Judge Not Impressed By Ross Ulbricht's 'But Bitcoin Isn't Money' Defense

from the wanna-try-that-again dept

Thu, Jul 10th 2014 2:15pm — Mike Masnick

Ross "Dread Pirate Roberts" Ulbricht's attorneys had recently seized on some debate within the US government over whether or not Bitcoin was actually money to try to sneak through a loophole to get out of the money laundering charges against him. As you may recall, the IRS recently declared that virtual currency was more akin to equity/property than money. And Ulbricht's lawyers hoped that distinction might help. It did not. The judge clearly wasn't buying it:

[T]he defendant alleges that he cannot have engaged in money laundering because all transactions occurred through the use of Bitcoin and thus there was therefore no legally cognizable "financial transaction." The Court disagrees. Bitcoins carry value - that is their purpose and function - and act as a medium of exchange. Bitcoins may be exchanged for legal tender, be it U.S. dollars, Euros, or some other currency. Accordingly, this argument fails.

Later in the ruling, the judge goes even further:

In fact, neither the IRS nor FinCEN purport to amend the money laundering statute (nor could they). In any event, neither the IRS nor FinCEN has addressed the question of whether a "financial transaction" can occur with Bitcoins. This Court refers back to the money laundering statute itself and case law interpreting the statute.

It is clear from a plain reading of the statute that "financial transaction" is broadly defined.... It captures all movements of "funds" by any means, or monetary instruments. "Funds" is not defined in the statute and is therefore given its ordinary meaning.

While this was the headline argument, many of the other arguments that Ulbricht's lawyers made were more important -- focusing on the nature of Ulbricht merely setting up the marketplace, and not being liable for how it's used. Judge Katherine Forrest is, once again, not impressed. It's worth pointing out here, that Section 230 liability protections do not apply to criminal behavior, so that particular out wasn't ever really on the table. But the general concept of intermediary liability is clearly tied up in this case. In particular, here, Ulbricht argued that there was no "conspiracy" since he wasn't "conspiring" with users of Silk Road, just setting up the marketplace. The court notes that Ulbricht appeared to be much more involved than just merely running an open market:

Ulbricht argues that his conduct was merely as a facilitator - just like eBay, Amazon, or similar websites.6 Even were the Court to accept this characterization of the Indictment, there is no legal prohibition against such criminal conspiracy charges provided that the defendant possesses (as the Indictment alleges here) the requisite intent to join with others in unlawful activity.

Moreover, in this case, the charges in the Indictment go further than Ulbricht acknowledges. The Indictment alleges that Ulbricht engaged in conduct that makes Silk Road different from other websites that provide a platform for individual buyers and sellers to connect and engage in transactions: Silk Road was specifically and intentionally designed for the purpose of facilitating unlawful transactions. The Indictment does not allege that Ulbricht is criminally liable simply because he is alleged to have launched a website that was - unknown to and unplanned by him - used for illicit transactions. If that were ultimately the case, he would lack the mens rea for criminal liability. Rather, Ulbricht is alleged to have knowingly and intentionally constructed and operated an expansive black market for selling and purchasing narcotics and malicious software and for laundering money. This separates Ulbricht's alleged conduct from the mass of others whose websites may - without their planning or expectation - be used for unlawful purposes.

In other words, it's one thing to set up a marketplace. It's another thing to set up a marketplace with the specific intent of using that marketplace to enable criminal behavior. I'm still a little troubled by the possible implications of this -- and even how it might be read back towards cases like the ridiculous lawsuit against Tor we were just discussing. Overall, though, it seems clear that the court isn't going to let Ulbricht off easy. There appears to be some level of guilt-by-association in this latest ruling, some of which may lead to interesting legal challenges down the road, but it's pretty clear that Ulbricht has a long legal road in front of him -- meaning that it's actually likely he'll work out some sort of plea deal rather than continue to fight.

