Bitcoin Forum

Did Miami just starting to arrest people over Bitcoin?

http://www.bloomberg.com/news/2014-02-09/miami-bitcoin-arrests-may-be-first-state-prosecution.html

No, they arrested people for money laundering and finCEN violations.

No, they arrested people for buying and selling bitcoins, and are calling it money laundering. 

Wrong. Those persons involved wanted/tried to use bitcoins for money laundering.

Wrong.  Those persons involved sold bitcoin to undercover officers who told them they are going to commit crimes with bitcoin and the people still sold it to them.  That and selling too many bitcoins means having to register as an MSB.

So this is a good thing, right?  Bitcoins are considered a financial tool where people must registered as a MSB if the volume is too high and must comply to AML regulations?

Wrong. I'm not in a country where such thing is necessary.

Glad to see that illegal money operations are seized and the guys behind are being prosecuted. If Bitcoin should have a chance growing up, we need to stop those youngsters that think they can get away with transactions in Bitcoin that are not allowed in fiat-money.

He's only being charged with the latter.  The former is just to bias it.  I call that entrapment anyway.  He traveled to the location and was ready to exchange before they claimed how they were going to spend it.  In any case, it's not clear that exchanging a currency with someone expressing an illegal intent to use said currency is illegal.  What would of been a clear case of money laundering would of been the undercover claiming that it was drug profits they were trying to wash.  Now, that is far different than just saying how you think you might spend something. 

Nevertheless, it is clearly wise to back out of a trade when they say something that doesn't sound right, if you can.  Until we know the details of this case, though, we don't even know if backing out was an option.  Quite often they'll throw that in after the transaction is initiated. 

When the case is closed, someone should interview the accused. 

When every victimless action is made a "crime", anyone can be prosecuted for "money laundering".

Only if they're operating businesses without the required license or conspiring to launder money for bad guys.

http://altcoinpress.com/wp-content/uploads/2014/02/report-660x853.jpg

The report is a lot more clear than the newspaper article.  It seems fairly clear that the seller really didn't have problems engaging in illegal activity.  The fact that he said that he would think about selling the stolen credit cards for BTC makes his case even worse.

That's not to say that the police weren't participating in entrapment, but perhaps there was other evidence not listed in this report that made them think that they were already involved in illegal activity.

It is clear that way more people know about Bitcoin now than a year ago, and you can't really get away with the sorts of things that you might have been able to get away with in the past.

What would happen if the undercover agent showed a gun when their mark tries to back out or makes a threat and that results in them accepting the deal. Would they still be convicted?

firstly you should be reminded that the report is unilateral

but it should be fairly, if not reasonably, obvious that the "I'll think about it" was merely a brush off.  

can't believe it!

it's pure provocation, Espinoza did nothing!

fashistic country full of provocateurs, in some counties provocations like this one are interpreted like criminal act! Its prohibited! Police can't inspire or lead people in to crime!

why do the police keep wasting our tax money? here's an idea: stop arresting pot smokers, prostitutes and bitcoin sellers and catch the fucking murderers and gang bangers.

Thinking about something is now a crime?

Yes: thoughtcrime.


Nobody is allowed to feel mortal fear of law enforcement officers, even if they don't know that the person with a gun is law enforcement officer and thinks they'll get shot by a criminal (or his accomplice) for not cooperating.

The gun didn't even necessarily have to be shown, if it "printed" (you could see the outline of the gun and/or holster through clothing).

Of course...god some people are dumb.

No they arrested people who sold bitcoin without a money service business license. YOU CAN NOT SELL BITCOIN FOR FIAT, if you do you become a money transmitter and can be breaking anti money laundering laws.

So bitcoin is a currency now? Bit confused here ..............

Kindly reference the laws that you are talking about, because I don't see how selling bitcoin for fiat is any different than selling gold for fiat, defunct currency for fiat, selling stamps for fiat, or selling, or selling like or unlike fiat for fiat.

Supposedly they are laundering the money (fiat) not the bitcoin so the presumption is that they take illegal "CASH" to purchase bitcoins then use the bitcoins to make legal purchases. 

The part about not having a license is a technicality that gets taken care of with an application, however money laundering is a crime even with a Money Service Business license, that license doesn't give you the right to launder money. 

I'm very suspicious of the motive for the investigation, it seems to be a grand waste of resources to have fed officers (FBI and Secret Service) presumably contacting random localbitcoin sellers in an effort to hit them with money laundering charges.   My guess is there was something else that was the true reason for the sting.  I'll go out on a limb and say the guys probably ripped off too many btc buyers as such had to be shut down one way or another.

It makes sense that Miami, the illegal drug capital of the world, would voraciously chase money laundering criminals. If the piggies set up a sting they were being watched for a long time. Who knows how much drug money localbitcoins has laundered in the last couple of years. The downside isn't that the idiots were caught but that yet another negative media report exists showing John Q Public that Bitcoins are only for criminals. Lovely!

