Bitcoin not money, Miami judge rules in dismissing laundering charges

Miami-Dade Circuit Teresa Mary Pooler listens to arguments about the virtual currency Bitcoin during a hearing in May.

In a case closely watched in financial
and tech circles, the judge threw out the felony charges against website
designer Michell Espinoza, who had been charged with illegally
transmitting and laundering $1,500 worth of Bitcoins. He sold them to
undercover detectives who told him they wanted to use the money to buy
stolen credit-card numbers.
But Miami-Dade Circuit Judge Teresa
Mary Pooler ruled that Bitcoin was not backed by any government or bank,
and was not “tangible wealth” and “cannot be hidden under a mattress
like cash and gold bars.”
“The court is not an expert in
economics; however, it is very clear, even to someone with limited
knowledge in the area, the Bitcoin has a long way to go before it the
equivalent of money,” Pooler wrote in an eight-page order.
The
judge also wrote that Florida law — which says someone can be charged
with money laundering if they engage in a financial transaction that
will “promote” illegal activity — is way too vague to apply to Bitcoin.
“This
court is unwilling to punish a man for selling his property to another,
when his actions fall under a statute that is so vaguely written that
even legal professionals have difficulty finding a singular meaning,”
she wrote.
The ruling was lauded by Bitcoin experts who believe
the ruling will encourage the use of the virtual currency, and offer a
roadmap to governments across the world that have struggled to
understand and regulate it.
Espinoza’s attorney, Rene Palomino, said the judge’s order was “beautifully written.”
“At
least it gives the Bitcoin community some guidance that what my client
did was not illegal,” Palomino said. “What he basically did was sell his
own personal property. Michell Espinoza did not violate the law, plain
and simple.”
A spokesman for the Miami-Dade State Attorney’s
Office said: “We are presently reviewing the court order to determine
whether we will be appealing this decision.”
Law enforcement has struggled to figure out how Bitcoin fits into illegal activities, and Espinoza’s case was believed to be the first money-laundering prosecution involving the virtual currency.
The
controversial virtual currency allows some users to spend money
anonymously and it can be also be bought and sold on exchanges with U.S.
dollars and other currencies.
The currency has gained popularity
with merchants selling legitimate goods and services. In Miami, there
are a few restaurants that accept the virtual currency — and even a
plastic surgeon.
Regulated services such as CoinBase, which
operates similarly to PayPal, allow people to buy, sell and use the
Bitcoins. But authorities have raised concerns about the currency being
used in the anonymous black market.
Most notoriously, Bitcoins
were used to traffic drugs in the now-shuttered Silk Road network. In an
unrelated South Florida case, a Miramar man got 10 years in prison
after using Bitcoins to buy Chinese-made synthetic heroin from a
Canadian prisoner.
In Espinoza’s case, Miami Beach detectives
found him through a Bitcoin exchange site, LocalBitcoins.com, and told
him they were going to use the currency to purchase stolen credit-card
numbers.
The detectives met with Espinoza, 32, three times in person: on Lincoln Road, at an ice cream shop and in a hotel room.
Espinoza
was arrested along with another man, Pascal Reid, who pleaded guilty to
acting as an unlicensed money broker and was sentenced to probation.
Under his unusual plea deal, he agreed to teach law enforcement about
Bitcoin.
At a hearing in May, a defense expert, Barry University
economics professor Charles Evans, testified that Bitcoin was not
actually money.
No central government or bank backs Bitcoin, like
the United States does the dollar. Government regulation of Bitcoin
remains a messy hodgepodge from state to state, country to country. The
IRS considers Bitcoin deals no more than bartering, he said.
“Basically,
it’s poker chips that people are willing to buy from you,” said Evans, a
virtual-currency expert who was paid $3,000 in Bitcoins for his defense
testimony.
The judge’s decision will help Bitcoin flourish in
Miami and countries where banking system are tenuous, Evans said in an
interview on Monday.
“Bitcoin is perfect for small-scale
cross-border transactions and we are international in this area,” Evans
said. “If somebody from Venezuela needs a hammer, now that person can
send Bitcoin to his cousin in Miami, that cousin can sell the Bitcoin,
go buy the hammer and send it to Venezuela.”
The ruling could also
spark a push to tweak Florida law. Judge Pooler, in her ruling, said
the state’s money-laundering law that targets transactions that
“promote” illegal activity requires a “much-needed update.”
“Hopefully,
the Florida Legislature or an appellate court will define ‘promote’ so
individuals who believe their conduct is legal are not arrested,” Pooler
wrote.

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By David Ovalle

Posted in Uncategorized.