Bitcoin Forum

By now you're starting to hear of the Florida sting of 2 ordinary LocalBitcoins sellers.

http://krebsonsecurity.com/2014/02/florida-targets-high-dollar-bitcoin-exchangers/ (http://krebsonsecurity.com/2014/02/florida-targets-high-dollar-bitcoin-exchangers/)

Before anyone runs around shouting that the sky is falling; they screwed up; it's their own fault:


Of course bitcoin isn't money by law and therefore this can't be considered "Money laundering" - But they'll probably try to convict Michelhack & Reid for being accomplices to crimes.

Therefore, if you sell on Localbitcoins; DO NOT EVER sell to someone who tells you that they are going to commit a crime with your coins!

This should be really obvious, but it must be said... A real criminal doesn't want you to know what he's going to do with your BTCs, so you can COUNT ON it being a sting operation if they tell you they're up to no good. 100% of the time.

This is how they are going to hurt bitcoin as a whole; picking off less-than-brilliant people like they did Michelhack & Reid here and I have no doubt the press is going to run with headlines of the moneylaundering to scare more newbies away from BTC.

Please tell everyone you know on Localbitcoins to be ready for a jail cell if they ever sell a millibit to anyone that says they're going to use it for a crime of some kind. This "successful" sting operation is only going to embolden the authorities.

Great :( another idiotic move. We need adopters of bitcoin to behave themselves. A few are setting a very poor example which reflects on all of us, and most importantly hurts our bottom line.

"Both of the men are being charged under two laws. The first is Florida’s anti-money laundering law, which targets money exchanges above $10,000.

The second is running an unlicensed money transmission business. Statute 560.125 forbids people from engaging in frequent unlicensed money transmission-type transactions of more than $300 but less than $20,000 in any 12-month period in the state."


pretty much makes LocalBitcoins transactions illegal in Florida.

Unfortunately it takes a hell of a lot more good examples to make a headline.

Unfortunately a lot of this will happen, everything that disruptive usually has love/hate relationship with the press.

BULLSHIT.

Laundry may be a charge they attempt to tack on, but they never would have made the sting without the accessory to a crime part... They know better than we do that bitcoin isn't a currency so it can't be laundered.

My whole point was that they were busted because they were selling BTC to criminals. STOP SPREADING FUD, it scares the noobs.

Greedy fucks should rot in jail. Making tons of money with huge markups is not in the spirit of Bitcoin.

It seems like greed clouded their judgement, or Is it possible that the sellers may interpreted this as a lighthearted joke? after all, only really dumb criminals would say something like that.  The way how they said it makes big difference.

IMO it's a blurry boundary and a dangerous trend,  the law enforcement is trying to build their cased based on the concept straight from the "Minority Report".

Yep.

The complaint against the guy who was arrested a couple weeks ago (not Shrem) said that an undercover informant attempted to buy some Bitcoin and said "I need these Bitcoin because I've got my eye on a sweet bag of cocaine on Silk Road" or some similarly ridiculously stupid thing.

The seller ignored the request and never sold him coins (but they still mention it in the complaint which is interesting)

This is patently NOT true.

Bitcoin according to FinCEN is "other value that substitutes for currency" as per FinCEN's FINAL RULE:  Bank Secrecy Act Regulations; Definitions and Other Regulations Relating to Money Services Businesses
76 C.F.R. 43585

***
The regulatory definition of ‘‘money transmission services’’ includes the phrase ‘‘or other value that substitutes for currency’’ to state that businesses that accept stored value or currency equivalents as a funding source and transmit that value are providing money transmission services.
***

http://www.gpo.gov/fdsys/pkg/FR-2011-07-21/pdf/2011-18309.pdf

Either way, a great way to not incriminate yourself is to not know the true intentions of the other party.

From an agent talking about what he'll do with BTC to the actual arrest, I feel like maybe the agent was saying a lot more than just "I'll be buying stolen credit cards, lol".

My knowledge in law isn't the best but maybe someone can clarify this: If I go to a home hardware store, buy a hammer and tell the cashier offhandedly that I'll be killing someone with said hammer, would the cashier be an accessory to murder since she didn't go to the authorities about it and let me buy the hammer anyways?

It's an extreme analogy, but still. You can use BTC for a bunch of different things. Same with a hammer. The intent being known during the transaction shouldn't have to make you a part of the crime...

That is patently NOT true.