If Id sell/buy BTC from a guy and he tells me about the crimes he is going to commit with these, I'd definitely question, why he would tell a stranger about the crimes he going to commit with these BTC and Id never do business with him. How can someone be that dumb and even more tell him - person to person - that he "will think about" buying stolen credit cards? Amazing ...

a> how do you know they didn't question.  does the law require them to verbalize their concern? 

b> since the 30k transaction never happened, there's no proof they were willing to complete it after hearing the Russian story.

c> if you suddenly realized you were either talking to the russian mob or talking to undercover cops without knowing for certain which, would you respond by self-righteously trying to give them a lecture on how you are better than them for not dealing with stolen credit cards, or would you brush them off with a meaningless response to their question like "I will think about it" so as not to risk insulting them or leading them to believe you're a threat? 

The law does not require you to self-righteously confront potentially dangerous criminals.  And, saying you will think about something that someone just asked you is not the same as proposing an idea.  The former is being polite and avoiding confrontation.  The latter would be an example of demonstrating "intent". 
 

Some sting operation. They go after guys that advertise publicly for their service. Wow! If all criminals did that, the Florida cops could just meet all of them at the donut shop.

in uniform

Why bee worried? Bitcoin will win or fail on its own merits.

HSBC and others have been laundering money for God knows how long, and it doesn't seem like that have affected the banking system of fiat money too much?

If we do a check, I'm sure all drug trade in Miami is mostly done with USD dollars. In cash.

Perhaps we should ban the US Dollar? Or at least cash! Only criminals use cash!

If govts. really really wanted to combat drugs, they would put all their efforts into fixing the root causes, establishing why the narcotics trade flourishes, and see what alternatives they can offer people, and how they can keep people off the drugs, not because the people are threatened to do so, but because they have alternatives and lead meaningful lives.

When buying and selling Bitcoins if the buyer says Im using these bitcoins for ILLEGAL purchases and you sell that buyer those coins, you are breaking a law.

Is justice in the US a joke? I mean, is it seriously being discussed that the police can suggest a crime and if the ''criminal'' doesn't give what he perceives to be a mobster a lecture on ethics and walks out carefree as to whether he'll be followed, then the ''criminal'' can be put in prison?

Btw in other countries this police entrapment isn't legal.

The MSB license thing, they're probably fishing to get MSB interpreted as pubicly advertising the sale of, rather than selling on an exchange, which is a ridiculous and fine line, and would probably be taken down like a number of other clarifications have since the March FinCen requirements (which the NSA asked the FinCen to give them since they too didn't know whether to charge MtGox's Dwolla..).

Yep.

In Amerika, a man who you reasonably believe to be armed suggests committing a crime. You then are expected to

A) Comply, and be persecuted, despite your reasonable fear of death or serious bodily injury
B) Verbally oppose the criminal and suffer death or serious bodily injury, effectively commit suicide
C) Carry a gun in violation of "gun control", and attempt to citizen's arrest the criminal, risking death or serious bodily injury. In the case of undercover/plainclothes cops, they will shoot you, then you will be written off as a "suicide by cop", even though the wire recording will reveal a hailstorm of gunfire, and then an order for you to drop the gun as you are falling or fallen to the ground, a block of human Swiss cheese

A variant of C) actually happened http://www.ijreview.com/2014/02/115178-police-shoot-kill-80-year-old-man-bed/ and is likely not the only time it has ever happened.

It has nothing to do with BTC, it's just an ordinary credit card crime that involved BTC.

Wow some people are so easily confused and that's what the authorities count on.  Simple minded people believe eveyrthing they are told.

It depends on the state.  

http://www.charlotteobserver.com/2014/02/06/4668574/grand-jury-wont-indict-man-who.html#.UwMSBfldUom

Juries often reflect the viewpoints of the population at large and my guess in Texas they are getting sick and tired of using no knock warranties to bust non violent offenders just so sheriff boys get to play soldier using military weapons, gear, and tactics.  The jury was sending a message to judges and prosecutors.  If you order a no knock warrant and get someone killed the blood is on your hands. 

+1

While what you says make sense, does the law really cover that?

If you go to a hardware store and you purchase a crowbar and you tell the clerk at the counter that you're going to use it to break into your ex's house, is the clerk part of a crime? Is the store part of a crime? Is the distributor part of a crime? Is the producer part of a crime? Is the source of the raw material that was used to produce the crowbar part of the crime?

Is the clerk part of a crime if the person tells it before he pays it? What if he tells it after he has paid and is on his way out of the store?

What if you send an e-mail to your bank, telling them you're going to withdraw cash and pay a plumber with it, is the bank then partners in crime?

What is the responsibility of a seller? When is the law broken?

Obviously, if selling bitcoins and the other party outright tell that he's going to commit a crime, he's either very stupid, or it's a law enforcement sting operation. Then the only wise thing should be to back off, but I guess a lot of dudes are greedy and don't care, esp. so if the comission is big.

I think however it is wrong that law enforcement is allowed to do entrapment. If law enforcement claims they will buy stolen cc's with bitcoins, and they never do this - then no crime ever took place. How can anybody be convicted of a crime that never took place? And how can somebody be convicted as partnes in crime to a crime that never took place?

