Bitcoin Trading Isn't Money Laundering, But For How Long?

In February 2014, Michell Espinoza and Pascal Reid went to a Miami Beach motel as part of a plan to sell up to $30,000 worth of bitcoins — the “cryptocurrency” that is really just very strong, uniquely identifiable, freely transferable cryptography and was then selling for $473 each — to two men they had met online through the site LocalBitcoins.com. The two men, who were actually part of a joint Miami Beach Police-U.S. Secret Service undercover task force, had told Espinoza and Reid they had acquired their money through exploitation of a point-of-sale hack on a large retailer and its credit card customers, and wanted to use the bitcoins to purchase more illegal credit card data online. Arrest warrants for dealing in “electronic currency with no central authority” were drafted; officers entered the motel room with guns drawn, yelling “Police! Get down!” and, in separate events, Espinoza and Reid were cuffed and charged with violation of Florida’s Money Laundering Act and with operating an unlicensed money transmitting business.

Espinoza and Reid moved to dismiss the charges in Miami-Dade County Circuit Court, arguing they could not be guilty of money laundering since bitcoin is not money. In Reid’s case, Judge Fleur Lobree rejected the argument without discussion, and Reid eventually pled guilty to the lesser charge of acting as an unlicensed money broker. He received 90 days in jail, five years of probation, and, with a nod to famous hacker Bruce Mitnick (who served a four-year prison stint and now provides “white hat” hacker guidance to federal law enforcement), leveraged his skills — his plea deal requires him to teach law enforcement officers the ins and outs of bitcoin transactions. In Espinoza’s case, however, Judge Teresa Pooler decided to take up the question, calling it “the most fascinating thing I’ve heard in this courtroom in a long time.”

It might seem counterintuitive that bitcoin, despite its name, is not money. It was first presented in 2008 in a now famous eight-page paper by a still-unidentified author, who offered the germs of code in support of what the paper defined as an “electronic cash system” that would allow users to “verify payments” and avoid the up-to-then insurmountable problem of “double spending.” Bitcoin is accepted as payment for goods and services by thousands of companies and many more individuals, and is available in some areas through ATMs. Yet it isn’t minted like money, but mined like gold, through a peer-to-peer network of programmers laboring in big or small “bitcoin mines.”

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