'Guinea Pig' Money Laundering Case May Decide Bitcoin's Legal Status


'Guinea Pig' Money Laundering Case May Decide Bitcoin's Legal Status

Is it possible to be laundering money with Bitcoin if it’s not legally considered money? A court case in Florida may be about to give us an answer.

Also read: Liberty Reserve Creator Sentenced to 20 Years Jail Time

Can’t Launder Money If It’s Not Money

Michel Espinoza

The by-now infamous case concerns Michel Espinoza, a young computer programmer and early bitcoin trader arrested in January 2014, and later charged with dealing in currency without a money transmitter license and attempted money-laundering.

Espinoza’s legal team has filed a motion to dismiss the case with the argument that bitcoin is not defined as currency under Florida law, so the charges cannot apply.

Barry University economics professor Charles Evans testified for the defence, saying legal definitions of Bitcoin were messy and varied in different jurisdictions, and that the IRS defines Bitcoin as similar to barter.

According to a newspaper report, Miami-Dade Circuit Judge Teresa Mary Pooler called the case “the most fascinating thing I’ve heard in this courtroom in a long time.”

Pooler is due to make a decision by June 17th after hearing further arguments and is believed to be working on a detailed written judgment to present after that date.

Legal Team Confident

Michel Espinoza, who was an active trader on LocalBitcoins.com in Miami, was arrested in February 2014 after a lengthy undercover sting operation.

Investigators had been shadowing the local Bitcoin community in Miami since they attended the North American Bitcoin Conference there in early 2013, in what Esponiza’s attorney Rene Palomino called a “fishing expedition” for a local trader to use as a test case.

Speaking to Bitcoin.com, Palomino said he was optimistic Judge Pooler would make a logical decision on the case, adding that she had done background research, asked interesting questions and understood the economic principles surrounding the case. He explained:

“Based on the evidence and videos I’ve viewed, this young man did absolutely nothing wrong.”

Espinoza wasn’t trying to set up a bitcoin exchange or bank, and engaged in simple one-to-one transactions without a third party, Palomino said. He had no prior criminal history.

Besides, there is no current law or case history available for people to understand how to act where bitcoin trading is involved.

“Bitcoin does not fall under any of the terms used to define financial transactions” under current law, he said, describing the attempted money-laundering charge in particular as “very weak.”

‘Guinea Pig’ Test Case

Espinoza made three transactions of $500 USD to undercover detectives posing as fellow Bitcoin enthusiasts. At a later date, he met the same individuals at a hotel room where they requested a further $30,000 trade and discussed a foreigner they knew who dealt in stolen credit card numbers.

He did not feel comfortable making the transaction in a hotel room and requested it take place in a bank, at which point he was arrested. Police initially attempted to charge Espinoza with money laundering but reduced it to attempted money laundering since the transaction never actually took place.

The detectives targeted Espinoza and a second trader, Pascal Reid, at an early stage in Bitcoin’s history – when most government agencies were only just starting to discover cryptocurrency and its uses – in what Espinoza’s legal team calls a “guinea pig case.”

Reid later pled guilty to the unlicensed money transmission charge and received probation. Money-laundering charges against Reid were dismissed.

Bitcoin & Money-Laundering

Espinoza may have been one of the first people charged with a money laundering offense for trading bitcoins, but he wasn’t always the most famous. In December 2014, the former CEO of pioneer bitcoin exchange BitInstant, Charlie Shrem, was sentenced to two years’ prison for a similar crime.

In Shrem’s case, he worked in partnership with Robert Faiella to trade large volumes of dollars for bitcoins, which were later used to buy drugs on the defunct online marketplace Silk Road.

He was arrested very publicly at New York’s John F. Kennedy airport upon returning home from a Bitcoin conference in Amsterdam, a move which led some Bitcoiners to accuse the NY authorities of organizing a publicity stunt.

Meanwhile, in Florida

laundering miamiSome have ridiculed the charges against Espinoza for concerning such small amounts of money. More high-stakes money-laundering usually involves multi-million dollar sums over longer periods of time.

For an ironic sense of proportion, Florida’s own Bal Harbour police department and Glades County Sheriff’s Office have been under investigation for laundering over $70 million for South American drug cartels, in an operation that appears to have little relevance to their local law enforcement work.

That supposed sting operation included a staggering 84 deals with criminal gangs in Chicago alone, and multiple luxury purchases, hotels and flights for the officers involved. The police did not make any arrests in the course of their “investigations.”

Do you think this case could determine Bitcoin’s legal status moving forward? Let us know in the comments section below!

Tags in this story
Bitcoin crime, Espinoza, Florida, miami, Miami-Dade, Money Laundering

Images courtesy of soybit.com, miamiherald.com, huffingtonpost.com

Jon Southurst

Jon Southurst has been interested in bitcoin since reading Neal Stephenson's 'Cryptonomicon' in 2012. A long-time tech writer, he has been a regular contributor at CoinDesk and has written for Kaiko.com, DeepDotWeb and ancient print publications. He lives on an artificial island in Tokyo.

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