Owning and operating a money transmitter service in the U.S. is “illegal” unless it is registered with State agencies. Unfortunately, this is also true if one uses Bitcoin to exchange for fiat currency. Bitcoin is not immune from State or Federal laws regulating the flow of money, and agents can track bitcoin transfers over the blockchain.
These facts have become more apparent in the last few years as
at least 4 people have been arrested and charged with financial crimes related to
the “illegal” transmission of Bitcoin.
All the cases involved individuals allegedly exchanging
Bitcoin for a fee. Some of the individuals advertised these services online in
a furtive or overt fashion. They were caught after local or federal agents begin
an investigation, and sometimes after the “suspects” transferred bitcoin to an
undercover officer for a fee. However, sometimes there was not even an
investigation only suspicion and a ill-gotten warrant.
Recent Cases of Bitcoin Transmitter
Crimes
Missouri Case
In a recently circulated case, a Missouri man pleaded
guilty to conducting
an unlicensed and unregulated money transmitter service. The man, Jason R.
Klein, posted advertisements on the internet to exchange Bitcoin for cash. The
Missouri attorneys office statement said,
Between
Feb. 6, 2015, and July 27, 2016, Klein, acting with another, met with two
undercover federal agents on numerous occasions to exchange bitcoin for cash.
Today’s plea agreement cites five separate transactions in which money (ranging
from $1,000 to $15,000) was exchanged in person for an electronic transfer of
bitcoin. Each of the transactions included a fee that Klein or another person
charged the undercover agents, for a total of $2,122 in fees.
Klein is subject to receive a penalty of up to five years in
prison without parole.
Arizona Case
In another recent case covered by Bitcoin.com, an Arizona man named Thomas
Constanzo, AKA Morpheus, was accused of possibly running an illegal money
transmitter service…but was only charged with possessing “60 cartridges of
ammunition.” Some think this is more a politically-motivated charge, since alleged
crimes of illegal money transmission were not leveled. A warrant for running a money
transmitter service was issued alongside the arrest for the ammo
cartridges.
“A warrant signed by U.S. Magistrate Judge David Duncan sought evidence that Costanzo
may have operated an “unlicensed money transmitting business,” engaged in
illegal drug sales, and tried to hide any profits.”
Constanzo was considered a “flight risk” and was not provided
the opportunity for bail.
Ohio Case
In a more complex case, an Ohio man named Daniel Mercede
was charged with using stolen credit card information to buy concert tickets
and resell them for a profit. After a prolonged investigation involving a home
search, cops learned of ongoing money transmitter crimes. Allegedly, agents
figured out that Mercede was purchasing large quantities of Bitcoin from
overseas exchanges and reselling them at a premium. An FBI article about the case explained
what they found and the sentence they handed down,
“Court
records show Mercede wired funds to make daily purchases of $10,000 and $40,000
in bitcoin. Over six months beginning in August 2014, Mercede illegally
converted or transmitted $1.4 million. He was sentenced on March 21 to more
than six years in prison. The case represents one of the first convictions for
what is believed to be an increasingly frequent crime—operating an unlicensed
money transmitting business.”
New York Case
In a New York case that occurred between 2014 and 2015, a man on
probation for transferring child pornography, named Richard Petix, pleaded
guilty to running an “illegal money transmitting business” and “making false
statements.”
On December 3, 2015, Petix conducted a bitcoin exchange with a
federal agent in Buffalo, New York. He sent 37 bitcoins to the officer,
worth about $13,000 at the time. He was also on probation, and allegedly lied
about having access to the computer where the transaction occurred. The New
York attorneys office summarized his activities,
“Between August, 2014, and December 3, 2015, Petix conducted
over 100 Bitcoin transactions wherein he transferred over $200,000 in bitcoins
to customers both locally and across the United States. At least some of these
customers then used the bitcoins to purchase controlled substances from dark
net vendors. At no time during this period did Petix comply with federal money
transmitting business registration requirements.”
Conclusion: Government Crack down and
Anonymity Problem
These cases represent a government crack down on the use of
bitcoin to exchange cash for a fee, although in some cases the transmitter
service was stumbled on by accident (Mercede) or not found at all (Constanzo).
Needless to say, government has become aggressive in regards to
thwarting illicit use of Bitcoin by underground, black market actors. They are
now willing to hand out warrants or conduct investigations even if the evidence
is tentative, nonexistent, or amounts to a witch hunt.
Governments also have the tools and understanding to track bitcoin addresses and
obtain computers that harbor wallets. Currently, it seems ill-advised for
anyone to attempt to transfer bitcoin in exchange for cash. In the least,
anyone interested in subverting government laws should acknowledge that
Bitcoin is only pseudo-anonymous and digital currency trails can be traced.
With that said, government possessing authority to tell
people how to spend their money is a controversial
subject. Many have decried government assaults on these “criminals”
as an attack on individual liberty, a person’s right to their property, and
ability to spend their money how they see fit.
Do you believe even more
people will be arrested for operating “illegal” bitcoin exchanges in the near
future? Do you believe people should be punished for spending their money as
they see fit? Let us know in the comments section below.
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