7 ms·

California Based P2P Trader Convicted of Illegal Money Transmission

61 points by SpiryBTC 8y ago

thinkcomp 8y ago
Court docket here: https://www.plainsite.org/dockets/38v97us7k/california-central-district-court/usa-v-tetley/ https://www.plainsite.org/dockets/38v97us7k/california-centr...
- cft 8y ago
  Interestingly, most documents are sealed by the court.
jtbayly 8y ago
You can run to anarcho-libertarian-utopian ideals, but you can’t hide from the fact you still live under actual laws against such things, whether or not such laws are just.
- GenerationRous 8y ago
  If they really believe in their ideals, they should do the hard work to change the laws in their favor, or cleverly use already existing ones, instead of childishly isolating themselves from society and the government as outlaws. There is a precedent for this: the 18th and 19th century religious communes -- some of them anarchist -- had popular support and were able to change US laws so that they could avoid taxes and live in peace as gated utopias in the way they wanted -- because they didn't antagonize the rest of society or the US government. Or, put another way, they were anarchists that did politics maturely and succeeded (even though their utopias didn't).
  - deleted 8y ago
    [deleted]
  - xkcd-sucks 8y ago
    Utopian societies in pre-20th century USA were typically located in isolated settlements. Armed conflict was typical unless it was a group specifically dedicated to nonviolent ideals. Cf. the "Mormon wars" and pro/anti abolitionist movements in Western territories
  - deleted 8y ago
    [deleted]
ve55 8y ago
The part about these convictions that bugs me is that some of the people getting in trouble were definitely not aware that they were breaking the law. It surprises a lot of people when they find out it's illegal to buy and sell bitcoin for cash to strangers in the US like this (that is, with no license or reporting or discrimination). I hope most of those convicted don't get jail time unless they truly knew that it may have been coming.
- toomuchtodo 8y ago
  Ignorance of the law is not a defense, and this person had the resources to engage an attorney (at $300k/year of income).
  - andrewprock 8y ago
    I don't think they made that much. At 6-9 million in transfers, that would be a 10-15% commission, which feels quite high. But maybe that is typical when doing illegal transactions.
    - gst 8y ago
      10-15% sounds reasonable. For example currently Bitcoin trades at $6325 on Coinbase, while cash offers on LocalBitcoins are at around $7000 per BTC.
  - slededit 8y ago
    It’s not a defense but traditionally this was balanced by laws requiring a mens rea component - or a guilty mind. With the rise of strict liability crimes for everything this balance is no longer in place. The Overton window has moved dramatically from where it was when that phrase was coined.
  - sbov 8y ago
    Disclaimer: unless you're the police.
    - 8y ago
xrd 8y ago
Is this something she could have registered as a business properly to avoid this fate?
- iaw 8y ago
  Realistically, probably not. Compliance with a lot of these types of laws is challenging and at times murky (especially in new areas). That being said, from a practical perspective, ignoring compliance requirements in your area of business for whatever reason can lead to these outcomes. Make dangerous choices win dangerous prizes.
- jstanley 8y ago
  The best way to avoid this sort of trouble seems to be "be a large enough company that your internal operations make it too confusing to work out who to prosecute".
  - j1vms 8y ago
    > ... be a large enough company that your internal operations make it too confusing to work out who to prosecute But as illustrated in Breaking Bad season 5 (the Madrigal situation for those who have watched it), things don't necessarily work out going that way either.
- scott00 8y ago
  To do this type of business legally, you have to comply with both federal laws and state laws. The federal laws basically say you have to register with FinCEN and comply with anti-money laundering laws, which mostly means you have a duty to know who your customers are and why they're transacting with you, to refuse to do business with people who are obviously laundering money, and to report suspicious activity to FinCEN. It's reasonably doable to comply with federal law as an small operator. However, this person didn't just fail to register, she also knowingly facilitated money laundering, which is illegal even if you're registered. What exactly you have to do to comply with state law varies dramatically. In some states buying and selling bitcoin is basically unregulated, and in others there are onerous registration/licensing and financial requirements that are basically impossible to fulfill as an individual. Off the top of my head I'm not sure where California falls on the spectrum.
SubiculumCode 8y ago
IMO Bitcoin is a commodity, not a currency. (Please do not downvote me for the opinion). Regulators and at least some judges have called it a commodity. e.g. https://www.cnbc.com/2018/03/07/cryptocurrencies-like-bitcoin-are-commodities-us-judge-rules.html https://www.cnbc.com/2018/03/07/cryptocurrencies-like-bitcoi... The charge shouldn't be related to currency trading, but something related to failure to pay taxes on buying and selling commodities. [edit: As usual, comments on bitcoin expressing a non-evangelist point of view get downvoted.]
- corey_moncure 8y ago
  Tax it like property, enforce other laws like it's currency... they get to have their cake and eat it too. It's all for your protection, of course, don't you know.
  - closeparen 8y ago
    What do you mean “tax it like property”? Property taxes are only for real estate. Income earned in USD is subject to income tax; capital gains earned speculating on the forex market are subject to capital gains taxes. Both money transmitter and securities broker businesses require licensing. You can’t sell AAPL to someone in a park for a duffel bag full of cash. They could have gotten her under either theory (currency or investment).
    - corey_moncure 8y ago
      https://www.irs.gov/newsroom/irs-virtual-currency-guidance https://www.irs.gov/newsroom/irs-virtual-currency-guidance "IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply"
- deleted 8y ago
  [deleted]
milk_wolf_honey 8y ago
localbitcoins.com has been on the radar of federal law enforcement for years. They routinely did (and maybe do) stings off the site to catch unlicensed traders. If I were the site's operators I'd be extremely wary of ever traveling to the United States.
yason 8y ago
Not sure how the bitcoin part is relevant. AFAIK it's not a currency even if it wants to be. So same problems and rules should apply to other trading as well. What if he had been dealing cars instead of bitcoin? A guy comes in, buys a car in cash, drives away. You use the cash to buy more cars, wait for the next guy. You pocket the diff between how much you pay and how much you ask. How do you know the money isn't from a drug dealer? How do you know you're not engaging in illegal money transmission or receiving money from drug traficking? I'd even say cars are more widely accepted than bitcoin are. Maybe bitcoin wasn't relevant but the article just failed to emphasize that point.
- seibelj 8y ago
  There exists a cottage industry of individuals acting as money changers for bitcoin and other cryptocurrencies. It can be quite lucrative. This is (was?) a gray market, but judgements like this show the government considers it a black market. What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties.
  - dsfyu404ed 8y ago
    >What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties. Creating crime to catch crime is pretty par for the course in federal investigations. The FBI is pretty well known to do it in terrorism cases. The ATF runs their botched illegal gun buying operations that create local crime.
    - Nasrudith 8y ago
      I wonder how often the cops get called on the FBI. I know that there was the post 9-11 clownish thing with an FBI informant in a mosque who got banned and reported to the FBI because he was a frothing radical that they wanted absolutely nothing to do with.
CryptoPunk 8y ago
Cajoling people to follow particular money handling standards and banking practices is an inappropriate use of the power to imprison people. Anything short of outright fraud should be permitted in a free society. People shouldn't be expected to question their customers to find out where their funds came from, or be prosecuted because unbeknownst to them, a criminal used their services. The modern regulatory system is draconian and unjust.

