Legal Technology

Police can go after peer-to-peer cryptocurrency transactions, appeals court rules

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Updated: An appeals court in Florida has ruled that selling cryptocurrency directly to another person is money transmission under state law, overturning a trial judge.

In an opinion filed Jan. 30, a unanimous three-judge panel for the Florida Third District Court of Appeal held that the trial judge erred in dismissing criminal charges against a Florida man accused of selling cryptocurrency to an undercover police officer.

Michell Espinoza’s “bitcoins-for-cash business requires him to register as a payment instrument seller and money transmitter,” wrote Judge Norma S. Lindsey for the three-judge panel. “Espinoza was not merely selling his own personal bitcoins; he was marketing a business” online. The Miami Herald and CoinGeek have coverage.

In 2013, Espinoza, a website designer, was selling bitcoin for cash in the Miami Beach area. An undercover officer from the Miami Beach Police Department—working with federal authorities—met with Espinoza on four occasions to trade cash for bitcoin. In total, $1,500 was exchanged. During the meetings, the officer either hinted at or overtly told Espinoza that he used digital currency for illicit activity, such as buying stolen credit-card numbers.

Similar stings have led to charges in California and Michigan, according to cryptocurrency news site CCN.

During the fourth and final meeting, Espinoza grew suspicious of the undercover agent, who was offering $30,000 cash for the cryptocurrency. Espinoza worried that the money was counterfeit—it was—and did not want to finalize the deal. Then, Espinoza was arrested.

He was charged with two counts of money laundering and one count of transmitting money without a license. At trial, Espinoza argued that bitcoin wasn’t money for the sake of money transmitting, and that bitcoin falls outside the definitions of Florida’s Money Laundering Act.

The trial judge agreed. According to the Miami Herald, Miami-Dade Circuit Judge Teresa Mary Pooler ruled that bitcoin was intangible wealth and was not backed by any government or bank.

“This court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning,” she wrote in an opinion.

The appeals court disagreed and reinstated the three felony charges to be tried. A trial date has not been set.

The opinion, which is only precedent in the third district, is at odds with state guidance, according to Justin Wales, senior counsel at Carlton Fields in its Miami and Los Angeles offices. He says this ruling has the potential to expand regulation of the state’s money transmitter law to peer-to-peer cryptocurrency transactions.

Adding complexity to this opinion’s possible impact, he says cryptocurrency also can be exchanged as a token to access a network and create a noncommercial record or expressive act.

“These are things the state regulators need to think about,” he tells the ABA Journal. “It’s a developing technology and not just a currency.”

In an emailed statement to the Journal, the Florida Office of Financial Regulation said, “The agency regularly receives petitions for declaratory statements from parties seeking guidance in this area.” Adding, “We are following the issue closely as we continue to evaluate developments in the cryptocurrency space, including this court ruling.”

The Florida chief financial officer did not respond to a request for comment.

Florida is not alone grappling with this new technology. Money transmitter rules have been at issue with the growing cryptocurrency and blockchain industries. In Wyoming, for example, last year, the legislature passed a series of bills promoting blockchain technology, one of which excluded cryptocurrency from the state’s money transmission statute.

Updated Feb. 7 at 4:20 p.m. to include the statement from the Florida Office of Financial Regulation.

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