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US Department of Justice Accused Backpage of Laundering Millions in Crypto

Following the United States Congress passing the Fight Online Sex Trafficking Act (FOSTA), which holds websites criminally and civilly liable for users misusing online personals unlawfully, several websites including Craigslist removed their personals sections in fear of prosecution. Another site, called Backpage – that is similar to Craigslist in the way it offers personals and other classified ads – was seized on Friday by the US Department of Justice (DOJ) due to a  93-count federal indictment.

The joint action by the FBI, IRS, and other federal organizations, alleges that Backpage earned over $500 million in prostitution-related revenue since it launched in 2004. The site had long been under the legal microscope, and over the years had gained a reputation for prostitution.

The DOJ accuses Backpage of “facilitating prostitution using a facility in interstate or foreign commerce.” That interstate and foreign commerce in question is said to have been via bitcoin and other cryptocurrencies. Both VISA and Mastercard pulled their service from Backpage in 2015 for “moral, social, and legal reasons,” leaving crypto as their payment solution.

IRS Criminal Investigation Chief, John D. Fort called Backpage co-founders Michael Lacey and James Larkin the “masterminds” behind “egregious financial crimes such as money laundering at the expense of women and children and using virtual currencies… and the anonymity of the Internet to cover their tracks.”

The indictment asserts that Backpage converted payments in and out of cryptocurrency to evade law enforcement, launder funds, and use the guise of crypto’s pseudo-anonymity to hide their tracks. The report also states that even the prostitutes themselves had begun using crypto for the same unlawful reasons.

Chief Postal Inspector, Guy Cottrell added “By laundering the illegal gains of an enterprise, Backpage perpetuated the exploitation of victims and continued to finance their business.”

FBI Director Christopher Wray explained the move against Backpage and further committed to fight online sex trafficking:

“Whether on the street or on the Internet, sex trafficking will not be tolerated. Together with our law enforcement partners, the FBI will continue to vigorously combat this activity and protect those who are victimized.”

VISA and Mastercard pulling support from Backpage resulted in what many in the crypto community called “The Backpage Effect,” which saw a rush of female sex workers seeking advice on how to obtain Bitcoin to make payments for ad space on the site.