61 points by SpiryBTC 8y ago

Court docket here: https://www.plainsite.org/dockets/38v97us7k/california-central-district-court/usa-v-tetley/ https://www.plainsite.org/dockets/38v97us7k/california-centr...

cft 8y ago
Interestingly, most documents are sealed by the court.

jtbayly 8y ago

You can run to anarcho-libertarian-utopian ideals, but you can’t hide from the fact you still live under actual laws against such things, whether or not such laws are just.

GenerationRous 8y ago
If they really believe in their ideals, they should do the hard work to change the laws in their favor, or cleverly use already existing ones, instead of childishly isolating themselves from society and the government as outlaws. There is a precedent for this: the 18th and 19th century religious communes -- some of them anarchist -- had popular support and were able to change US laws so that they could avoid taxes and live in peace as gated utopias in the way they wanted -- because they didn't antagonize the rest of society or the US government. Or, put another way, they were anarchists that did politics maturely and succeeded (even though their utopias didn't).
- deleted 8y ago
  [deleted]
- xkcd-sucks 8y ago
  Utopian societies in pre-20th century USA were typically located in isolated settlements. Armed conflict was typical unless it was a group specifically dedicated to nonviolent ideals. Cf. the "Mormon wars" and pro/anti abolitionist movements in Western territories
- deleted 8y ago
  [deleted]

ve55 8y ago

The part about these convictions that bugs me is that some of the people getting in trouble were definitely not aware that they were breaking the law. It surprises a lot of people when they find out it's illegal to buy and sell bitcoin for cash to strangers in the US like this (that is, with no license or reporting or discrimination). I hope most of those convicted don't get jail time unless they truly knew that it may have been coming.

toomuchtodo 8y ago
Ignorance of the law is not a defense, and this person had the resources to engage an attorney (at $300k/year of income).
- andrewprock 8y ago
  I don't think they made that much. At 6-9 million in transfers, that would be a 10-15% commission, which feels quite high. But maybe that is typical when doing illegal transactions.
  - gst 8y ago
    10-15% sounds reasonable. For example currently Bitcoin trades at $6325 on Coinbase, while cash offers on LocalBitcoins are at around $7000 per BTC.
- slededit 8y ago
  It’s not a defense but traditionally this was balanced by laws requiring a mens rea component - or a guilty mind. With the rise of strict liability crimes for everything this balance is no longer in place. The Overton window has moved dramatically from where it was when that phrase was coined.
- sbov 8y ago
  Disclaimer: unless you're the police.
  - 8y ago

xrd 8y ago

Is this something she could have registered as a business properly to avoid this fate?

