The Warrant against Dwolla and Bitcoin: The Beginning of the End of Bitcoin

[LorenzoMoney]

Here is a link to the warrant that the Department of Homeland Security filed against Dwolla:

http://cdn.arstechnica.net/wp-content/uploads/2013/05/Mt-Gox-Dwolla-Warrant-5-14-13.pdf

The warrant refers to laws which can be found at: http://www.law.cornell.edu/uscode/text/18/981 and
http://www.law.cornell.edu/uscode/text/18/1960

I am not a lawyer.  But, in my limited understanding of what I read, to transmit money in the USA, your company must be licensed in the state in which you conducting business. From the warrant, it was not the assets of MtGox that were taken, but Mutum Sigillum, the intermediary company between Dwolla and Mtgox. It was the Mutum Sigillum account that was confiscated.

From my limited understanding of the law, and I am NOT a lawyer, it would seem that had Mutum Sigillum been registered or licensed to transmit money, then this would not have happened.

I do believe that the US Government, in particular, the Department of Homeland Security, is frightened of bitcoin and has been looking for anyway possible to destroy it.

Since, bitcoin itself cannot be stopped, since it is not localized, and since its status as a currency is vague, since it is only data, transaction records on a blockchain, to stop it, DHS has taken the strategy to attack the exchanges. Had the MtGox people not lied on the forms to open their Veridian account, this might not have happened.

Why is DHS frightened of Bitcoin? Because they, rightfully so, want to protect the American people from terrorist attacks. One of the ways that various (both politically and radical, fundamental religious based) terrorist groups sustain their efforts is by getting donations from supports in one country and sending those funds to another country. I can imagine the meeting in some office in Washington, D.C. or Langley, where some men in suits come up with a hypothetical scenario where someone buys bitcoin in Europe or Africa, or the Middle East, sends it to someone in Russia or Asia to buy arms, and sends some of it to the US, where it is converted to USD in order to fund some terrorist activity. Whether or not that scenario could ever really happen, the fact that it could be hypothetically imagined, and that these bitcoin transactions could occur independent of the conventional banking system, which at present is highly scrutinized by US and EU law enforcement agencies, caused these men in D.C. and Langley to become very fearful.

I personally, do not condone or support the engagement of any illegal activity with bitcoin. I have visited SR (Silk Road) three or four times and frankly, after the initial novel amusement that that stuff was being sold, I found SR to be boring. I would prefer to promote cooperation and communication between people who are enemies by using Bitcoin to fund and finance true charities that help people constructively. Bitcoins could be used to pay a Saudi software engineer to write code for an Israeli agricultural company. Or, to for a jewelry artist in New Zealand to sell his artwork to a woman in Canada without worrying about the rip off that is credit card merchant processing.

Despite all the good things that could be accomplished with bitcoin, I can imagine the fear of certain people about how bitcoin could be used for funding evil people's actions.

But, I am not sure whether to be angry with MtGox for not making sure their operation was completely legal and could withstand legal attacks, or with the DHS for being overzealous in protecting Americans from imagined menaces.

Not having an easy way to fund your account on the world's largest bitcoin exchange does stifle trading and I think damages the future of Bitcoin.


Lorenzo Money

[mmeijeri]

This is not the beginning of the end of Bitcoin. It's not even the beginning of the coming battle against Bitcoin by the forces of statism. They are barely aware of the threat that Bitcoin poses - yet. This is just the government reacting to new ways of money laundering. The government doesn't see Bitcoin as an enemy - yet. That battle is coming however, and will take place on many fronts, and we should prepare ourselves.

[justusranvier]

If the news yesterday didn't cause a major panic, then headlines like this aren't going to do much to move the price. You need to find another way to troll for a lower entry point.

[dancupid]

It's actually the beginning of the end of 'America'.

[bitcl1234oinfever]

It's actually the beginning of the end of 'America'.

+1

[Tomatocage]

Beginning of the Zombie apocalypse

[mmeijeri]

It's actually the beginning of the end of 'America'.

I don't think so, but I'm afraid things will have to get even worse before they'll get better. I'm persuaded that in the end the power of cryptography will pose society a stark choice between radical liberty or tyranny, as described here. People will pull back from the brink then. But in the near future the instincts of both politicians and society at large will be to seek some sort of middle ground. It will take a long time for them to realise that none exists and to act accordingly.

[Severian]

Why is DHS frightened of Bitcoin? Because they, rightfully so, want to protect the American people from terrorist attacks.

DHS exists, first and foremost, to protect the private banking interests that have a monopoly on the issuing of currency and credit via the Federal Reserve. "Terrorism" is always the excuse used by political and money powers when they're defending their turf or looking to expand their control over a population. The largest terrorist organization on the planet, the USG, protecting anyone from terrorism is a lesson in cognitive dissonance. In political matters, always follow the money instead of the promise of being kept safe.

