Criminals who deal in bitcoins in Florida could soon be busted for money laundering.
Florida lawmakers are poised to pass a bill that will add “virtual currency” to the state’s money-laundering statute, a change hailed by law enforcement although frowned upon by some enthusiasts of bitcoins.
The proposed law was crafted after a Miami judge tossed a criminal case against a Miami Beach man accused of selling $1,500 worth of bitcoins he believed was to be used to buy stolen credit-card numbers online.
The bill, which is being considered during the ongoing annual legislative session in Tallahassee, was crafted with help from Miami-Dade cyber-crimes prosecutors.
“The high-tech criminals of the 21st Century use virtual currencies like bitcoin to accumulate and hide the profits of their illegal activities,” Miami-Dade State Attorney Katherine Fernandez Rundle said in a statement. “This legislation makes sure that traffickers and fraudsters can no longer try to use internet-based currencies to hide and move their ill-gotten gains.’’
But critics say the law could deliver a chilling effect on the bitcoin, which can be valuable in promoting commerce between Florida and countries such as Venezuela, where traditional banking systems have gone awry.
“Florida legislators will be sending a very clear signal that financial innovation is not welcome here,” said Charles Evans, a Barry University economist who specializes in Bitcoin. “No doubt, officials in China, Europe, Russia, Texas, and other places where Bitcoin is welcome will be pleased.”
So far, a House version of the bill – sponsored by Miami Rep. Jose Felix Diaz – passed unanimously through an appropriations committee last week. A Senate version has passed two sub-comittees and is awaiting a vote in an appropriations committee.
Authorities across the United States have struggled to figure out how laws apply to Bitcoin, which allows some users to spend money anonymously and can also be bought and sold on exchanges with U.S. dollars and other currencies.
Digital currencies allow people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit-card issuers or other third parties.
Regulated services such as CoinBase, which operates similarly to PayPal, allow people to buy, sell and use bitcoins. Authorities have raised concerns about the currency – which can be bought and sold through private users – being used in the anonymous black market.
The currency has gained popularity with merchants selling legitimate goods and services, everything from Dell to Expedia to Overstock.com. In Miami, there are a handful of restaurants that accept the virtual currency, including the popular South Beach hotel and club, The Clevelander.
But the currency has also been used for more nefarious reasons.
Bitcoins was most famously used to help traffic drugs in the now-shuttered Silk Road “dark web” online network. In an unrelated South Florida case, a Miramar man got 10 years in prison after using Bitcoin to buy Chinese-made synthetic heroin from a Canadian prisoner.
When major credit card companies stopped accepting business from Backpage.com over concerns about ads for the sex trade, the classified website turned to bitcoins. Prostitutes – and human traffickers – learned to buy bitcoins to purchase the ads.
Under current Florida law, money laundering can apply to host of financial transactions designed to hide funds earned through criminal activity, or further that activity. That includes bank deposits, wire transfers and even investments.
IF THE LAW PASSES, “VIRTUAL CURRENCY” WILL BE ADDED TO THE DEFINITION OF “MONETARY INSTRUMENTS” COVERED UNDER FLORIDA’S MONEY LAUNDERING ACT.
If the law passes, “virtual currency” will be added to the definition of “monetary instruments” covered under Florida’s Money Laundering Act, which would then be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.”
South Florida lawyer Andrew Hinkes said that under the proposed law, prosecutors will still need to prove intent – that someone knew they were changing money for bitcoin or bitcoin for money to either hide dirty money, or further a future illegal transaction.
“I don’t think it would affect the day-to-day users of bitcoin, or investors who hold bitcoin,” Hinkes said “But it might affect the business of those who exchange bitcoin for dollars. Now, assuming the facts support the intent required by law, the path to prosecution of traders for money laundering is clearer in Florida.”
Miami Beach police thought they had made a solid case against Michel Espinoza, a website designer who was charged with illegally transmitting and laundering $1,500 worth of bitcoins.
Undercover detectives met Espinoza through a Bitcoin exchange site called LocalBitcoins.com.
As they bought the bitcoin from him, the undercover detectives told Espinoza they wanted to use the money to buy stolen credit-card numbers.
Espinoza was arrested along with another man, Pascal Reid, who pleaded guilty to acting as an unlicensed money broker and was sentenced to probation. Under his unusual plea deal, Reid agreed to teach law enforcement about Bitcoin.
But his defense lawyers challenged the prosecution, arguing that Bitcoin is not actually money under Florida law.
At a hearing in May 2016, they told a judge that no central government or bank backs Bitcoin, like the United States does the dollar. Government regulation of Bitcoin remains a messy hodgepodge from state to state, country to country and the IRS considers Bitcoin deals no more than bartering, he said.
“Basically, it’s poker chips that people are willing to buy from you,” testified Evans, of Barry University.
In a decision that was closely watched by the virtual currency community, Pooler agreed – throwing out the criminal charges against Espinoza.
“This court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning,” she wrote.
Miami-Dade prosecutors are appealing the ruling.
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