I'm not sure if the americans really see how fucked up this system is?

I would like to see a bank being accused of being partners in crime the next time someone buys narcotics with usd dollars. After all, they have security cams at the ATM's right - and when a gangster drives up and cashes out an extraordinary large amount, then the bank must know that it's going to be used for illegal purposes, right, right?

The whole system is more and more turning into a farce. Exactly where should we draw a line as to whether you're complicit in crime or not? After all, there's a lot of everyday items that can be used to commit crime, and while not every buyer gives you a verbal clue, you sometimes can get clues from their body language and facial expression.

So if somebody that looks completely enraged goes into a gun store and asks for a rifle, should he get it? At what point should he not get it? Where's the responsibility of the store owner?

I guess it boils down much to using your gut feeling, and reacting when you think it's warranted. Ideally however a transaction between bitcoin and cash should be 100% neutral, and there should be no responsibility for the parties to know what the other party exactly is doing.

If one of them is doing some kind of crime that's against the law, then law enforcement should investigate that. Bitcoins are only one part of the puzzle, crime has always existed, and bitcoin is neutral. Today most crime is conducted with fiat money, we don't see much of a push for banning that, do we?

Do an experiment.  Stop by your bank and withdraw some cash.  Tell the teller you will get some gas for your car with that money and then will speed on the freeway.  What should the bank do?  Not give you your money?

I guess some of you has misunderstood why the story of the stolen cards is mentioned. He's prosecuted not because he said "I'll think about it" re the proposed illicit activity.. that part is written in the document only to prove that he KNEW what the undercover agent was dealing with and which was the purpose of the bitcoins he wanted to buy.

My interpretation is that the specific ML "nuance" used in this case (you know there are more than one, some of them don't even require the funds to be the proceeds of a crime) is the following

U.S. Code › Title 18 › Part I › Chapter 95 › § 1956
18 U.S. Code § 1956 - Laundering of monetary instruments

(3) Whoever, with the intent—
(A) to promote the carrying on of specified unlawful activity;
(B) to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or
(C) to avoid a transaction reporting requirement under State or Federal law,
conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term “represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section.

I think this is a very good idea for law enforcement. They should just go to lots of banks and test this out, then arrest those employees one by one, since they're aiding in criminal activity. In fact, they should be arrested under the terrorist act, as speeding clearly i domestic terrorism and a matter of national security.

All of this is just plain crazy, I sincerely hope they get out of this with a fine, and not have to spend years in prison. The prison sentences in America is out of every proportion.

Indeed, at least from a European perspective..moreover, it doesn't look like they actually work in stopping crimes.

More on the topic:

9.5.5.2.1.3  (08-27-2007)
Title 18 USC §1956(a)(3), Sting Operations

Title 18 USC §1956(a)(3) is a sting provision that allows for undercover operations where the government, or a direct informant, represents funds as being derived from a SUA. This subsection was added to the statute expressly to permit prosecution where the defendant believes the proceeds were derived from a SUA because of a representation made by a law enforcement officer (LEO) or an informant working under the LEO's control. The elements include that a defendant conducts or attempts to conduct a financial transaction involving property represented by a LEO or another person at the LEO's direction, to be either proceeds of an SUA, or property used to conduct or facilitate an SUA.

And regarding the intent: 

9.5.5.2.1.5.3  (08-27-2007) Definition of Intent to Promote

Title 18 USC §1956(a)(1)(A)(i): intent to promote the carrying on of specified unlawful activity:

Circumstantial evidence is sufficient to show intent for this section. The government is not required to prove that a defendant intended to violate a specific statute, but did intend to promote or facilitate an activity that he/she knew to be illegal. A violation may occur even if the promoted SUA is never completed.

It's funny govts. always say it is about money laundering, but it's really about taxes..

Can you actually post the title of the news article instead of making up your own crap? For once this one does have me concerned because it looks like the agents themselves were trying to buy Bitcoins with dirty money to entrap them, didn't work, so they made up another charge instead which makes this more legitimate than the other stuff I've seen.

Are you asking the OP? If so, the link to the article is there, 1st post..

seems as though the stuff is still valuable after all

I'm not talking about links, I'm talking about the title of this topic itself being a hysterical one rather than the title being the same as what is written on the article, that's what you normally do when you want to discuss a news article here :P

As far as I know Bitcoin is not considered as money.
Then buying bitcoins with cash is like buying cars with cash.
Buying a car worth of 30 000 USD with cash is also a money laundering ?

P2P on that car deal, no problem; if dealer is involved simply must report.


this is the guide:
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html


this is from the horse's mouth:

REMARKS OF JENNIFER SHASKY CALVERY
DIRECTOR
FINANCIAL CRIMES ENFORCEMENT NETWORK
 
THE VIRTUAL ECONOMY: POTENTIAL, PERPLEXITIES AND PROMISES
UNITED STATES INSTITUTE OF PEACE
 
WASHINGTON, DC
JUNE 13, 2013
 
Good afternoon. It is a pleasure to be joining you at this event to discuss the potential,
perplexities, and promises of the virtual economy. I would like to thank our co-hosts, Thomson
Reuters, as well as the International Centre for Missing & Exploited Children, for inviting me to
join you today. I would also like to thank the U.S. Institute of Peace for providing us with such a
beautiful venue for our discussions.
 
First, a few headlines from the past several weeks, which not only sum up the very theme
of today’s discussions, but also illustrate how different our perspectives can be:
 
“Is the Government Trying to Kill Digital Currency?”
 
“Feds shut down payment network Liberty Reserve. Is Bitcoin next?”
 
“FinCEN’s New Regulations Are Choking Bitcoin Entrepreneurs.”
 
Or, on the other hand:
 
“A little regulation may boost Bitcoin’s Main Street cred.”
 
“New Money Laundering Guidelines Are a Positive Sign for Bitcoin.”
 
“Feds don’t plan to take down Bitcoin or other currencies.”
 
But, my personal favorite has to be, “FinCEN boss lays out Bitcoin rules.” If only it was
that easy.
 
One thing is clear – depending on what you read, FinCEN’s virtual currency guidance
has been the worst thing, or the best thing, to ever happen to virtual currency, and Bitcoin in
particular.
  
2
 
Taking a step back, for those of you who might not be as familiar with the work of
FinCEN, let me take a moment to give you a quick overview.
 
FinCEN is a bureau of the Treasury Department, and reports to the Office of Terrorism
and Financial Intelligence. With approximately 340 employees, we are relatively small
considering our broad responsibilities. Our mission is to safeguard the financial system from
illicit use and combat money laundering and promote national security through the collection,
analysis, and dissemination of financial intelligence and strategic use of financial authorities.
 
A key aspect of FinCEN’s mission is to administer and issue regulations pursuant to the
Bank Secrecy Act (BSA). The BSA requires a broad range of U.S. financial institutions --
including banks, money services businesses, casinos, insurance companies, securities and futures
brokers, and some trades or business, like car dealerships -- to assist U.S. government agencies
in the detection and prevention of money laundering. Financial institutions do this by instituting
effective anti-money laundering (AML) programs, and maintaining records and filing reports
with FinCEN. FinCEN, along with its law enforcement partners, uses the data contained in these
reports to detect and deter money laundering, terrorist financing, and other financial crime.
 
Now, back to those headlines I mentioned at the outset. It is in FinCEN’s regulatory area
that our interests first intersected.
 
This March, FinCEN issued interpretive guidance to bring clarity and regulatory certainty
for businesses and individuals engaged in money transmitting services and offering virtual
currencies.
 
Some in the press speculated that our guidance was an attempt to clamp down on virtual
currency providers. I will not deny that there are some troublesome providers out there. But, that
is balanced by a recognition of the innovation these virtual currencies provide, and the financial
inclusion that they might offer society. A whole host of emerging technologies in the financial
sector have proven their capacity to empower customers, encourage the development of
innovative financial products, and expand access to financial services. And we want these
advances to continue.
 
However, equally important is the need to ensure integrity and transparency. Because the
fact is, being a financial institution comes with certain responsibilities. And our recent guidance
is an important step to get us there.
 
FinCEN’s guidance explains that administrators or exchangers of virtual currencies have
registration requirements and a broad range of AML program, recordkeeping, and reporting
responsibilities. Those offering virtual currencies must comply with these regulatory
requirements, and if they do so, they have nothing to fear from Treasury.
 
The guidance explains how FinCEN’s “money transmitter” definition applies to certain
exchangers and system administrators of virtual currencies depending on the facts and
circumstances of that activity. Those who use virtual currencies exclusively for common
personal transactions like buying goods or services online are not affected by this guidance.
  
3
 
Those who are intermediaries in the transfer of virtual currencies from one person to
another person, or to another location, are money transmitters that must register with FinCEN as
MSBs, unless an exception applies. Some virtual currency exchangers have already registered
with FinCEN as MSBs, though they have not necessarily identified themselves as money
transmitters. The guidance clarifies definitions and expectations to ensure that businesses
engaged in similar activities are aware of their regulatory responsibilities and that all who need
to, register appropriately.
 
It is in the best interest of virtual currency providers to comply with these regulations for
a number of reasons. First is the idea of corporate responsibility. Legitimate financial
institutions, including virtual currency providers, do not go into business with the aim of
laundering money on behalf of criminals, such as those who would exploit children. Virtual
currencies are a financial service, and virtual currency administrators and exchangers are
financial institutions. Any financial institution and any financial service could be exploited for
money laundering purposes. What is important is for institutions to put controls in place to deal
with those money laundering threats, and to meet their AML reporting obligations.
 
At the same time, being a good corporate citizen and complying with regulatory
responsibilities is good for a company’s bottom line. Every financial institution needs to be
concerned about its reputation and to go out of its way to show it is operating with transparency
and integrity within the bounds of the law. Customers are going to be drawn to a virtual
currency administrator or exchanger where they know their money is safe and where they know
the company has a reputation for integrity. And banks will want to service administrators or
exchangers that show great integrity, innovation, and transparency.
 