iaw 8y ago
Realistically, probably not. Compliance with a lot of these types of laws is challenging and at times murky (especially in new areas). That being said, from a practical perspective, ignoring compliance requirements in your area of business for whatever reason can lead to these outcomes. Make dangerous choices win dangerous prizes.
jstanley 8y ago
The best way to avoid this sort of trouble seems to be "be a large enough company that your internal operations make it too confusing to work out who to prosecute".
- j1vms 8y ago
  > ... be a large enough company that your internal operations make it too confusing to work out who to prosecute But as illustrated in Breaking Bad season 5 (the Madrigal situation for those who have watched it), things don't necessarily work out going that way either.
scott00 8y ago
To do this type of business legally, you have to comply with both federal laws and state laws. The federal laws basically say you have to register with FinCEN and comply with anti-money laundering laws, which mostly means you have a duty to know who your customers are and why they're transacting with you, to refuse to do business with people who are obviously laundering money, and to report suspicious activity to FinCEN. It's reasonably doable to comply with federal law as an small operator. However, this person didn't just fail to register, she also knowingly facilitated money laundering, which is illegal even if you're registered. What exactly you have to do to comply with state law varies dramatically. In some states buying and selling bitcoin is basically unregulated, and in others there are onerous registration/licensing and financial requirements that are basically impossible to fulfill as an individual. Off the top of my head I'm not sure where California falls on the spectrum.

SubiculumCode 8y ago

IMO Bitcoin is a commodity, not a currency. (Please do not downvote me for the opinion). Regulators and at least some judges have called it a commodity. e.g. https://www.cnbc.com/2018/03/07/cryptocurrencies-like-bitcoin-are-commodities-us-judge-rules.html https://www.cnbc.com/2018/03/07/cryptocurrencies-like-bitcoi... The charge shouldn't be related to currency trading, but something related to failure to pay taxes on buying and selling commodities. [edit: As usual, comments on bitcoin expressing a non-evangelist point of view get downvoted.]

corey_moncure 8y ago
Tax it like property, enforce other laws like it's currency... they get to have their cake and eat it too. It's all for your protection, of course, don't you know.
- closeparen 8y ago
  What do you mean “tax it like property”? Property taxes are only for real estate. Income earned in USD is subject to income tax; capital gains earned speculating on the forex market are subject to capital gains taxes. Both money transmitter and securities broker businesses require licensing. You can’t sell AAPL to someone in a park for a duffel bag full of cash. They could have gotten her under either theory (currency or investment).
  - corey_moncure 8y ago
    https://www.irs.gov/newsroom/irs-virtual-currency-guidance https://www.irs.gov/newsroom/irs-virtual-currency-guidance "IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply"
deleted 8y ago
[deleted]

milk_wolf_honey 8y ago

localbitcoins.com has been on the radar of federal law enforcement for years. They routinely did (and maybe do) stings off the site to catch unlicensed traders. If I were the site's operators I'd be extremely wary of ever traveling to the United States.

yason 8y ago

Not sure how the bitcoin part is relevant. AFAIK it's not a currency even if it wants to be. So same problems and rules should apply to other trading as well. What if he had been dealing cars instead of bitcoin? A guy comes in, buys a car in cash, drives away. You use the cash to buy more cars, wait for the next guy. You pocket the diff between how much you pay and how much you ask. How do you know the money isn't from a drug dealer? How do you know you're not engaging in illegal money transmission or receiving money from drug traficking? I'd even say cars are more widely accepted than bitcoin are. Maybe bitcoin wasn't relevant but the article just failed to emphasize that point.

seibelj 8y ago
There exists a cottage industry of individuals acting as money changers for bitcoin and other cryptocurrencies. It can be quite lucrative. This is (was?) a gray market, but judgements like this show the government considers it a black market. What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties.
- dsfyu404ed 8y ago
  >What’s interesting to me is that they didn’t simply nail her for buying and selling bitcoin without a money transmitters license. They also used the undercover agent to explicitly say it was drug money, ensuring worse penalties. Creating crime to catch crime is pretty par for the course in federal investigations. The FBI is pretty well known to do it in terrorism cases. The ATF runs their botched illegal gun buying operations that create local crime.
  - Nasrudith 8y ago
    I wonder how often the cops get called on the FBI. I know that there was the post 9-11 clownish thing with an FBI informant in a mosque who got banned and reported to the FBI because he was a frothing radical that they wanted absolutely nothing to do with.

CryptoPunk 8y ago

Cajoling people to follow particular money handling standards and banking practices is an inappropriate use of the power to imprison people. Anything short of outright fraud should be permitted in a free society. People shouldn't be expected to question their customers to find out where their funds came from, or be prosecuted because unbeknownst to them, a criminal used their services. The modern regulatory system is draconian and unjust.