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Author Topic: How to NOT be a victim of a sting operation  (Read 7214 times)
BTCLuke
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February 07, 2014, 09:05:36 PM
 #1

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/

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

Quote
According to court documents, the agent told Michelhack that he wanted to use the BTCs to purchase stolen credit cards online.
Quote
...documents show that the undercover agent told Reid he wanted to use the BTCs to buy credit cards stolen in the Target breach.

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.

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February 07, 2014, 09:13:57 PM
 #2

Great Sad 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.
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February 07, 2014, 09:29:00 PM
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"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.
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February 07, 2014, 09:30:54 PM
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Great Sad 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.

Unfortunately it takes a hell of a lot more good examples to make a headline.
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February 07, 2014, 09:47:42 PM
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Unfortunately a lot of this will happen, everything that disruptive usually has love/hate relationship with the press.

BTCLuke
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February 07, 2014, 09:50:28 PM
 #6

pretty much makes LocalBitcoins transactions illegal in Florida.
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.

Luke Parker
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February 07, 2014, 09:52:30 PM
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Greedy fucks should rot in jail. Making tons of money with huge markups is not in the spirit of Bitcoin.

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February 07, 2014, 10:07:38 PM
 #8

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".
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February 07, 2014, 10:21:51 PM
 #9

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)
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February 07, 2014, 10:24:18 PM
 #10

Of course bitcoin isn't money by law and therefore this can't be considered "Money laundering"

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
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February 07, 2014, 10:24:46 PM
 #11

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...
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February 07, 2014, 10:28:39 PM
 #12

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

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.
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February 07, 2014, 10:30:07 PM
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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?

You are not required to have a state license in Florida to buy a hammer (yet).
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February 07, 2014, 10:37:39 PM
 #14

Of course bitcoin isn't money by law and therefore this can't be considered "Money laundering"

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

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 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)
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February 07, 2014, 10:46:23 PM
 #15

Of course bitcoin isn't money by law and therefore this can't be considered "Money laundering"

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

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.

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.

 
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February 07, 2014, 11:01:22 PM
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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?
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February 07, 2014, 11:04:39 PM
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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.
...

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

Quote
The second [administrative ruling] states that a company purchasing and selling convertible
virtual currency as an investment exclusively for the company’s benefit is not a money
transmitter.

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.
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February 07, 2014, 11:06:28 PM
 #18

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)

What guy? Someone on reddit? They still charged him with it even if he ignored it?
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February 07, 2014, 11:17:03 PM
 #19

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?

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.  
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February 07, 2014, 11:19:33 PM
 #20

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)

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


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