But those institutions that choose to act outside of their AML obligations and outside of
the law are going to be held accountable. FinCEN will act to stop abuses of the U.S. financial
system.
 
Just a few weeks ago FinCEN named Liberty Reserve as a financial institution of primary
money laundering concern under Section 311. Liberty Reserve operated as an online money
transmitter deliberately designed to avoid regulatory scrutiny and tailored its services to illicit
actors looking to launder their ill-gotten gains. According to the allegations contained in a
related criminal action brought by the U.S. Department of Justice, those illicit actors included
criminal organizations engaged in credit card fraud, identity theft, investment fraud, computer
hacking, narcotics trafficking, and most relevant for today’s purposes, child pornography.
 
 The 311 action taken by FinCEN was designed to protect the financial system from the
risk posed by Liberty Reserve – an online, virtual currency, money transfer system that was
conceived and operated specifically to allow – and encourage – illicit use because of the
anonymity it offers.
 
Let me go back to the guidance I discussed earlier. FinCEN has been out front in issuing
our guidance to make it clear that we see virtual currency administrators and exchangers as a
type of money services business. These businesses are as much a part of the financial framework
as any other type of financial institution. As such, they have the same obligations as other
financial institutions, and the same obligations as any other money services business out there.
  
4
 
But keep in mind: this action was taken against one financial institution and one type of
financial service. That’s what a criminal case is, and that’s what a regulatory action is – an
action against a particular violator. With this action we were not painting with a broad brush
against an entire industry. I do not think that is fair to any industry in any situation, let alone this
one.
 
I do want to address the issue of virtual currency administrators and exchangers
maintaining access to the banking system in light of the recent action against Liberty Reserve.
Again, keep in mind the combined actions by the Department of Justice and FinCEN took down
a $6 billion money laundering operation, the biggest in U.S. history.
 
We can understand the concerns that these actions may create a broad-brush, reaction
from banks. Banks need to assess their risk tolerance and the risks any particular client might
pose. That’s their obligation and that’s what we expect them to do.
 
And this goes back to my earlier points about corporate responsibility and why it is in the
best interest of virtual currency administrators and exchangers to comply with their regulatory
responsibilities. Banks are more likely to associate themselves with registered, compliant,
transparent businesses. And our guidance should help virtual currency administrators and
providers become compliant, well-established businesses that banks will regard as desirable and
profitable customers.
 
Every financial institution, whether a brick and mortar bank or a virtual currency
administrator or exchanger, should be concerned about its reputation. Integrity goes a long way.
I recently heard a banker say that there is a reason that financial institutions have to obtain
licenses. It is a great bestowal of trust that enables banks to be part of the U.S. financial system,
to be part of the global financial system. And that trust -- that privilege -- comes with
obligations. One of those obligations is a responsibility to put effective AML controls in place
so that the type of criminal actors that showed up in the Liberty Reserve case are not able to
operate with impunity in the U.S. financial system.
 
In closing, I just want to circle back to the themes of today’s event. Much of what I
discussed today focuses on how we are approaching the “perplexities” of virtual currencies, and
those are discussions we need to continue to have going forward. But the “potential” and
“promise” these advances offer our economy are equally important. The innovations we are
seeing within the financial services industry are a benefit to commerce on many levels. From
providing services to the unbanked, to the development of new financial products, the virtual
economy holds great promise. However, I would like to close with a challenge to our great
innovators: extend your focus to devising creative solutions for preventing the abuse of virtual
currencies by criminals, such as those who would exploit children. We all stand to benefit from
such innovation, and the related transparency and integrity to our financial system.
 
 
###


additional reference:


Money Services Business - The term "money services business" includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.

An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value. The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity.

No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity.

Notwithstanding the previous discussion, the term "money services business" does not include:

A bank, as that term is defined in 31 CFR 1010.100(d) (formerly 31 CFR 103.11(c)), or
A person registered with, and regulated or examined by, the Securities and Exchange Commission or the Commodity Futures Trading Commission.
For the complete regulatory definition of "money services business", see 31 CFR 1010.100(ff) (formerly 31 CFR 103.11(uu)).

Note: Each money services business (MSB) is a financial institution. For the regulatory definition of "financial institution," see 31 CFR 1010.100(t) (formerly 31 CFR 103.11(n)).


This is the official site
http://www.fincen.gov/

They actually released a statement, that this was targeted at "registered businesses", and "those operating as a business, with large sums of clients and monies". Not individual John-Doe's who sell a few coins for a profit. That is just asset sales, and treated as such. (Transactions over $10,000 or volumes over $10,000 by any one person, are the target of the laws. Not single transactions under $10,000.)

Two transactions does not make him a "money transmitter".

"I will think about it", does not imply "Yes, I think I will", it implies, "I am unsure if I will participate, and have decided not to answer you at the moment".

