has been languishing in prison for half a decade now.
Manhattan U.S. Attorney Geoffrey S. Berman stated “Silk Road was a secret online marketplace for illegal drugs, hacking services, and a whole host of other criminal activity”. U.S. prosecutors allege that Mr. Davis served as a trusted confidante to Mr. Ulbricht, advising him on all aspects of this illegal business, including how to maximize profits and use threats of violence to thwart law enforcement.
Mr. Davis was arrested by Irish law enforcement after the Honorable James C. Francis IV, of the United States District Court for the Southern District of New York, outlined three counts of indictment: conspiracy to distribute narcotics, conspiracy to commit computer hacking, and conspiracy to commit money laundering. U.S. prosecutors asked Mr. Davis be extradited as far back as early 2014. Just last month, Mr. Davis waived his final appeal from being sent to the United States, and essentially agreed to extradition. He was forced to capitulate shortly after Ireland’s highest court ruled 5-0 the process engaged in by the U.S. and Irish law enforcement was legal. Mr. Davis had two days to further appeal to the EU Court of Human Rights. He declined.
The original Federal Bureau of Investigation (FBI) indictment pegs Mr. Davis as Mr. Ulbricht’s right hand at Silk Road and that Mr. Davis was paid $6,000 a month to be a customer service representative at Silk Road.
With Mr. Davis returning to the U.S., criminal legal proceedings will commence. If convicted, Mr. Davis who is from Ireland faces a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison, among other charges which could be added. For example if Mr. Clark was paid as income for his role in Silk Road that was not reported to IRS, the IRS can look to press charges for tax evasion.
Homeland Security Investigations special agent-in-charge, Angel M. Melendez, stated in connection with the extradition of another alleged member of Silk Road, namely Roger Thomas Clark, that “The extradition of this man today should be a reminder to those who think they can hide within the confines of the dark web, that you are never out of reach of the long arm of the law. These investigations are important in combating the illicit drug market and we will continue to work with our law enforcement partners to fight this fight”.
Charges Could Be Expanded To Include Tax Crimes
For individuals nabbed by the Federal Government, it is not surprising that the IRS gets involved and they are also charged with tax crimes.
Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.
Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).
And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.
Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!
What Should You Do?
It is risky enough to be involved in cannabis or crypto-currency, so imagine how much riskier it is combining both. It is important to control this risk which you can do by engaging the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability.