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

from the wanna-try-that-again dept

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


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  1. icon
    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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