Bitcoin is a threat to the reputation of the Federal Reserve and other central banks such as the ECB. The Fed, via its proxy DHS, can't come down on Bitcoin all at once. If it did, it would show Bitcoin to be the threat it actually is. It will start small like this and then slowly build. By the end of the year, I fully expect to see "Bitcoin funds terrorists in [COUNTRY]" stories popping up in the corporate media.

[Melbustus]

Thread title overblown. This is a crackdown on unlicensed exchange services. The bitcoin community has been saying for *years* that this would happen.

While there may be a temporary lack of liquidity if Gox can't handle this, it just spurs development of compliant (and presumably more robust) exchanges. As OP states, this wouldn't have happened if Gox had a Money Transmitting license.

It's been obvious for quite some time that bitcoin's exchange infrastructure is weak. That was emphasized last month. This just makes it even more painfully obvious.

The VC money heading into bitcoin businesses is already likely targeting licensed, robust, exchange services. We just have to wade through in the meantime.

[noedaRDH]

Beginning of the end for Gox perhaps, but not Bitcoin. In fact, this will be a good wakeup call for future exchanges: be absolutely clear that you are operating within legal boundaries, or don't set up an exchange at all.

[Melbustus]

...By the end of the year, I fully expect to see "Bitcoin funds terrorists in [COUNTRY]" stories popping up in the corporate media.

Well, the race is on for "legitimacy" in the public eye. With enough Silicon Valley money and mindshare, such headlines would be widely understood to be silly.

The same arguments were made at the birth of the internet, but technology won the day. Bitcoin is similarly strong, and we'll end up with regulated and non-anonymous exchange points and large services, which is fine. The promise of bitcoin for most people (in the West) is reduction of fees and transactional friction, and a store-of-value; eg, Gold 2.0.

[RodeoX]

I thought the title of this implies the beginning of the end of this thread.

[solidshotnosh]

Here is a link to the warrant that the Department of Homeland Security filed against Dwolla:

http://cdn.arstechnica.net/wp-content/uploads/2013/05/Mt-Gox-Dwolla-Warrant-5-14-13.pdf

The warrant refers to laws which can be found at: http://www.law.cornell.edu/uscode/text/18/981 and
http://www.law.cornell.edu/uscode/text/18/1960

I am not a lawyer.  But, in my limited understanding of what I read, to transmit money in the USA, your company must be licensed in the state in which you conducting business. From the warrant, it was not the assets of MtGox that were taken, but Mutum Sigillum, the intermediary company between Dwolla and Mtgox. It was the Mutum Sigillum account that was confiscated.

From my limited understanding of the law, and I am NOT a lawyer, it would seem that had Mutum Sigillum been registered or licensed to transmit money, then this would not have happened.

I do believe that the US Government, in particular, the Department of Homeland Security, is frightened of bitcoin and has been looking for anyway possible to destroy it.

Since, bitcoin itself cannot be stopped, since it is not localized, and since its status as a currency is vague, since it is only data, transaction records on a blockchain, to stop it, DHS has taken the strategy to attack the exchanges. Had the MtGox people not lied on the forms to open their Veridian account, this might not have happened.

Why is DHS frightened of Bitcoin? Because they, rightfully so, want to protect the American people from terrorist attacks. One of the ways that various (both politically and radical, fundamental religious based) terrorist groups sustain their efforts is by getting donations from supports in one country and sending those funds to another country. I can imagine the meeting in some office in Washington, D.C. or Langley, where some men in suits come up with a hypothetical scenario where someone buys bitcoin in Europe or Africa, or the Middle East, sends it to someone in Russia or Asia to buy arms, and sends some of it to the US, where it is converted to USD in order to fund some terrorist activity. Whether or not that scenario could ever really happen, the fact that it could be hypothetically imagined, and that these bitcoin transactions could occur independent of the conventional banking system, which at present is highly scrutinized by US and EU law enforcement agencies, caused these men in D.C. and Langley to become very fearful.

I personally, do not condone or support the engagement of any illegal activity with bitcoin. I have visited SR (Silk Road) three or four times and frankly, after the initial novel amusement that that stuff was being sold, I found SR to be boring. I would prefer to promote cooperation and communication between people who are enemies by using Bitcoin to fund and finance true charities that help people constructively. Bitcoins could be used to pay a Saudi software engineer to write code for an Israeli agricultural company. Or, to for a jewelry artist in New Zealand to sell his artwork to a woman in Canada without worrying about the rip off that is credit card merchant processing.

