Stephen D Palley is a lawyer in private practice in Washington, DC, focusing on construction, insurance and software development, including blockchain and smart contract design.
In this opinion piece, Palley argues that a recent court case in which bitcoin was deemed not be âmoneyâ has questionable precedential value despite claims to the contrary.
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 bitcoinâs status as âmoneyâ or âcurrencyâ is at issue. Bitcoin industry advocates will also cite the case when arguing for legislative reform and greater regulatory clarity.
But, as legal precedent, Espinosaâs value may be limited. Itâs a single decision from a Florida state court trial judge regarding state specific statutes.
Itâs not an appeals court decision. Itâs not binding âprecedentâ 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 Courtâs analysis of whether bitcoin constitutes âmoneyâ or âcurrencyâ differs from approaches other courts have taken, and may (or may not) be adapted in other circumstances.
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.
Itâs 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 âmoney transmitterâ because heâd sold bitcoin to an undercover detective for dollars.
The court dismissed these charges, holding that:
The first two prongs of the analysis involve fairly standard statutory analysis (âthe law says thisâ, âthe alleged conduct is thisâ, âtherefore the law does/does not apply.â)
The third prong is a bit more elaborate.
Citing case law, the court reasoned that to be a âmoney transmitting businessâ, a fee must be charged. While the defendant made a profit (in bitcoin) on his sale, the court held that a cryptocurrency âprofitâ isnât 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 âbitcoin has a long way to go before it is the equivalent of moneyâ.
This last point is not one that all courts have accepted, and itâs a somewhat surprising conclusion. (See SEC v. Shavers, in which the Court held bitcoin âis a currency or form of moneyâ for purposes of determining whether or not security in under Federal Securities laws).
The court also dismissed two counts of money laundering, holding that the defendant didnât 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 wasnât 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 wasnât enough evidence of the defendantâs criminal intent, and (according the court), the word âpromoteâ in the statute wasnât clear enough.
Given slightly different circumstances (or a different judge) a different outcome isnât 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 âaccessory before the factâ, among other things. Other courts, in other circumstances, have rejected the notion that bitcoinâs status as a virtual currency is so unique as to protect a criminal defendant from conviction.
In this respect, Espinosa is also consistent with the courtâs decision in the Silk Road case, in which the defendant didnât make out as well, but where the court says that bitcoin use in and of itself isnât a problem â itâs âhowâ you use it. The same seems to be the case here.
Itâs just that the court didnât think that Mr Espinosa had done anything wrong. Will Espinosa prove to be important or persuasive authority in the future? Itâs too soon to say.
For now, itâs a fine example of lawâs adaptability and the power that judges and lawyers have to shape it.
Bitcoin image via Shutterstock
