SDNY Holds Bitcoins Fall Under Purview of Federal Money Laundering Statute
By Amanda Liverzani – Edited by Mengyi Wang
United States v. Ulbricht, No. 14-CR-68 (KBF)(S.D.N.Y. July 9, 2014) Slip Opinion
The debate surrounding the legal status of Bitcoins has continued to heat up, as the Southern District of New York weighed in on whether the virtual currency could be used to launder money under 18 U.S.C. §1956(h). In a July 9, 2014 opinion penned by Judge Forrest in United States v. Ulbricht, the court held that exchanges involving Bitcoins constitute “financial transactions” for purposes of the money laundering statute, noting that “[a]ny other reading would—in light of Bitcoins’ sole raison d’etre—be nonsensical.” No. 14-CR-68 (KBF)(S.D.N.Y. July 9, 2014) at 50.
The criminal case was filed against Ross Ulbricht, founder and administrator of the website Silk Road which gained notoriety as the eBay of illegal goods and services. Id. at 1–2. Ulbricht was indicted by a Grand Jury in the Southern District of New York on February 4, 2014 on four counts, including conspiring to traffic drugs, engaging in computer hacking, and laundering money. Id. at 1. The defendant filed a motion to dismiss all four counts, which the court denied in its entirety. Id.
The money laundering charge, Count Four of the indictment, has drawn heightened attention because transactions on Silk Road were conducted entirely through anonymous and untraceable Bitcoins. Seeid. at 2. Count Four alleges that Ulbricht participated in a money laundering conspiracy in violation of 18 U.S.C. §1956(h) by knowingly conducting financial transactions involving proceeds from unlawful activity with the intent of promoting that unlawful activity. Id. at 47. Ulbricht responded that exchanges of Bitcoins could not constitute the requisite “financial transaction” under the money laundering statute because Bitcoins are not monetary instruments. Id. at 48. In support of this position, Ulbricht pointed to the IRS’s treatment of virtual currencies like Bitcoins as property rather than currency, the differences between national currencies and virtual currencies, and virtual currencies’ lack of legal tender status. Id.
The court rejected Ulbricht’s arguments, noting first that the IRS’s classification of Bitcoins did not and could not amend the money laundering statute and that the IRS has not tackled the issue of whether Bitcoins could enable a “financial transaction.” Id. at 48–49. The court then proceeded to examine the statute itself and the case law interpreting it. Id. at 49. Based on a plain reading of the statute, the court noted that “financial transaction” is interpreted broadly to include all movements of “funds.” Id. (citing United States v. Blackman, 904 F.2d 1250, 1257 (8th Cir. 1950)). Since the statute does not define “funds,” courts use the ordinary meaning of the term. Id. at 49 (citing Taniguchi v. Kan Pacific Saipan, Ltd., —U.S. —, 132 S.Ct. 1997, 2002 (2012)). Turning to Cambridge Dictionaries Online, the court concluded that the definition of “funds” is “money, often money for a specific purpose,” while “money” is “an object used to buy things.” Id. Thus, for purposes of the money laundering statute, “funds” include anything “used to pay for things in the colloquial sense.” Id. Since the only value of Bitcoins rests on their ability to pay for things, transactions involving Bitcoins fall squarely within the money laundering statute—a reading consistent with Congress’s intent to prevent criminals from engaging in novel methods of laundering gains from criminal activities. Id. at 49–50.
For additional discussion of the Ulbricht decision and its implications for Bitcoins, see Wired, Ars Technica, and Techdirt.
By Amanda Liverzani – Edited by Mengyi Wang
United States v. Ulbricht, No. 14-CR-68 (KBF)(S.D.N.Y. July 9, 2014) Slip Opinion
The debate surrounding the legal status of Bitcoins has continued to heat up, as the Southern District of New York weighed in on whether the virtual currency could be used to launder money under 18 U.S.C. §1956(h). In a July 9, 2014 opinion penned by Judge Forrest in United States v. Ulbricht, the court held that exchanges involving Bitcoins constitute “financial transactions” for purposes of the money laundering statute, noting that “[a]ny other reading would—in light of Bitcoins’ sole raison d’etre—be nonsensical.” No. 14-CR-68 (KBF)(S.D.N.Y. July 9, 2014) at 50.
The criminal case was filed against Ross Ulbricht, founder and administrator of the website Silk Road which gained notoriety as the eBay of illegal goods and services. Id. at 1–2. Ulbricht was indicted by a Grand Jury in the Southern District of New York on February 4, 2014 on four counts, including conspiring to traffic drugs, engaging in computer hacking, and laundering money. Id. at 1. The defendant filed a motion to dismiss all four counts, which the court denied in its entirety. Id.
The money laundering charge, Count Four of the indictment, has drawn heightened attention because transactions on Silk Road were conducted entirely through anonymous and untraceable Bitcoins. See id. at 2. Count Four alleges that Ulbricht participated in a money laundering conspiracy in violation of 18 U.S.C. §1956(h) by knowingly conducting financial transactions involving proceeds from unlawful activity with the intent of promoting that unlawful activity. Id. at 47. Ulbricht responded that exchanges of Bitcoins could not constitute the requisite “financial transaction” under the money laundering statute because Bitcoins are not monetary instruments. Id. at 48. In support of this position, Ulbricht pointed to the IRS’s treatment of virtual currencies like Bitcoins as property rather than currency, the differences between national currencies and virtual currencies, and virtual currencies’ lack of legal tender status. Id.
The court rejected Ulbricht’s arguments, noting first that the IRS’s classification of Bitcoins did not and could not amend the money laundering statute and that the IRS has not tackled the issue of whether Bitcoins could enable a “financial transaction.” Id. at 48–49. The court then proceeded to examine the statute itself and the case law interpreting it. Id. at 49. Based on a plain reading of the statute, the court noted that “financial transaction” is interpreted broadly to include all movements of “funds.” Id. (citing United States v. Blackman, 904 F.2d 1250, 1257 (8th Cir. 1950)). Since the statute does not define “funds,” courts use the ordinary meaning of the term. Id. at 49 (citing Taniguchi v. Kan Pacific Saipan, Ltd., —U.S. —, 132 S.Ct. 1997, 2002 (2012)). Turning to Cambridge Dictionaries Online, the court concluded that the definition of “funds” is “money, often money for a specific purpose,” while “money” is “an object used to buy things.” Id. Thus, for purposes of the money laundering statute, “funds” include anything “used to pay for things in the colloquial sense.” Id. Since the only value of Bitcoins rests on their ability to pay for things, transactions involving Bitcoins fall squarely within the money laundering statute—a reading consistent with Congress’s intent to prevent criminals from engaging in novel methods of laundering gains from criminal activities. Id. at 49–50.
For additional discussion of the Ulbricht decision and its implications for Bitcoins, see Wired, Ars Technica, and Techdirt.