If he was willing, that would never have been said. It would only have been said if he didn't want to do it, or had reservations about participation in facilitating the aforementioned apparent confession of illegal activities.

Getting arrested only implies that they "think" you may be guilty of a crime. The judge is the one who determines if any crime has been committed. To cover all ground, for possible convictions, the arresting officers will charge you with many things, and hope some are actual things which might be upheld in court. Rarely does anyone ever get found guilty of all charges, in most cases. They could have thrown j-walking in there, just to be dicks.

They acted rash, obviously an attempt to "ride BTC coat-tails", to try and make an example out of someone. That, or they actually had reservations that this person was conducting illegal activities, or just assumed so, because of the mention of BTC. (In light of news like silk-road, and due to lack of understanding what BTC actually is. We call those "white-knights", who are often misinformed, and get made to be the fools and branded forever as witch-hunters of the modern day.)

I guess you haven't read what I wrote a few post before, about the article being misunderstood regarding the story of the stolen cards: he's probably prosecuted not because he said "I'll think about it" re the proposed illicit activity.. that part is written in the document only to prove that he KNEW what the undercover agent was dealing with and which was the purpose of the bitcoins he wanted to buy.

They are probably charging him with ML for promoting the carrying on of specified unlawful activity by conducting (or attempting to conduct) a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, where the term “represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section.

Ah, sorry, you're perfectly right, the OP's title is completely misleading, like 99.99% of the ones used in the media..

yah Ponzi totally hilarious

"that part is written in the document only to prove that he KNEW what the undercover agent was dealing with"

my contention is that it only proves that the listener identified a question, it doesn't prove anything meaningful, in fact it more likely proves a disinterest because his response was generic and curt essentially a "give me your money and leave me alone" answer.  

While I agree; it's going to be up to the interpretation of the jury to determine his guilt...

The Police don't care if he had any intent. They do nothing but write the summons...

I think he'll get off in court because he owned the Bitcoins and wasn't selling them for somebody else. If he even suggests that he was afraid upon learning that the undercover was potentially an armed criminal and that he had no intentions to ever do business with this person again.

The cops could do this with a used car sale... It's going to be up to the court to determine his guilt...

What made him a money transmitter, and an illegal Money Service Business is the fact that he charged a fee for the professional business service.  

Had they simply used their own money to sell to the officers P2P that would have been a different story, at that point there would be no fee just an inflated sale price.

I'm on record (see wayyy above) for saying that I believe the the effort wasn't worth the charges.   Meaning, I think the only thing these guys are guilty of is not having a MSB license, and being to ambitious in trying to serve their customers.   I further speculated that such a grand effort presumable starting out from a localbitcoin ad is unreasonable. 
My speculation is that those arrested probably screwed too many customers which resulted in the sting and subsequent arrests. 

A plea deal might include them not doing any more MSB for 1 year+.  They can't afford bail, or a private esq, so I'm confident this isn't going to trial, it will plea out and be over with.    If this goes to trial, the court will likely be pissed at the DA even if a conviction is gotten for the no license.   If the ADA moves forward with the ML charge, they must have a whole lot more evidence that what we are prevy to.

I am sorry, maybe I am not able to explain myself properly: there are certain crimes which are crimes only if a specific intent is proven. In this case, forget about the stolen cards, they don't want or need to prove that he wanted/considered/thought about buying those cards or not.. that's just a trick to let him know what their business is.

Even if his reply was "Hey, are you crazy? I DO NOT want to buy any cards whatsoever, never, ever, period" that's not a problem, they didn't (probably, that's my interpretation) want him to say "yes", they only wanted to make him aware of what they needed the bitcoins for. At that point, if -being aware of their business- he still transact with them, he could be charged with ML, because he's aware he's helping them, with that transaction, committing a crime.

Hope it's clear now

Chasing people with made up cases by investigators is a disputed but sometimes used method.
But even if it is accepted as chasing method for criminals then should be used consequently.
When chasing mass murders which are killing with strangulation their victims why investigators don't go to vendors and say 'I want to buy 10 m of rope to strangulate some people' ?
Or asking for a bottle of whiskey and saying to the vendor that he needs to drink during driving the car.
Then put the vendors in jail if they sell them.
Even if the law would be applicable for selling bitcoins it was used very selectively.

Although, wouldn't it actually be easier to just use the USD to buy stolen credit cards? The Bitcoins that he sold were less likely to be used for crime than the USD that was paid for them...

It is sort of like, "I'm buying this used car just in case my existing getaway car breaks down. I might need to use this car in it's place..."

True.. I wonder if anyone here as a link to the actual indictment, to read the facts properly instead of speculating.. anyone?

you are trying to make a case for money laundering and it won't happen, those guys probably fought hard, really hard to get the first order completed ($25K), I'm guessing they borrowed from friends and family and were physically and mentally spent by the time the second big deal came around, THAT proved they were not bigtime anything, they were not even connected wannabeees,

The feds think doing a trade in btc is as easy as doing a drug deal, farrrrrrrr from the case, there are so many scams for buying selling, viruses, hackers, and even "legitimate" exchanges playing with your btc.   This doesn't happen with cash or drugs. 

