A Florida man can be charged with money laundering in a case involving the use of Bitcoins, a judge ruled, rejecting a defense claim that he did nothing illegal because the online currency isn’t money.
Pascal Reid, 29, was charged Feb. 6 with money laundering and engaging in an unlicensed money-servicing business in what one prosecutor said may be the first state charges over the use of Bitcoin. A second man, Michell Abner Espinoza, 30, also was charged, but his case is before a different judge.
Miami-Dade Circuit Judge Fleur Lobree said today the state has grounds to proceed with the case against Reid. His lawyer argued that because Bitcoin isn’t a currency under Florida law, his client didn’t commit a crime when he allegedly sold Bitcoins to an undercover agent who said he was using them to buy stolen credit cards.
Bitcoins have no central issuing authority and use a public ledger and a network of voluntary computers, known as “miners,” to verify encrypted transactions. It has gained traction with merchants selling legitimate products. It also has been used to facilitate illegal transactions, which has drawn the attention of law enforcement worldwide.
Lobree didn’t rule on whether Bitcoins are currency under state law. Instead, she said she was persuaded by the prosecutor’s argument that a transaction involving Bitcoins can constitute money laundering if another currency is also used.
“This would be the equivalent of trade-based money laundering,” Assistant State Attorney Tom Haggerty told the judge. “Let’s say the defendant used the proceeds of drug sales to buy televisions and ship them to Colombia to sell them there and get money out of them.”
Florida’s money laundering law defines monetary instruments as “coin or currency of the United States or of any other country, travelers’ checks, personal checks, bank checks, money orders, investment securities in bearer form or otherwise in such form that title thereto passes upon delivery, and negotiable instruments in bearer form or otherwise in such form that title thereto passes upon delivery.”
Reid’s attorney, Ron Lowy, said after the hearing that the state’s decision not to argue that Bitcoin is a currency forces prosecutors to prove his client believed the officer’s claims that he was using the Bitcoin to buy stolen credit cards.
“It’s interesting that the state has decided to rely on the officer’s cash and not the Bitcoin as constituting currency for purposes of the money laundering statute,” Lowy said. “The point of money laundering is to turn what you have into clean cash, not turn clean cash into Bitcoin.”
Federal prosecutors are probing possible criminal violations tied to the shutdown last month of Tokyo-based Mt. Gox, once the world’s largest exchange for digital-currency transactions, two people familiar with the matter said Feb. 26. It follows a series of charges filed by U.S. prosecutors since last year related to the currency.
The Manhattan U.S. attorney’s office also requested information from the Bitcoin Foundation, an advocacy group, and companies that have done business with Mt. Gox, said a person briefed on the foundation’s contacts with prosecutors. The foundation and the companies aren’t targets, the person said. Japanese authorities are also probing Mt. Gox’s shutdown.
Both defendants in the Florida case are being held in Miami-Dade County jails. Reid’s trial is scheduled for May 27.
A prosecutor said the cases may be the first time anyone has been prosecuted for Bitcoin activity under a state statute.
“The use of Bitcoins in the transactions is a new technological flourish to this very old crime,” Miami-Dade State Attorney Katherine Fernandez Rundle said after the men were arrested. The “arrests may be the first state prosecutions involving the use of Bitcoins in money laundering operations,” she said.
In the Miami case, undercover police officers sought out “individuals engaged in high volume Bitcoin activity,” Rundle said after the two men were arrested.
In December and January, a Miami Beach police officer and a Secret Service agent bought $1,500 in Bitcoins from Espinoza and another $1,500 from Reid in separate transactions, according to arrest affidavits filed in the case. They told both men they were using the digital currency to buy stolen credit cards. The officers found the men on the Bitcoin exchange site LocalBitcoins, according to the filings.
In February, Reid sold the Secret Service agent $25,000 worth of Bitcoins, paying him a $5,000 commission, police said. The Miami Beach officer tried to purchase $30,000 in Bitcoins from Espinoza, but Espinoza backed out of the deal, fearing the cash might be counterfeit, according to the affidavits.
The cases are State of Florida v. Espinoza, 14-002923; State of Florida v. Reid, 14-002935, Miami-Dade Circuit Court (Miami).