With all of the headlines about the astronomical prices of various cryptocurrencies, you may have missed a troubling trend: US law enforcement keeps charging people with a crime for selling bitcoin.
In May of this year, a man from Nixa, Missouri waived his right to a grand jury and pleaded guilty to "conducting an illegal money transmission business." According to a posting by the US Department of Justice, Jason Klein had conducted five separate in-person transactions of cash for bitcoin with undercover federal agents, ranging from $1,000 to $15,000 in value.
Selling bitcoin in-person has long been a niche market for hobbyists who use the Finnish site localbitcoins.com to coordinate sales in their city. Selling bitcoins peer-to-peer is also an alternative to using centralized exchanges that operate as businesses. It's not illegal to sell bitcoins per se, but at least four people across the US this year have been charged or pleaded guilty to the crime of exchanging the cryptocurrency for fiat as a business without a license—"business" being the keyword.
Why and when is selling bitcoins a crime? To find out, I called up Marco Santori, a lawyer specializing in bitcoin at Palo Alto-based firm Cooley. According to Santori, it's been an issue for bitcoiners since 2013, when the US Financial Crimes Enforcement Network declared that selling bitcoin as a business is money transmission that requires licensing. Individual states have followed suit, and New York's BitLicense legislation, for example, says you need a license to sell bitcoin as a business.
"'As a business' is the qualifier that triggers the money transmission laws," Santori said over the phone. "If you come to me and ask to buy $100 worth of bitcoin and I sell that to you, in no state is that sole activity considered to be money transmission. It must occur in a sufficient frequency and volume and you have to accept all comers. It's a fact-based test."
There are more examples from 2017 where people were charged with operating illegal money transmission businesses for selling bitcoins. However, they often came in conjunction with other crimes.
More recently than Klein's case, in June, two men in Arizona were charged by a grand jury with "operating unlicensed money transmitting business" between 2013 and 2017. An alias of one of the defendants, listed in court documents viewed by Motherboard, matches up to an account on localbitcoins.com that was opened in 2013 and has conducted over 100 transactions. One of the pair is additionally charged with money laundering, having allegedly exchanged funds with federal agents who represented the funds as proceeds from illegal activities.
In May, a Detroit man pleaded guilty to the charge of "operating an unlicensed money service business." According to the US Department of Justice, he'd bought and sold about $2.4 million worth of bitcoin between 2013 and 2015. He funneled the proceeds of this business through the account of a legitimate business he owned.
In April, a New York man pleaded guilty after being charged with conducting over 100 bitcoin transactions "locally and across the United States." He was prohibited at the time from having access to a computer or phone after a 2009 child pornography conviction and lied to investigators.
However, not all states or judges agree with the assessment that selling bitcoins is illegal, Santori said. Last year, a Florida judge threw out money transmitting charges against a bitcoiner, arguing that selling bitcoins isn't the same as transmitting money to a third party. "As far as I know, in the states where this has actually gone to trial, the decision has been in favour of the defendant," Santori continued.
Right now, if you want to buy and sell bitcoin as an individual (and in high quantities) you would do well to see what your state's rules are around selling bitcoin as a business, and keep in mind that the feds maintain you need a license. Otherwise, you could land in a whole lot more trouble than you bargained for.
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