All of the finCEN officers should own btc and learn about it intimately before assuming it's so easy to handle -- it's fantastically complex, far more complex than stocks, bonds, commodities, or any other financial instrument.   

Them going after the bottom feeders of the market doesn't make sense on it's face, there must be another reason for fed efforts.   Is there any update on this matter?

Amen to that.   You should see the Police where I live.   They are basically ticket writers with guns.   They spend more time sending 5 squad cars to give kids bike helmet tickets, than solving any sort of crime.  Worse than that, they think they are above the law and arrest people and write citations for things that they do themselves...

I'm not trying to make any case, just trying to explain what (in my opinion) the case is all about.. neither judging nor saying right or wrong! Not even know if they could possibly go to prosecution, without reading the indictment and reading about the evidence it's quite difficult.

Where do you get this idea? They were arrested for money laundering and they tacked that charge on just to scare the guy...
Being charged with something doesn't make you guilty... It's not even new that LEO will do this, it happens all the time.

To be a money transmitter you must not be involved as a direct party in the transaction... (PayPal is a money transmitter because it is facilitating an exchange between 2 other parties. PayPal isn't a party of the transaction, rather an intermediary.)

Selling something that you own for USD does not make you a money transmitter. FINCEN already addressed this and clarified that a Bitcoin transaction for USD by an individual or business does not require a license so long as the individual or business is a direct party to the transaction...

Not the way I read it... You (individual or business) can act as an intermediary of a transaction (selling something for a friend) as long as the USD amount is less than $300. Between $300 to $10,000 USD you will need a license to act as a third party to facilitate a transaction... The cap of $10,000 is strange to me as it's obviously not the highest amount that a money transmitter can work with. I guess above $10,000 it would require a different license and would follow a different article of the law...

hope they get freed soon  >:(

After reading through this whole thread, beginning to end, I'm surprised nobody has really emphasized how small of a grasp that the police/investigators/attorneys actually have regarding bitcoin. Everyone is assuming that the level of understand here at bitcointalk is universal.

Let's face it, this arrest didn't need bitcoin involved whatsoever. It was just an angle they were shooting from. Almost smells to me like this guy's friend ratted him out or someone who knows the defendant who literally had to pay a private investigator to explain to the police and state attorney what bitcoin is WAY BEFORE the setup & arrest could have taken place.

I'd be surprised if this guy made a bad business deal with someone heavily knowledgeable about bitcoins, screwed him over, and this was akin to payback. There's virtually no way police and state attorneys would go out on a limb based on self-educating about bitcoin from the wikipedia article & couple youtube videos and think, hey no problem, let's go do this Leeroy Jenkins style!

My gut instinct is someone who knew Michael Hack had to hire a private investigator or hire a retired L.E.O. who had connections in the Dade County state attorney's office to justify the man-hours and excessive court costs that will be drug out due to the complicated nature of bitcoins & why they had to make an ordinary ML honeytrap become 10x more confusing by involving bitcoins with it all.

I'm pretty such there is somebody behind it all who has like 2000 bitcoins or something and cashed 5 btc to throw money into a PI. This is how rich people fund publicly funded investigations against random individuals. They hire a PI who has ties to the relevant law enforcement agency. I'm from Florida and know a FWC (Fish and Wildlife office) who broke into private property (climbed a gate, ignored no-trespassing signs) all to arrest someone hunting too close to a turkey feeder.

The guy's name and mugshot were splashed across the morning newspapers and evening news. The FWC acted perfectly legally after his wife's best friend (a detective/PI) was lobbied to influence a public servant (the fwc officer) into enforcing a law that every private landowner usually breaks. (They sit on top of a deer or turkey feeder and shoot easy targets then lie about it as the hunt of a lifetime!)

The reason? Because one guy didn't donate $10,000 to the other's wife who was running for some state office on influential zoning board or something. The details are fuzzy but it was all political retribution about wounded ego's.

That's still ludicrous. People still don't understand cryptos in the mainstream.

Here is the law:

) Money transmitter—(i) In general. Money transmitter:

(A) Any person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic funds transfer network; or

(B) Any other person engaged as a business in the transfer of funds.

(ii) Facts and circumstances; Limitation. Whether a person “engages as a business” in the activities described in paragraph (uu)(5)(i) of this section is a matter of facts and circumstances. Generally, the acceptance and transmission of funds as an integral part of the execution and settlement of a transaction other than the funds transmission itself (for example, in connection with a bona fide sale of securities or other property), will not cause a person to be a money transmitter within the meaning of paragraph (uu)(5)(i) of this section.



and here is an interpretation of that law by the law enforcement agency charged with upholding that law:




FinCEN Ruling 2003-8 – Definition of Money Transmitter (Merchant Payment Processor)

November 19, 2003

Dear [ ]:

This letter responds to your letter dated February 5, 2003, requesting an administrative ruling with respect to whether [ ] is required to register with FinCEN as a Money Services Business in accordance with 31 CFR 103.41 by virtue of operating [ ]. Based on the representations contained in your letter, FinCEN has determined that [ ] is not a Money Services Business as defined in 31 CFR 103.11(uu), by virtue of the ACH processing services provided by [ ], and is therefore not required to register with FinCEN.