Ask Doug Jackson of e-gold about that one.

That is why the US has extensive Know Your Customer (KYC) rules.

You are not required to have a state license in Florida to buy a hammer (yet).

The FinCEN guidance is federal not state, and it doesn't define Bitcoin as a currency. This charge is apparently in violation of Florida state law which prohibits “currency or payment instruments exceeding $300 but less than $20,000 in any 12-month period”.

To my knowledge no state has declared Bitcoin is currency. It hasn't been declared a 'payment instrument' either. If these people met to transfer two wheelbarrows full of grass in exchange for 30K would the arrest have been made?

We need some lawyers on this. The State/vested interests are clearly starting to push back on Bitcoin now, probably betting individuals by themselves won't have super legal defense resources.

EDIT: in fact FinCEN/Treasury just confirmed (http://www.theverge.com/2014/1/31/5364406/bitcoin-miners-investors-not-regulated-fincen-ruling) that miners and businesses that buy and sell virtual currencies purely as an investment will not be considered money transmitters. (of course, that's federal level)

Doesn't have to be defined as currency.  If you are transmitting bitcoin, "as a business" you are subject to Federal AMK/KYC/CFT/CIP regulations and State Money Transmitter regulations.  State to State regulation vary but clearly Florida has taken a stand.

YES we do need to rally but unfortunately as a decentralized movement there is no centralized effort. You have The Bitcoin Foundation and dozens of other foundations and groups popping up daily.  If "Bitcoin" were a centralized company, you can be certain that millions of that 10 Billion money supply would have been spend on Lawyers and Lobbyists and efforts to clarify or change state and federal regulations.

As it is we have to rely on the outcome of these current cases to see where the chips will fall.

 

From what I can gather from reading this thread (and the articles), it seems that you can have BTC and sell it on something like Coinbase for USD, or you can use it to make purchases on sites that accept BTC. But you can't sell BTC to another person as you would be functioning as a form of money transmitter which in that technical legal mumbo-jumbo makes sense. Is there somebody that can confirm the veracity of these statements or am I way off base?

If I am reading this correctly, then where does gifting BTC fall under? Additionally, if you traded BTC for something like an alt-currency without the use of a regulation-compliant exchange where does that fall under?

That's not how it works, and is why FinCEN issued "guidance" and administrative rulings. The most recent is here:

http://www.fincen.gov/news_room/nr/pdf/20140130.pdf


Again, that's federal not state, but realize the two are separate. States so far have not clarified the legal classification on Bitcoin. That's important. New York may be the first to do so, which is why there has been so much focus there recently.

What guy? Someone on reddit? They still charged him with it even if he ignored it?

Evidently you can buy and sell bitcoin for personal use.  Miner's can also sell bitcoin for personal use (electricity, rent, goods and services etc).  This activity does not require registration with Fincen.

However if you buy and sell bitcoin, "as a business" you could be seen as a "money transmitter" in some states.  The regulations and the clarification of these regulation are VERY vague.  

And if you buy and sell bitcoin with someone who is involved in criminal activity that definitely makes you complicit, even if you have NO knowledge of their activity.  

No the guy who was arrested same day as Shrem, same, case, same complaint...I don't recall his name

Robert Faiella (BTCKing)

Wrong again.

I guess you're just pulling this stuff out of your arse. You can buy/sell bitcoin for your own benefit. That includes profit. The catch is it has to be your own benefit, ie, you can't buy/sell on behalf of clients (like exchanges). Again, that's federal.

As for U.S. states it is currently undefined. The arrests in Florida would not have happened, I'll almost guarantee, if there was no mention of criminal intent.

.

So if I am reading that right would the following scenerio place ebayers in same bucket?

I.E. the folks selling Crypto for USD on ebay = violation?

If that's the case someone should dial ebay, cause they allow for Classified Ads on their site for people wanting to sell Crypto lol

I have seen 100k dogecoin go for 400+ dollars

http://www.ebay.com/itm/271379434523?_trksid=p2055119.m1438.l2649&ssPageName=STRK%3AMEBIDX%3AIT

 ... that means the person handling that transaction is committing a crime if they do it 25 times? (for those that cant multiply 25x400=10k)

Running an unlicensed money transmission in Florida is illegal.
http://www.flsenate.gov/Laws/Statutes/2011/560.125

This is also makes it a federal offence:

"is operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable;"
http://www.law.cornell.edu/uscode/text/18/1960

Potentially.  It is a matter of "fact and circumstances."

