A popular tool used to prosecute Bitcoin business operators is 18 U. Bitcoin is at the forefront of the electronic currency market. Though Bitcoin has survived its early stages in the investment market, the legal framework in which Bitcoin lives has been slow to solidify.
Along with the nascent and complicated regulatory framework on both the Federal and State level, Bitcoin business operators are now being prosecuted under 18 U. This article addresses the initial question as to whether Bitcoin is covered by 18 U.
Bitcoin mining money transmitter licensing conflicting classifications by Federal regulators as to what Bitcoin actually is, the few Courts that have addressed this issue have held that 18 U.
Faiella39 F. Specifically, the DOJ presented its determination that Bitcoin and other virtual currencies are covered by 18 U. Any money transmitter that fails to register with FinCEN or to obtain the requisite state licensing may be subject to criminal prosecution under 18 U. Additionally, the general money laundering and spending statutes, 18 U.
Finally, where virtual currencies are used in furtherance of underlying criminal activity, the Department can rely on traditional criminal statutes bitcoin mining money transmitter licensing that activity, such as narcotics, cybercrime, child exploitation, and firearms laws. This article principally addresses the applicability of the unlicensed money transmitting business statute to certain Bitcoin-business operators and whether the DOJ can and should prosecute individuals under that statute.
The unlicensed money transmitting business statute states: To establish criminal liability under this statute, the government must prove that a person or business a transferred bitcoin mining money transmitter licensing behalf of the public, b funds c in violation of State or Federal licensing and registration requirements, or with knowledge that the funds were derived from a criminal offense. Of note, however, the Federal registration requirements for money transmitting businesses can be found under 31 U.
In United States v. Murgiobusiness owners found themselves indicted for, among other things, allegedly running a Bitcoin-related money transmitting business without proper licensing and registration. The government also alleged that the operators bribed a Federal credit union in New Jersey and attempted to mask the true nature of its business from financial institutions by presenting itself as an association of individuals interested in bitcoin mining money transmitter licensing items, like stamps and sports memorabilia.
Judge Nathan concluded that they were. Ultimately, the Court refused to dismiss the charges against Murgio. Other cases have similarly held. Faiella was charged with operating an unlicensed money transmitting business under 18 U. It can be used to purchase goods or services. The defendants pleaded guilty one week after the Court denied its motion to dismiss the indictment in the Faiella opinion.
It was alleged that Liberty Reserve bitcoin mining money transmitter licensing designed to help criminals conduct illegal transactions and launder the proceeds of their crimes. Ultimately, it was prosecuted under Section for failing to register as a money transmitting business and for conspiring to commit money laundering. May 10, Judgment. See Ripple Labs Settlement Agreement. The company also agrees that it was operating while being unlicensed and the settlement agreement specifically cites 18 U.
It seems that the cases that have thus far been prosecuted in this area have contained fact patterns where the government has suspected other more far-reaching criminal activity. However, Section gives prosecutors a strong advantage because of the criminal liability that may attach from the mere failure to register.
Much like how certain notable organized crime leaders have been convicted bitcoin mining money transmitter licensing tax and other more technical criminal offenses, these few prosecutions have shown glimpses of the practice of garnering a conviction of a suspected criminal on more technical grounds, rather than the main criminal activity suspected by the government. As of now, there are no reported cases that solely address a defendant whose only issue is the failure to register.
But lawyers and business operators should be aware that this statute provides a highly effective prosecutorial tool that can be used to fast-track a Bitcoin-related conviction. Federal tax consequences of transactions in, or transaction that use, convertible virtual currency. Nevertheless, the CFTC has taken a different position in its administrative decisions.
See In re Coinflip, Inc. In regards to what Bitcoin actually is, the various Federal agencies are at odds with one another, and the Courts have deemed agency characterizations to be irrelevant to 18 U.
There is no uniformity. The truth of the matter is that the regulators, the Courts and the legislature remain collectively uncertain as to how Bitcoin is best characterized. Practitioners should be aware that the characterization of Bitcoin may ultimately result in a determination based merely on whatever gives the government authority power over the action. As recent judicial opinions indicate, a Court will be unlikely to dismiss unlicensed money transmitting cases involving Bitcoin on technical definitional grounds.
This is a matter of importance because Section criminalizes the failure to bitcoin mining money transmitter licensing with licensing regulations and poses a criminal liability risk to operators of Bitcoin-related businesses.
This criminal exposure is in addition to the various State and Federal regulators that have already claimed oversight over these businesses. Particularly when regulators have already asserted themselves into this realm and the regulations and licensing requirements are so new, confusing, fact-specific and different from State to State, it begs the question bitcoin mining money transmitter licensing to whether criminal liability is fair and necessary for failing to properly register.
When running a Bitcoin business, or considering incorporating Bitcoin into a pre-existing business, one must be aware of the various regulations, guidances and judicial decisions in this area.
Avoiding or delaying registration and licensing on the State and Federal level could have disastrous consequences both for the company and the individual operators. In this relatively young virtual currency world, the legal framework has not developed as rapidly as virtual currency has bitcoin mining money transmitter licensing widespread acceptance in the investing community.
What has resulted is a difficult regulatory and criminal landscape that requires counsel that is knowledgeable in this area to navigate. Interestingly, an article by Fortune magazine reported on the barriers created by these new regulations. For instance, many Bitcoin start-ups were refusing to service New Yorkers because of the exorbitant cost of applying for a BitLicense.
But executives say that the paperwork was extensive and required legal help, which carries additional fees. If there were any ambiguity in this regard—and the Court finds none—the legislative history supports application of Bitcoin mining money transmitter licensing in this instance. See United States v. Ulbricht31 F. However, one State Court has held that Bitcoin is not covered by the Florida unlicensed money transmitter and unlicensed payment instrument seller statutes.
See The State bitcoin mining money transmitter licensing Florida v. Michell Abner EspinozaNo. It is tasked with safeguarding the financial system from illicit use, combatting money laundering and promoting national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. See also Faiella39 F.
Evans focuses his practice on the defense of white-collar criminal and regulatory actions and investigations as well as the prosecution and defense of other commercial actions that often involve technologically advanced and complex legal issues.
Evans is also a Certified Fraud Examiner. He can be reached at and jevans bitcoin mining money transmitter licensing. Return to Fordham Law School. Conclusion As recent judicial opinions indicate, a Court will be unlikely to dismiss unlicensed money transmitting cases involving Bitcoin on technical definitional grounds.
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