Despite all the good things that could be accomplished with bitcoin, I can imagine the fear of certain people about how bitcoin could be used for funding evil people's actions.

But, I am not sure whether to be angry with MtGox for not making sure their operation was completely legal and could withstand legal attacks, or with the DHS for being overzealous in protecting Americans from imagined menaces.

Not having an easy way to fund your account on the world's largest bitcoin exchange does stifle trading and I think damages the future of Bitcoin.


Lorenzo Money

Mods please change the title of this to " I don't know what the fuck I'm talking about"

[mmeijeri]

be absolutely clear that you are operating within legal boundaries, or don't set up an exchange at all.

Or operate in cyberspace and the black market.

[iCEBREAKER]

Beginning of the Zombie apocalypse

Should we set our hair on fire and run around in mass hysteria yet?

[Severian]

The same arguments were made at the birth of the internet, but technology won the day. Bitcoin is similarly strong, and we'll end up with regulated and non-anonymous exchange points and large services, which is fine. The promise of bitcoin for most people (in the West) is reduction of fees and transactional friction, and a store-of-value; eg, Gold 2.0.

I share your faith in Bitcoin's fundamentals over the power of government. I guess my point is that Bitcoin represents the ultimate threat to the banks the support the government and they'll pull all the stops in order to protect their interests. If they can convince their security droids in their various policing agencies that Bitcoin is a threat, it will get weird and ugly before it gets better.

[dasein]

Everyone calm down and read the warrant (page 2, emphasis added):

"As part of the account opening process, Wells Fargo required Karpeles [GOX owner] and Mutum Sigillum LLC [GOX sub] to complete a "Money Services Business (MSB) Accounts, Identification of an MSB Customer" form. That document was completed on May 20, 2011, and identified Mutum Sigillum LLC as a business not engaged in money services. The application asks several questions; to include, "Do you deal in or exchange currency for your customer?" and "Does your busienss accept funds from customers and send the funds based on customer's instructions (Money Transmitter)?" Karpeles answered these questions "no," indicating that Mutum Sigillum LLC does not deal in or exchange money, and that it does not send funds based on customer instructions."

Gox appears to have misrepresented themselves in the forms they submitted to Wells Fargo, and failed to comply with the basic MSB FinCEN regs that are already on the books. This is not a bitcoin gov takedown, just enforcement of basic MSB regs due to Gox incompetency.

[chowderman]

That letter is fake, so fake. There is no letterhead, no district court seals, no homeland security seals, not even seals of the officials signing it. I have spent many a year working in the military and for the government. Official documents have official seals, this is BS. All of it.


This is the standard letter used by US District Courts for Search and Seizure http://www.uscourts.gov/uscourts/FormsAndFees/Forms/AO093.pdf

After processing it is stamped and signed by the district clerk as well, the letter from the OP has none of that, it screams fake.

It would look similar to this http://www.wired.com/images_blogs/threatlevel/2013/12/Carpathia-search-warrant.pdf if it were real in any capacity.

[TLS freedom]

Beginning of the End of MTGOX!!

Bitcoin is fine and trading has not been adversely effected today, the market doesn't care much I take it.

Bitcoin will survive even if we have to exchange face to face at coffee shops!!

[BTC Books]

Everyone calm down and read the warrant (page 2, emphasis added):

"As part of the account opening process, Wells Fargo required Karpeles [GOX owner] and Mutum Sigillum LLC [GOX sub] to complete a "Money Services Business (MSB) Accounts, Identification of an MSB Customer" form. That document was completed on May 20, 2011, and identified Mutum Sigillum LLC as a business not engaged in money services. The application asks several questions; to include, "Do you deal in or exchange currency for your customer?" and "Does your busienss accept funds from customers and send the funds based on customer's instructions (Money Transmitter)?" Karpeles answered these questions "no," indicating that Mutum Sigillum LLC does not deal in or exchange money, and that it does not send funds based on customer instructions."

Gox appears to have misrepresented themselves in the forms they submitted to Wells Fargo, and failed to comply with the basic MSB FinCEN regs that are already on the books. This is not a bitcoin gov takedown, just enforcement of basic MSB regs due to Gox incompetency.

I think Karpeles thought these questions through, and just got too tricky for his own good.

"Do you deal in or exchange currency for your customer?" - No.  Gox exchanges money - and only in Japan.  Mutum Sigillum just sends money to people.

"Does your busienss accept funds from customers and send the funds based on customer's instructions (Money Transmitter)?" - No.   Mutum Sigillum has no customers - nobody pays it anything for its services.  It takes Gox money and sends it to people - but those people are not customers, because they pay Mutum Sigillum nothing.

I'd be willing to bet that those are the thoughts that went through Karpeles' head as he was filling out his answers to those questions.