Florida passes law making crimes with bitcoin money laundering

Luke Parker , 09 May 2017 - BitcoinLawUsa

House Bill 1379 recently passed in Florida, which defines virtual currency and prohibits its use in laundering criminal proceeds. The bill adds the term “virtual currency” to the definition of “monetary instruments” under Florida’s Money Laundering Act. The legislation is currently in the hands of the State’s Governor and is expected to be signed soon.

The Act defines digital currency 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.” Previously, the Act only applied money laundering to legacy financial transactions of various types, including bank deposits, investments, and wire transfers.

The resulting outcome is that criminals using cryptocurrencies will be charged with money laundering as well as the underlying crimimal activity. “Cyber criminals have taken advantage of our antiquated laws for too long,” claimed Democratic House Representative Jose Felix Diaz, a sponsor of the bill.

- Florida Representative Jose Felix Diaz

Passing this legislation brings to rest a multi-year-long series of court proceedings and uncertainty centered around the arrest of a seller of bitcoins. The bill is a direct response to the failure of Miami-Dade police to be able to prosecute Michell Espinoza, a Miami-based website designer and LocalBitcoins seller who was charged with illegally transmitting and laundering $31,000 worth of bitcoins near the end of 2013.

At the time, undercover detectives in the Miami PD worked with the Secret Service to set up a sting operation on sellers at the popular, face-to-face Bitcoin exchange. The undercover police officers initially bought a small amount of bitcoins from Espinoza, worth $1,000 at the time, and the officers claim that they told Espinoza specifically that they intended to use the money “to buy stolen credit-card numbers,” which is an existing crime in Florida.

Espinoza was arrested in a police sting involving an agreement for $30,000 in bitcoin. Days later, another Localbitcoins trader, Pascal Reid, was arrested in a second sting operation for the same amount by the same officers. Both Espinoza and Reid pleaded guilty to “acting as an unlicensed money broker,” similar to the charges Charlie Shrem faced for his arrest as CEO of BitInstant in January 2014.

The defence teams for both Reid and Espinoza filed to have the money laundering charges dismissed in their cases, on the grounds that under IRS guidance, bitcoin is not legal money. They both wound up accepting a plea deal, and were sentenced to probation. Reid went on to teach law enforcement officers at the Miami PD about how Bitcoin works as part of the plea deal.

What followed for Espinoza was a dramatic series of well-publicized court proceedings that took two and a half years to conclude, ending with all charges being dropped. The case made headline news as there were so few laws on the books about Bitcoin in any US state, and Florida was the first to arrest anyone for what appeared to be merely selling a cryptocurrency.

- Brian Klien, The Bitcoin Foundation’s Legal advocate

It was at Espinoza’s May 2016 hearing that defense lawyers told Judge Teresa Pooler that neither governments nor banks “back” Bitcoin, so Bitcoin regulation remains lacking, and clear definitions were yet to be made in most states.

Judge Pooler cleared Espinoza of all charges two months later, citing a lack of regulations. “This court is unwilling to punish a man for selling his property to another,” she said during the verdict, “when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.”

"This court is not an expert in economics, however, it is very clear, even to someone with limited knowledge in the area, that bitcoin has a long way to go before it is the equivalent of money," Pooler wrote in an eight-page dismissal order. The judge then called for today’s legislative outcome.

Noting that the state could prevent further cases like Espinoza’s from a similar conflict, she said: "There is unquestionably no evidence that the defendant did anything wrong, other than sell his bitcoin to an investigator who wanted to make a case."

- Judge Pooler

The outcome of the 2016 ruling has likely set a precedent that can already be felt in other states. In this year alone, eight more states have worked on bills that concern bitcoin and blockchains. While most states have simply taken the opportunity to define Blockchain technology and its benefits, Hawai’ian lawmakers have started to define and regulate Bitcoin and its money transmitter status.

Ultimately, it is up to each state how they classify Bitcoin. All the while, new options continually arrive, such as the Sweden-based LocalBitcoins and the decentralized, peer-to-peer bitcoin exchange Bitsquare that give users in those states a way to buy and sell bitcoins without any regulations.