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US Prosecuting Bitcoin Laundering

Jacob jacob
Feb. 4, 2014

Vice reports that the U.S. government has started to arrest Bitcoin users, according to an article by Cathy Reisenwitz (Why Are Bitcoiners Going to Jail for Money Laundering While Big Banks Walk?)

BitInstant CEO Charlie Shrem, along with alleged co-conspirator Robert Faiella, was arrested by federal authorities last week for allegedly laundering more than $1 million worth of bitcoins.

What is Bitcoin? Bitcoin is a “cryptocurrency”, or a hidden monetary system that is not based in government. It is an electronic currency backed only by the value of the belief of those who use it. Holdings are anonymous and reportedly protected from governmental seizure, which led to a massive increase in popularity of Bitcoin in the Spring of 2013 after the Cyprus savings account seizure scandal. However, while much of cryptocurrency activity is hidden, all transactions are public.

Money Laundering is both a federal crime and a crime in Louisiana. It is best described as the concealing/hiding of money used in illegal activity. This definition sounds fine enough, until you realize not only the incredible expansion of the size of criminal law in both Louisiana and the the United States, but also the fact that an anonymous grouping of monies may inadvertently lead to “concealing” these monies.

For example, the Louisiana statute on Money Laundering includes the language, “known to be for the purpose of committing or furthering the commission of any criminal activity.” A sale performed without the collection of sales tax would fall under “any criminal activity“, so theoretically any economic transaction using Bitcoin could be considered to be an act committed for the purpose of this crime. I do not know of any State Agencies that would accept Bitcoin for payments of sales tax, so it seems impossible to use the currency in an economic sense without breaking the law of Louisiana, which then would theoretically attach the crime of Money Laundering. Remember, government gets bigger and strips your rights; it rarely decreases in size, scope, or power over you.

As the Vice article states:

Orlin Grabbe wrote, “Anyone who has studied the evolution of money-laundering statutes in the US and elsewhere will realize that the ‘crime’ of money laundering boils down to a single, basic prohibited act: Doing something and not telling the government about it.” Criminalizing this means that by default government has the right to know the source of all of every citizen’s money. In some jurisdictions, money laundering can be just using financial systems or services that do not identify or track sources or destinations.

The amounts spent by government in investigating and prosecuting those who actually use Money Laundering in order to hide heinous criminal activities do not even justify their impact:

The Economist has estimated the annual costs of anti-money laundering efforts in Europe and North America to be in the billions. Even its most legitimate function, trying to keep people from financing terror, has been deemed a costly failure by the magazine.

So who does government target? Those who are engaging in relatively above-ground commerce in non-traditional ways. What is the most popular change in international and domestic commerce in the past year? What monetary system threatens government by creating a new layer of privacy from government intrusion? Cryptocurrencies like Bitcoin.

Ensuring every transaction is above board forces banks to be cops through so-called “know your customer” laws. These laws essentially conscript private businesses “into agents of the surveillance state,” according to the American Civil Liberties Union.

So remember to be mindful of new technologies, especially those who threaten the ever growing police state.