No clear cut rules yet. 

That's what I'm trying to tell you. Bitcoin is not yet defined as money, either by state or federal. Think of it this way: if the people arrested were trading two wheelbarrows full of grass for $30K would they have been in violation as money transmitters?

The only reason they were arrested was because criminal intent was mentioned. Put that together with their high volume and unclear legal area for Bitcoin and the authorities seized their chance to clamp down and provide a chilling effect at the same time.

This judge disagrees: http://arstechnica.com/tech-policy/2013/08/federal-judge-bitcoin-a-currency-can-be-regulated-under-american-law/

Yes, I know about the Pirate case. It's different. It does start the outline of some legal precedent, but that's not the same as written law. Judges can't legislate only adjudicate. Also, there are two separate levels (fed/state).

maybe you should read the article again, dipshit.

This was a very specific ruling with regards to a very specific case:

****
It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.
****

This ruling does not, however, allow the Texas Department of Banking to declare bitcoin a "currency" and regulate it as "currency exchange" instead of "money transmission."

Yes. That's my point. That can't possibly apply to Bitcoin in its entirety. It's one judge.


It doesn't allow Texas to regulate it as either currency exchange or money transmission. Don't you see? You're thinking exactly like they want you to, which is they can interpret law as they see fit. They cannot unless people allow it. To be involved in money transmission you must be transmitting money. The question then becomes what is money? That has to be defined somehow. Otherwise, like I say what happens with wheelbarrows full of grass cases?

The government will be reluctant to legally write that Bitcoin is money, because when they do it causes an avalanche effect of all sorts of things to apply, legitimacy being just the start. Yet until it is specifically defined as money any charge of money laundering can be successfully challenged. This is what I believe anyway. I'm not a lawyer.

I am not a lawyer either but I believe this is where you are incorrect.

virtual currency is "other value that substitutes for currency." 

- at least according to FinCEN.

so unless you or someone can take that to court and challenge it, so that is pretty much the law in the US.

Again, that's FinCEN. That's federal. What happened in Florida pertains to Florida state case law. I don't have to be a lawyer (and neither should you) to know there is a difference between federal and state. That's why, for instance, registering with FinCEN as a money transmitter, which is actually pretty easy, does NOT mean you can operate in all 50 states. It only clears you federally. You must also fit within the legal box of each state separately (which is where it gets expensive/complex). State and federal are separate legal jurisdictions.

Damn you 10th Amendment! ;D

On a serious note, there is so much muddiness with this. On one hand, this forces the conversation again about what is "money" in this new age (I recall this being discussed during the .com boom and then later on with game currencies being exchanged and bartered for real money, but I can't remember if anything substantive came of it).

Even the current definition about "virtual currency" is too loose especially when referring to Bitcoins. And the fact that you can be charged if you supply someone who is going to use Bitcoin for nefarious/illegal purposes is quite murky in and of itself. I mean, I don't think the same kind of ruse would be used with USD per se in the sense. Although, the amounts and that sort of thing kinda hinted at quite the egregiousness.

"powers not granted to the federal government"


We may need preemption at the federal level before we see any clarity in this issue.

This is the thing. We need to recognize our legal footing. We are in the right. It's the feds that are out of compliance with the U.S. Constitution.

Gambling is largely considered illegal in the U.S., but it absolutely thrives in Nevada. That's because that state asserted its constitutional authority, feds be damned. This is also starting to happen with states pushing back against federal drug laws, especially regarding marijuana. Even Obama said he will back off states that push back in that way.

Most of us here have no illusion about how disruptive Bitcoin is and how much the feds have incentive to push against it. We need to know about and use every legal and political weapon we have.

I agree, there is definitely a non-compliance by the federal government. And that disruption is one of the strongest things that we have.

I went to the teller at the bank and withdrew some money and told the teller, "ya, I need this to buy drugs". Just a chuckle and a "good luck" as she handed me my money.

Should I report Chase bank?

Yes it does and yes it is.  Sad but true

Bullshit! The spirit of bitcoin is personal freedom and capitalism. That is the embodiment of the free market.

What is significant about this is that actual victims that have had bitcoins stolen by actual thieves in felonious quantity have been given the complete brush-off by law enforcement, but here they are buying currency from a single individual who is not defrauding anyone, where there is and would be no victim, just to indict.

