Bitcoin is not money, Miami judge rules

August 9, 2016

Money Question Mark No Credit IstockA Florida judge has tossed charges of money laundering and unlawfully operating a money-service business against a “day trader” of the virtual currency bitcoin.

Michell Espinoza could not be found guilty of being an unauthorized money transmitter or payment-instrument seller for buying and selling bitcoin because it is not the equivalent of money, Miami-Dade Circuit Judge Teresa Pooler said in a July 22 ruling.

Espinoza also could not be found guilty of violating Florida’s money laundering statute for selling bitcoin to an undercover officer, who said he was going to use the virtual currency to buy stolen credit card numbers, because the defendant did not sell it with the “intent of promoting the carrying on of an illegal activity,” Judge Pooler said.

Bitcoin purchases

According to the judge’s order, undercover officer Ricardo Arias, a Miami Beach Police Department detective, worked with the U.S. Secret Service Miami Electronic Crimes Task Force.

Arias found Espinoza through an internet-based peer-to-peer bitcoin exchange, the order said.

Espinoza in December 2013 met with Arias and agreed to sell him about one-fourth of a bitcoin in exchange for $500 cash, according to the order. The transaction allegedly netted Espinoza a profit of $83.67.

Espinoza explained to Arias that he was able to make a profit by buying bitcoin at 10 percent under market value and selling them at 5 percent above market value, the order said.

During a second meeting the next month, Arias purchased one bitcoin from Espinoza for $1,000, according to the order. When the detective asked Espinoza if he would accept stolen credit card numbers as future payments for bitcoin, Espinoza responded that he would think about it, the order said.

Arias purchased an additional $500 in bitcoin from Espinoza later that month through a text-message transaction, it said.

During an in-person meeting Feb. 6, 2014, Arias sought to purchase $30,000 in bitcoin from the defendant, according to the order. Arias told Espinoza that he would be using the bitcoin to purchase stolen credit card numbers, the order said.

Arias produced a roll of bills, but Espinoza refused to take them as payment because he correctly suspected they were counterfeit, according to the order.

Espinoza was subsequently arrested and charged with one count of unlawfully acting as a money-service business in violation of Fla. Stat. Ann. § 560.125(1)(a) and two counts of money laundering in violation of Fla. Stat. Ann. §§ 896.101(5)(a) & (b). He moved to dismiss the indictment Sept. 17, 2015.

Money-service business

Section 560.125(1)(a) makes it unlawful for a person to operate a money-service business unless licensed or exempted from licensure.

Florida law defines a money-service business as a person who acts like a payment-instrument seller or money transmitter, among other things.

Judge Pooler ruled that Espinoza did not fit the definition of a money transmitter because he did not charge a fee for the transactions. Rather, he made a profit solely based on the difference between the purchase price and selling price of the virtual currency.

“Defendant purchases bitcoin low and sells them high, the equivalent of a day trader in the stock market,” the judge wrote.

Moreover, Espinoza did not act as a money transmitter or payment-instrument seller because bitcoin lacks many of the attributes commonly associated with money, the judge said, noting the volatility and intangibility of the virtual currency and the lack of a central bank authority behind it.

“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,” Judge Pooler wrote.

Money laundering

The judge dismissed the money laundering charges against Espinoza, finding he lacked the requisite intent.

The money laundering statute, at Fla. Stat. Ann. § 896.101(3)(c)(1), requires proof that the defendant undertook the transaction with the “intent to promote the carrying on of an illegal activity.”

Judge Pooler said the statute’s use of the word “promote” was “troublingly vague.”

Here, there was “no evidence” that Espinoza did anything wrong, “other than sell his bitcoin to an investigator who wanted to make his case,” she said.

“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 concluded.

State v. Espinoza, No. 14-cr-2923, motion to dismiss granted (Fla. Cir. Ct., Miami-Dade Cty. July 22, 2016).