233234104 Forrest Denial of Defense Motion in Silk Road Case (PDF)233234104 Forrest Denial of Defense Motion in Silk Road Case (Text)

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Filed Under: bitcoins, conspiracy, dread pirate roberts, money laundering, ross ulbricht, secondary liability, silk road
Companies: silk road

20 Comments

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Mason Wheeler (profile), 10 Jul 2014 @ 2:26pm

I'm still a little troubled by the possible implications of this -- and even how it might be read back towards cases like the ridiculous lawsuit against Tor we were just discussing. Overall, though, it seems clear that the court isn't going to let Ulbricht off easy.

Tor is one thing, but it easily meets the Betamax test: it has substantial non-nefarious uses.

As near as I can tell from what's been reported, Silk Road did not.
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Anonymous Coward, 10 Jul 2014 @ 2:33pm

but it's pretty clear that Ulbricht has a long legal road in front of him -- meaning that it's actually likely he'll work out some sort of plea deal rather than continue to fight.

That is an indictment of the US criminal legal system, when the prosecution can stack charges, possible consequences, and draw out the process to the point where the optimum solution for the defendant is to agree to a term in prison that gives them a chance of some sort of life at the end of the process.
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John Fenderson (profile), 10 Jul 2014 @ 2:45pm

Re:
Yes, this. As the judge notes, Silk Road was specifically designed and marketed as a means to conduct transactions for illegal merchandise. That pretty much eliminates the usual legal protections.
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Anonymous Coward, 10 Jul 2014 @ 2:48pm

Re: Re:
I'd say it's designed to make it very difficult if not impossible to track and/or figure out who the people using your service are.

Basically the court is saying, if you develop a service that could potentially be used 'legally' but pretty much everyone uses it 'illegally' you can and will be held responsible for it.
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Anonymous Coward, 10 Jul 2014 @ 3:16pm

Money
"Bitcoins may be exchanged for legal tender, be it U.S. dollars, Euros, or some other currency. Accordingly, this argument fails."

So can beans. And sex. So I guess beans and sex are money too.
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Whatever (profile), 10 Jul 2014 @ 4:20pm

and even how it might be read back towards cases like the ridiculous lawsuit against Tor we were just discussing.

A day later, a few people will be eating their words. It's nice to see a judge getting it right and not letting the internal functions of technology get in the way of seeing the bigger picture.

As for the bitcoin argument, the main point is that it is an intermediary financial instrument, no different in some ways from a bond or promissory note. Those two are not specifically currency, but they they are settled in the end in currency and can be traded with a "cash value". As soon as bitcoin was available to pay for things in the real world, it easily crosses the line and the legal argument put forward has no chance.
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Techanon, 10 Jul 2014 @ 4:25pm

Re: Money
What I understood from the ruling is that you don't need to exchange actual 'money' to fit into the "money laundering" charges...
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DMNTD, 10 Jul 2014 @ 4:33pm

Hows that go?
Oh yeah, SILLY rabbits!!! The government HATES competition! That's all there is to it.
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Mason Wheeler (profile), 10 Jul 2014 @ 4:54pm

Re: Money
Beans and sex aren't financial products.

If I ran a comparable service that took payment only in stocks, (of the Stock Market variety,) no judge would buy an argument that because stocks aren't money, the service was not engaged in money laundering. Bitcoins, being a highly speculative investment instrument, are no different. Beans and sex are completely different.
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Anonymous Coward, 10 Jul 2014 @ 5:49pm

medium of exchange vs. accounting
Remember in elementary school when they told us that money was only a medium of exchange, that money didn't have any intrinsic value, and we wondered why a pound of tobacco had intrinsic value, but an ounce of gold didn't?

And remember when they said the native americans used shells as money, and we wondered how that would work, given that you could go the beach and pick up more shells?

And remember in world civilization class, how the earliest civilizations had the division of everything: labor, property, land, time, wealth, and numbers to keep track of all that wheat in the temple?

