In a current money laundering prosecution in Miami, Florida, that has generated a lot of buzz in the press because it concerns Bitcoin, a Florida state trial judge ruled on July 22 that Bitcoin cannot be considered “money” under some of Florida’s state criminal laws. Given the particular facts of the case, however, it is not clear how much, or even whether, this case could be used as precedent by defendants in other money laundering prosecutions in Florida or other jurisdictions.

The Facts

The case began with a U.S. Secret Service task force that was working with a Miami Beach police detective. In December of 2013, the detective and one member of the Secret Service visited a website seeking to purchase Bitcoins, finding an ad by “Michelhack” who offered to meet any time day or night in person at public places in order to exchange Bitcoin for cash. The duo had no reports that this individual was engaged in illegal activity but began an undercover operation based on the contents of the ad.

The first transaction between the undercover detective and the defendant occurred on December 4, 2013. The detective purchased 0.4 Bitcoins for $500. At their meeting, the defendant explained how Bitcoins worked and said that he purchased Bitcoins at 10% below market price and sold at 5% above market price, to make a 15% profit.

One month later, the detective purchased one Bitcoin for $1000. This time, the detective claimed that he was in the business of buying stolen credit card numbers, and asked the defendant if he would accept stolen credit card numbers in exchange for Bitcoin at the next transaction. The defendant replied that “he would think about it.”

Three weeks later, in an exchange that took place entirely through text messages, the detective purchased $500 in Bitcoin. The detective texted the defendant he wanted to purchase $30,000 worth of Bitcoin in the future.

One week later, the detective and the defendant met for the $30,000 transaction. The detective showed the defendant a roll of $30,000, but the defendant immediately (and correctly) recognized the money as counterfeit. He never took possession of it.

The defendant was then arrested and charged with one count of unlawfully engaging in business as a “money services business” and two counts of money laundering under Florida’s state criminal laws. The defendant filed a motion to dismiss, which the court granted in State of Florida v. Espinoza, Case No. F14-2923 (Fla. 11th Cir. July 22, 2016).

The Court Ruling

Under Florida state law, a “money services business” includes acting as a money transmitter or payment instrument seller, both of which activities Florida charged the defendant with doing. A “money transmitter” is defined in part as someone that “received currency, monetary value, or payment instruments for the purpose of transmitting the same.” (Fla. Stat. § 560.103(23).) The Court ruled that the defendant did not receive currency for the purpose of transmitting it to a third party. Instead, the Court characterized the defendant as a seller, not a middleman. Florida law also requires that a money transmitter charge a fee for the transaction in order to be a crime—here, the Court said, the defendant did not charge a fee but simply earned a profit.

With respect to the “payment instrument seller” claim, Florida state law defines “payment instrument” as “a check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of money, or monetary value whether or not negotiable.” (Fla. Stat. § 560.103(29).) The Court pointed out that the definition did not expressly include “virtual currency” and that Bitcoin did not “fit into one of the defined categories listed.” The Court also noted that the IRS treats virtual currency as property, not currency, for federal tax law purposes.

The Court concluded this section of its opinion by stating that the Florida legislature may choose to adopt laws regulating virtual currency, but in the meantime “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services business is like fitting a square peg in a round hole.”

The Court also dismissed the state’s money laundering claims against the defendant. Florida law defines a “monetary instrument” as “coin or currency of the United States or any other country, travelers’ checks, personal checks, bank checks, money orders, investment securities in bearer form or otherwise in such form that title thereto passes upon delivery.” (Fla. Stat. § 896.101(2)(e).) Similar to the “payment instrument” analysis above, the Court found that virtual currency “is not separately included as a category in that definition, nor does Bitcoin fall under any of the existing categories listed.”

Although Florida law does not require that the defendant actually acknowledge or act in furtherance of an illegal transaction (in this case, that the exchange of Bitcoin allegedly would facilitate the purchase of stolen credit card numbers), the law does require that the defendant undertake the transaction with the intent to promote illegal activity. The court rejected the notion that the defendant was promoting, inciting, or encouraging any illegal activity: “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.”

The Court’s Discussion that Bitcoin is Not Money

The judge set forth detailed reasons for her conclusion that Bitcoin could not be considered “money” for purposes of these specific Florida statutes:

Bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects. While Bitcoin can be exchanged for items of value, they are not a commonly used means of exchange. They are accepted by some but not by all merchants or service providers. The value of Bitcoin fluctuates wildly and has been estimated to be eighteen times greater than the U.S. dollar. Their high volatility is explained by scholars as due to their insufficient liquidity, the uncertainty of future value and the lack of a stabilization mechanism. With such volatility they have a limited ability to act as a store of value, another important attribute of money.

Bitcoin is a decentralized system. It does not have any central authority, such as a central reserve, and Bitcoins are not backed by anything. They are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars.

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.

It is unclear whether this discussion of whether Bitcoin is money is part of the Court’s ruling or can be treated as simply dicta; in any event, a lot of attention is being paid to this case precisely because it does involve virtual currency.

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