Owning and operating a money transmitter service in the U.S. is “illegal” unless it is registered with State agencies. Unfortunately, this is also true if one uses Bitcoin to exchange for fiat currency. Bitcoin is not immune from State or Federal laws regulating the flow of money, and agents can track bitcoin transfers over the blockchain.
These facts have become more apparent in the last few years as at least 4 people have been arrested and charged with financial crimes related to the “illegal” transmission of Bitcoin.
All the cases involved individuals allegedly exchanging Bitcoin for a fee. Some of the individuals advertised these services online in a furtive or overt fashion. They were caught after local or federal agents begin an investigation, and sometimes after the “suspects” transferred bitcoin to an undercover officer for a fee. However, sometimes there was not even an investigation only suspicion and a ill-gotten warrant.
Recent Cases of Bitcoin Transmitter Crimes
In a recently circulated case, a Missouri man pleaded guilty to conducting an unlicensed and unregulated money transmitter service. The man, Jason R. Klein, posted advertisements on the internet to exchange Bitcoin for cash. The Missouri attorneys office statement said,
Between Feb. 6, 2015, and July 27, 2016, Klein, acting with another, met with two undercover federal agents on numerous occasions to exchange bitcoin for cash. Today’s plea agreement cites five separate transactions in which money (ranging from $1,000 to $15,000) was exchanged in person for an electronic transfer of bitcoin. Each of the transactions included a fee that Klein or another person charged the undercover agents, for a total of $2,122 in fees.
Klein is subject to receive a penalty of up to five years in prison without parole.
In another recent case covered by Bitcoin.com, an Arizona man named Thomas Constanzo, AKA Morpheus, was accused of possibly running an illegal money transmitter service…but was only charged with possessing “60 cartridges of ammunition.” Some think this is more a politically-motivated charge, since alleged crimes of illegal money transmission were not leveled. A warrant for running a money transmitter service was issued alongside the arrest for the ammo cartridges.
“A warrant signed by U.S. Magistrate Judge David Duncan sought evidence that Costanzo may have operated an “unlicensed money transmitting business,” engaged in illegal drug sales, and tried to hide any profits.”
Constanzo was considered a “flight risk” and was not provided the opportunity for bail.
In a more complex case, an Ohio man named Daniel Mercede was charged with using stolen credit card information to buy concert tickets and resell them for a profit. After a prolonged investigation involving a home search, cops learned of ongoing money transmitter crimes. Allegedly, agents figured out that Mercede was purchasing large quantities of Bitcoin from overseas exchanges and reselling them at a premium. An FBI article about the case explained what they found and the sentence they handed down,
“Court records show Mercede wired funds to make daily purchases of $10,000 and $40,000 in bitcoin. Over six months beginning in August 2014, Mercede illegally converted or transmitted $1.4 million. He was sentenced on March 21 to more than six years in prison. The case represents one of the first convictions for what is believed to be an increasingly frequent crime—operating an unlicensed money transmitting business.”
New York Case
In a New York case that occurred between 2014 and 2015, a man on probation for transferring child pornography, named Richard Petix, pleaded guilty to running an “illegal money transmitting business” and “making false statements.”
On December 3, 2015, Petix conducted a bitcoin exchange with a federal agent in Buffalo, New York. He sent 37 bitcoins to the officer, worth about $13,000 at the time. He was also on probation, and allegedly lied about having access to the computer where the transaction occurred. The New York attorneys office summarized his activities,
“Between August, 2014, and December 3, 2015, Petix conducted over 100 Bitcoin transactions wherein he transferred over $200,000 in bitcoins to customers both locally and across the United States. At least some of these customers then used the bitcoins to purchase controlled substances from dark net vendors. At no time during this period did Petix comply with federal money transmitting business registration requirements.”
Conclusion: Government Crack down and Anonymity Problem
These cases represent a government crack down on the use of bitcoin to exchange cash for a fee, although in some cases the transmitter service was stumbled on by accident (Mercede) or not found at all (Constanzo).
Needless to say, government has become aggressive in regards to thwarting illicit use of Bitcoin by underground, black market actors. They are now willing to hand out warrants or conduct investigations even if the evidence is tentative, nonexistent, or amounts to a witch hunt.
Governments also have the tools and understanding to track bitcoin addresses and obtain computers that harbor wallets. Currently, it seems ill-advised for anyone to attempt to transfer bitcoin in exchange for cash. In the least, anyone interested in subverting government laws should acknowledge that Bitcoin is only pseudo-anonymous and digital currency trails can be traced.
With that said, government possessing authority to tell people how to spend their money is a controversial subject. Many have decried government assaults on these “criminals” as an attack on individual liberty, a person’s right to their property, and ability to spend their money how they see fit.
Do you believe even more people will be arrested for operating “illegal” bitcoin exchanges in the near future? Do you believe people should be punished for spending their money as they see fit? Let us know in the comments section below.
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