By Stephen D Palley,
A Miami, Florida, trial court recently dismissed a criminal case against a defendant who had sold bitcoin to a police detective as part of an undercover investigation.
The case, Florida v Espinosa, has been already been cited by some potentially important precedent for future cases, particularly those where bitcoin’s status as “money” or “currency” is at issue. Bitcoin industry advocates will also cite the case when arguing for legislative reform and greater regulatory clarity.
But, as legal precedent, Espinosa‘s value may be limited. It’s a single decision from a Florida state court trial judge regarding state specific statutes.
It’s not an appeals court decision. It’s not binding “precedent” in any other state or in Federal Court. Half of the opinion has to do with proving criminal intent, but little to do with bitcoin.
Finally, the Court’s analysis of whether bitcoin constitutes “money” or “currency” differs from approaches other courts have taken, and may (or may not) be adapted in other circumstances.
The analysis
Precedential or not, the case illustrates how courts apply well-established legal principles and procedures to new technologies. Consider how the court reached its conclusion.
It’s a process familiar to anyone who has read a case or two. Find the facts, then apply the law, render judgment.
Count I of the criminal information charged the defendant as an unlicensed “money transmitter” because he’d sold bitcoin to an undercover detective for dollars.
The court dismissed these charges, holding that:
- The statute didn’t apply to a direct transaction without a “middleman”
- Bitcoin isn’t a “payment instrument”
- The defendant wasn’t a “money transmitter” because he hadn’t charged a “fee”.
The first two prongs of the analysis involve fairly standard statutory analysis (“the law says this”, “the alleged conduct is this”, “therefore the law does/does not apply.”)
The third prong is a bit more elaborate.
Citing case law, the court reasoned that to be a “money transmitting business”, a fee must be charged. While the defendant made a profit (in bitcoin) on his sale, the court held that a cryptocurrency “profit” isn’t a fee. According to the court, to qualify as a fee, a payment must be made in fiat money.
In support of this conclusion, the court observed that “bitcoin has a long way to go before it is the equivalent of money”.
This last point is not one that all courts have accepted, and it’s a somewhat surprising conclusion. (See SEC v. Shavers, in which the Court held bitcoin “is a currency or form of money” for purposes of determining whether or not security in under Federal Securities laws).
The charges
The court also dismissed two counts of money laundering, holding that the defendant didn’t have the kind of criminal intent required by the applicable Florida statute.
An undercover detective told the defendant that the purchased bitcoin would be used for an illegal purpose. The court said that this wasn’t enough to meet intent requirements under the Florida money laundering statute, which the court court also said was too vaguely written to apply under the facts of this case.
The court says that anything can be used for money-laundering, including bitcoin. It just happens that there wasn’t enough evidence of the defendant’s criminal intent, and (according the court), the word “promote” in the statute wasn’t clear enough.
Given slightly different circumstances (or a different judge) a different outcome isn’t hard to imagine.
Selling something for a profit with the express knowledge that a third party will use it to commit a crime (and the intent to help them commit it) could be problematic, depending on the facts and jurisdiction.
A defendant might risk being charged as “accessory before the fact”, among other things. Other courts, in other circumstances, have rejected the notion that bitcoin’s status as a virtual currency is so unique as to protect a criminal defendant from conviction.
Precedent unclear
In this respect, Espinosa is also consistent with the court’s decision in the Silk Road case, in which the defendant didn’t make out as well, but where the court says that bitcoin use in and of itself isn’t a problem — it’s “how” you use it. The same seems to be the case here.
It’s just that the court didn’t think that Mr Espinosa had done anything wrong. Will Espinosa prove to be important or persuasive authority in the future? It’s too soon to say.
For now, it’s a fine example of law’s adaptability and the power that judges and lawyers have to shape it.