According to your letter, [ ] operates a service called [ ] that provides third-party origination services for Automated Clearing House (“ACH”) transactions on behalf of merchants. Through [ ], merchants can accept customer payments for purchases made through a merchant’s web site, or by telephone, in the form of a checking account debit. [ ]’s merchant customers obtain payment instructions to debit a customer’s checking account and submit these payment instructions to [ ] through [ ]. [ ] batches and submits the debit information to [ ]’s bank for processing through the ACH system. Once [ ]’s bank initiates the ACH, the depository institution at which the merchant’s customer maintains a checking account debits the account of the customer, and sends a credit instruction through ACH to [ ]’s bank, which then credits the amount to an operating account maintained at the bank by [ ]. After a temporary holding period to ensure that the transaction initiated by the merchant is not returned, [ ] remits the funds to the merchant. Through [ ], merchants are also able to initiate credits to provide refunds to customers. You have asked whether [ ] would be deemed a money transmitter in accordance with 31 CFR 103.11(uu)(5) by virtue of providing this service.

The definition of money transmitter for purposes of BSA regulations found at 31 CFR 103.11(uu)(5) includes:

(A) [a]ny person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic funds transfer network; or

(B) [a]ny other person engaged as a business in the transfer of funds.

FinCEN does not currently interpret the definition of money transmitter to include the third-party origination service that is described in your letter. The nature of the transactions you describe is the transfer of funds through the ACH system from a customer to a merchant as payment for goods and services. [ ]’s role in the transactions is to provide merchants with a portal to a financial institution that has access to the ACH system. [ ] acts on behalf of merchants receiving payments rather than on behalf of customers making payments. For these reasons, the service that [ ] provides through [ ] more closely resembles payment processing/settlement than money transmission. Therefore, to the extent that the role of [ ] in such transactions is limited to submitting payment instructions obtained from a merchant to a bank for ACH processing, and remitting the funds received through the ACH process to the merchant (or in some cases, refunding money to the merchant’s customer through an ACH transaction), FinCEN would not deem [ ] a money transmitter for purposes of 31 CFR 103.11(uu)(5).

In arriving at our decision in this matter, FinCEN relied upon the accuracy and completeness of the representations made in your February 5, 2003 letter. Nothing precludes FinCEN from seeking further action should any of this information prove inaccurate or incomplete. Finally, we note that you have requested that certain information contained in your letter be held in confidence and exempt from disclosure under the Freedom of Information Act, 5 U.S.C. 552. FinCEN reserves the right to publish this letter as guidance to financial institutions with all identifying information about you, [ ], [ ], and [ ], redacted. You will have 14 days after the date of this letter to identify any other information you believe should be redacted and the legal basis for the redaction. Should you have any questions, please telephone Christine Del Toro of my staff at (703) 905-3590.



Sincerely,


//Signed//


Judith R. Starr
Chief Counsel



cc: David M. Vogt, Executive Associate Director, Office of Regulatory Programs Deborah Silberman, Chief, MSB/Casinos/IRS Programs

Hahaha bitcoin has absolutely nothing to do with the story!

Good find though ;)

Bitcoin is a cryptocurrency, cryptocurrencies are virtual currencies, the business of transmitting virtual currencies for a fee are regulated in two ways: 1) money transmitter, and/or 2) Money Services Business.  The above shows you the law and an interpretation of the law by the agency charged with enforcement of the law. 

The Miami arrests are valid if the men in question were not licensed to do the transactions they performed and charged a fee to do.

Don't kid yourself. Those guys were pretty well known on localbitcoins . They had runners working for them doing local cash trades in some major cities outside of Florida. Even though they kept their public transactions below $10K, they were definitely flying above the radar and I am pretty sure they could easily handle custom $25k - $30k transactions.

After the arrests, a few of the larger localbitcoins dealers went off the platform as a response to all this witch hunting. This might be a good thing, if it forces cash traders to be more cautious and low key.

Thanks for that, such a position goes to my larger supposition that they were probably taken down more so because they chronically ripped people off. 

Just because you have runners doesn't make you big-time, it just makes the runners smaller-time.  In many countries housekeepers have their own housekeepers. 

As for them being able to handle $25K to $30K easily there is no reasonable evidence of that, however there is evidence to suggest the contrary.  Primarily they refused the $30K deal, but more importantly after the arrest they failed to post bail and availed themselves of a public defender.  None, of that is indicative of anyone operating a business of anything larger than nano size business.   The feds caught serous worker-bees.

Let's be reasonable here, you don't spend time in jail when bail is offered to you, similarly you don't accept a public defender if you could afford to get someone who knows you to defend you in court.   

Those guys were nobodies before the transactions and became less after it.

Please provide more evidence of wrong doing to justify the effort going into this matter, the money laundering charge is nonsense; what else is going on here?