They can tack on any story that they want to the Bitcoin exchange "he said he got the bitcoins from selling drugs...", "we said we wanted to buy drugs and he sold to us anyway", even if such verbal exchange never happened, and can still harrass people through the plea-bargain or bankrupt you + 20 years jeopardy game. Why did these lawkeys decide that bitcoin currency exchangers were going to be their quota-makers?

Basically dont do anything stupid or grossly illegal and im pretty confident that you will not be a victim of a sting operation...

The US is really a third world police state. In most of the civilized world it's just illegal for the police to incite to commit a crime.

Plus, is all this a joke? So they arrested two guys because the cops told them "I will use this money to buy stolen goods"? An US judge will accept that BS? Really? Again, in a civilized country the judge would tell to those cops to gtfo and to stop harassing citizens.

It's even worse than that. The cops could also be lying about mentioning stolen goods, and it hardly matters.

It's a dirty trick and borders entrapment. I'm sure they'll have proof to show that this happened. They'll need it to secure a conviction.

I think the Krebs article might be a (law enforcement originated?) hoax.

Krebs' website does not have links to any court documents, despite referring to "court documents" -- and he's ignoring the commenters (see comments on that page) asking for them.

The story seems to have been picked up by only three other sites, all of them small local news outlets.

I'm starting to wonder if law enforcement didn't "leak" a phony story to try to scare people.

I highly doubt it.  Krebs is a pretty smart and connected guy. He said a press release was issued.

However the Miami State Attorneys' office has not yet published that press release.

http://news.miamisao.com/

Call them and ask for a copy of the press release. I'd like to read it too.  They only unseal portions of indictments if and when they will not interfere with the ongoing investigation so it may be a while before we see the legal documents.

EDIT: which means more arrests could be pending...

Yes, I know, I read his site regularly.  But even smart people get false information "leaked" through them now and then.  For the record I am definitely not accusing Krebs of perpetrating a hoax.  But I do suspect that somebody (law enforcement? fincen?) might be using him as an outlet.

The major red flag for me is that he mentions "court documents" three times in the article but doesn't link to them.  He lives almost 1,000 miles from Miami and this went down less than 12 hours before he posted the article, so if they're not in electronic form I don't understand how he could have seen them.

He's also active in his articles' comments, including this one, but is strangely ignoring peoples questions about the "court documents".

Another intermediate possibility is that some mid-level law enforcement officer jumped the gun on this, running a sting and grabbing these guys without discussing it thoroughly with senior enough prosecutors.  End result these guys get set loose with no charges in a few days and we never know the difference.  Since this was a sting there were clearly "operations" people involved; maybe it was all operations people and no lawyers, and right now those operations people are sitting down with a bunch of state attorneys who are explaining to them that "yes, that law is on the books" but their time is not well spent (nor their careers advanced) by chasing kids for trading baseball cards.  Even if baseball cards are "trendy" right now and all over the news.

The news piece has been all over the place and actually mentions three people arrested.  Reading the court docs will be more telling.  The smart thing for large seller would be to switch accounts at certain intervals on localbitcoins to not attract the label of selling XBT "as a business"  Also in communications with buyers make it clear that it's a personal sale / hobby activity and not a for profit business reselling XBT.  localbitcoins if they care enough about this could also change the history logs to stop showing past XBT volumes as the news story made it seem that it was a factor in the arrests as well.

Um, no.  The link has been reposted "all over" a bunch of blogs.

A full 48 hours after the story broke, Google News (http://news.google.com) shows only six (count 'em, six) publications running this story.  For comparison, there are 110 stories currently running about "mtgox withdrawals".

Try searching for the guy's names "Pascal Reid" or "Michell Abner Espinoza".  Another dozen pages include a one-sentence mention of the event as part of a larger story on bitcoins in general.

  https://www.google.com/search?pz=1&cf=all&ned=us&hl=en&tbm=nws&gl=us&as_q= Pascal+Reid&as_occt=any&as_qdr=a&authuser=0

  https://www.google.com/search?pz=1&cf=all&ned=us&hl=en&tbm=nws&gl=us&as_q=Michell+Abner+Espinoza&as_occt=any&as_qdr=a&authuser=0

Remember to search google news, not google, so you get real news publications instead of just link-propagating blogs.

Still no court docs.

