Late last year, online postings on the Black Market Reloaded website noted the site was shutting down because it had become so popular the operators no longer could guarantee anonymity to people using the site for confidential purchases.
By then, federal agents had been investigating the website for eight months as part of what the FBI now says was a massive probe of a secretive online marketplace for biological agents, explosives, narcotics, weapons and counterfeit products.
On Thursday, a 29-year-old Carmichael man who allegedly used the site to mail toxins to customers in New York and San Francisco made a brief appearance in U.S. District Court in Sacramento to plead not guilty in a case involving illegal weapons and explosives sales.
James Christopher Malcolm did not speak during the arraignment before U.S. Magistrate Judge Edmund F. Brennan. Instead, Malcolm, garbed in an orange jail jumpsuit with waist chains, sat staring at the defense table, his hands pressed together.
His lawyer, Assistant Federal Defender Benjamin Galloway, told Brennan his client was seeking a jury trial on four counts of transferring explosive materials, unlawful dealing in firearms and possession of and transfer of a machine gun. He agreed to set Malcolm’s next court appearance for Aug. 21, after Assistant U.S. Attorney Justin Lee disclosed that the government has 57 CDs filled with video and audio evidence for Galloway’s review.
Following Malcolm’s arrest last month, federal agents searched his home, his SUV and two storage units that he rented. Search warrant returns unsealed this week state that authorities seized pistols, rifles, shotguns, a sample of poison and other items from those venues. An additional search warrant return – for a storage unit on Fair Oaks Boulevard in Carmichael – remains sealed.
Malcolm was arrested following a two-month federal undercover probe, during which he allegedly sold agents illegal weapons. He has not been charged in the Internet poison case, but a search warrant application filed in a separate case in San Francisco says an individual identified as “Witness 2” used the Black Market Reloaded site to sell deadly poisons to at least two individuals. Galloway has confirmed that Malcolm is the subject described in the court documents.
BMR shut down last fall in the midst of the federal probe, but similar sites remain a thriving business on the Internet and, according to federal court documents, have generated tens of millions of dollars in illicit profits.
Shortly before BMR closed its doors, the FBI shut down the “Silk Road” website that authorities say was used “to buy and sell illegal drugs and other illicit goods and services anonymously and outside the reach of law enforcement.”
That site’s alleged creator, Ross William Ulbricht, was arrested and indicted on charges that the site was used to peddle heroin, cocaine, LSD, methamphetamine and other narcotics to 100,000 buyers worldwide and “to launder hundreds of millions of dollars deriving from these unlawful transactions,” according to a Feb. 4 indictment filed in federal court in New York.
Ulbricht, whose aliases included “Dread Pirate Roberts,” also was accused of trying to hire someone to murder a Silk Road user who was threatening to release the names of thousands of the site’s users.
The Silk Road case is pending and is one of the first to shed light on the so-called “Darknet” side of the Internet, underground networks where marketing in contraband is common, bitcoins are the currency of choice and anonymity is demanded.
Central to this anonymous use of the Internet are networks such as Tor, which allows people to use the Web without revealing their identity or location. The FBI says Malcolm used Tor to shield his identity as he sold poisons through Black Market Reloaded.
Tor began as part of a naval research project to protect Navy communications, but since has evolved into a means for whistleblowers, journalists, activists and others to share information in relative security, without fear of being tracked, according to the Torproject.org website. The site notes that Tor can be used to guard against identity theft and to allow for Web access in countries where the Internet is tightly controlled.
The network operates by routing a user through a random series of relays, supported by 5,000 volunteer computer users worldwide, that mask the user’s Internet protocol address and location. The software required to use the network is free, and can be downloaded in moments. Searches conducted through the network cannot easily be traced, and using simple search terms, a user can locate sites worldwide offering narcotics and weapons for sale. Entering those sites often requires registration with the use of encrypted passwords, PINs and other passkeys aimed at ensuring anonymity.
“Like any technology, from pencils to cellphones, anonymity can be used for both good and bad,” the Torproject.org site says. But anonymity, it says, “is a requirement for a free and functioning society.”
U.S. Attorney Benjamin Wagner, while acknowledging the legality of such networks, said they also serve as a haven for criminal conduct.
“There is nothing illegal or inherently wrong in using encryption services like Tor,” Wagner said. “Our interest in Tor and similar services, however, is that they are often used to attempt to mask the identity of parties to Internet transactions; and therefore, persons who want to use the Internet for unlawful purposes, such as trafficking in illegal weapons, narcotics, or child pornography, often avail themselves of that anonymity.
“It’s like abusing a weapon,” Wagner said. “There are good and bad uses, and the bad uses have to be combated.”
Tor officials say there is nothing they can do to prevent misuse of their technology, much like carmakers cannot prevent someone from using a vehicle for illegal acts.
“The way we approach it is, the technology is amoral, so we’re building software and doing research in these issues, because they’re important,” said Kelley Misata, Tor’s director of outreach and communications. “We can’t control the behavior of the people using it.”
Tor stands for “the onion routing” network, a term culled from the 1990s notion that Internet use could be shielded through layers, much like layers of an onion. It is a nonprofit registered with the Internal Revenue Service that receives funding from free speech advocates and technology giants such as Google, as well as the U.S. State Department.
Tor is based in Massachusetts, has 10 full-time employees and 20 contract workers, and posts its financial statements and tax returns online. An estimated 500,000 users a day access the network, and Misata said it helps people ranging from domestic violence victims hoping to shield their locations to journalists protecting sources.
“We’re used for good as well as evil,” she said. “We know that people use technology to do bad things. We also know there are many other good uses for … our technology for people.”