Well, a medium of exchange needs mathematics, and mathematics is the science of measurement. In mathematics, a unit of measure needs a Standard, but the government didn't bother to tamper with the scales, they just threw away the scales when they went off the gold Standard.

As for the shells, the government set up a stinking fish hatchery for inflating the money supply.

And as for accounting, I don't see any difference between bitcoin and making marks on a clay tablet with a stick in Mycenae.
...
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amoshias (profile), 10 Jul 2014 @ 5:57pm

Re: Money
""Bitcoins may be exchanged for legal tender, be it U.S. dollars, Euros, or some other currency. Accordingly, this argument fails."

So can beans. And sex. So I guess beans and sex are money too."

That's fascinating - where is there a bean exchange?

Especially, where is there a sex exchange? I'd really like to visit THAT place. What are the market prices like?
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Anonymous Coward, 10 Jul 2014 @ 6:34pm

Re: Re: Money
"That's fascinating - where is there a bean exchange?"

The corner store near where I live trades dollars for cans of beans from suppliers and also trades those beans for dollars from customers. I think there's also a commodities market for them.

"Especially, where is there a sex exchange?"

Nevada. They're called brothels.
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Anonymous Coward, 10 Jul 2014 @ 6:35pm

he's going to be stitched up just like Dotcom. there was no setting up for criminal purposes but because the US government didn't like it and the IRS couldn't get taxes out of it, they will put him out to dry! it doesn't matter whether he has actually done anything wrong, they'll pin God knows what on to him, just because they can!!
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Anonymous Coward, 10 Jul 2014 @ 6:41pm

Re: Re: Money
The judge didn't say "highly speculative investment instrument". Just "may be exchanged for legal tender", to which beans and sex seem to qualify.
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Zem, 10 Jul 2014 @ 6:46pm

Re: Money
Beans are a commodity
Sex is a service
Bitcoins are a currency
Common sense is a gift
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Anonymous Coward, 10 Jul 2014 @ 7:44pm

DPR
You wrote
Ross "Dread Pirate Roberts" Ulbricht,
but isn't that premature? Last I heard, he's still denying the allegations he's DPR. For example, his motion to dismiss said
For purposes of these motions, and because challenges to an Indictment on its face do not involve disputing the facts alleged therein, the conduct of the Silk Road and Dread Pirate Roberts will be attributed nominally to Mr. Ulbricht. However, of course, that does not in any way constitute an admission by him with respect to any allegation in the Indictment.
(BTW, why is Techdirt showing captchas now? I just got sent to some Cloudflare interstitial captcha page when I tried to comment.)
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Anonymous Coward, 11 Jul 2014 @ 12:24am

Re: Re: Re: Money
I would actually give credence to beans as some kind of a currency, although anything with a limited existance is a bit dicy to compare to money, stocks, bitcoins etc. where no expiration is intended. Bartering will give the ability to launder transaction goods.

Sex is a service and not an asset. That you can sell it and buy it, doesn't make it possible for you to transfer it, which is kind of the point with "money laundering".
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Anonymous Coward, 11 Jul 2014 @ 7:28am

Re: Re: Re:
I agree with the judge at this stage where they are requesting immediate dismissal. However, the prosecution should be forced at trial to prove that he was involved in a conspiracy to commit specific crimes. Conspiracy should involve a specific intentional cooperation and communication of that cooperation with those who planned to commit the crimes, not just building a marketplace knowing that it will be used for such.
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Anonymous Coward, 11 Jul 2014 @ 7:34am

Re: Re: Money
Of course you don't have to. Haven't you heard, there is a new standard in the law. It just has to "look like" money laundering to be considered such.
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John Fenderson (profile), 11 Jul 2014 @ 8:15am

Re: Money
If beans and sex are used as a medium of exchange, then yes, they are money for many purposes. You have to pay income tax on things you receive in barter, even, even though no currency changes hands.
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