Businessinsider has provided a to the criminal complaints  link, here.



http://www.businessinsider.com/localbitcoinscom-targeted-by-feds-2014-2

According to the documents, Michael doesn't seem entirely blameless here.  ::)

Which is illegal in Europe and most (if not all) first world countries.

The USG seem to have different rules for entrapment. Didn't they do a similar thing with the SR case?

Yes, entrapment its a usual practice among US police forces - its kinda crazy, LE is commiting crimes while inciting US citizens to commit more crimes in order to throw them to jail.

"The land of the free"

Sure.

Ok, thanks, I believe it now.

Gotta say, this is some pretty over-the-top enforcement aggression.

use encrypted email and dont be a jackass about who you do business with

This is correct.   And honestly should be obvious to everyone already.

They had to create a completely unrelated "crime" (going to use this for credit card theft) in order to "create a crime" in these purchases.  Granted, they were above the $10,000 limit, but that wasn't sensationalistic enough.  This is why many feel that this move on the part of the police was extremely lame.  They intentionally sought out a Bitcoin scenario, found dumb people, and turned it into a money laundering situation.  I lost a lot of respect for law enforcment in that regard, but it would only have worked with stupid people involved.  You can be assured this is the one they succeedded with.   There were plenty other people who probably said "Credit card theft?  Sorry, I can't do this exchange".   That part never gets reported of course...

-B-

Exactly.  The government can't crack "Encrypted" communications.

They have to rely on noticing encrypted communications and hacking the computers at both ends, which they are almost 100% successful at.

How not to be a victim of a sting operation:

"Don't break the law or assist others in breaking the law"

When every victimless action is made a "crime", anyone can be prosecuted for "money laundering". How to NOT be a victim of a sting operation? Commit suicide immediately, so that you cannot be prosecuted for victimless actions.

You think a crime is fake just because it was made up? A criminal act doesn't have to actually happen or even be physically possible for a crime to occur. You can be charged with conspiracy, solicitation, or facilitation of a crime even if the crime itself is never actually attempted, and you can be charged with attempt even if the crime attempted is impossible. The solution is to not assist people who claim that your assistance will help them commit a crime (suppose they're telling the truth?) and not attempt to commit crimes yourself. Is that really too much to ask?

I'm attempting to exterminate the human race right now, by only massaging my lymph glands. Oh shit, now I'm going down for 7.143 billion counts of attempted murder!

Can't tell if trolling, but in case not, an attempted crime requires the act(s) committed to be proximate to the crime. Proximity is a matter for the jury to decide, but as a general rule, stabbing someone while they're lying in bed is attempted murder, even if (unbeknownst to you) they had already died in their sleep of unrelated causes, and therefore actually murdering them is impossible (you can't kill someone who's already dead, after all), while massaging your lymph glands is not attempted murder, or any other crime (usually).

Or just don't get caught  :D. I'm not sure the government are gonna waste time cracking encrypted communications to go after petty money launderers though. If you were smart enough I doubt they wouldn't even know about it in the first place.

Killing every human being on earth by massaging my lymph glands is impossible, but I can be charged with the attempt anyway according to the bolded part.

As I explained, massaging your lymph glands is not a crime. The crime you are worried about being charged with attempting is the murder of every human being on Earth (and no murder statute I know of says anything about lymph glands), which isn't at all impossible. It would be difficult to murder every human being on Earth, and even more difficult to prosecute (insert joke about lawyers not being human here), but it is by no means an impossible crime to commit. But even though the crime is not impossible, you still couldn't be charged because massaging your lymph glands isn't a proximate act to murdering every human being on Earth (and most acts that would be proximate to murdering every human being on Earth would probably qualify (at the very least) as some form of treason anyway).

what's a lymph?  is it like a nymph?

<insert naked lady picture>

I think you might be wrong (seriously).

Depending on your reason for wanting to buy a hammer, you may very well be required to have a license.

If you doubt that this could be true, watch the video below:

http://youtu.be/nBiJB8YuDBQ


Unfortunately you are right.

The US is a great country with some amazing people but it is now a police state, and even law abiding citizens run the risk of being prosecuted and sent to jail for large parts of their lives for victimless crimes.

Consider that 1 out of every 18 men in the US are either in jail or on probation!

This is the highest number in the world, with Russia coming in 2nd and Rwanda 3rd. (Source: http://en.wikipedia.org/wiki/Incarceration_in_the_United_States )

It is sad that this great nation is being destroyed by a such a relatively small number of people. :(

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).