On first glance, a ruling that Bitcoin is “not money” would appear to further discredit the already controversial digital currency. However, Bitcoin supporters are calling the dismissal of its first money-laundering case a win and see an opportunity to guide regulation and grow acceptance of the relatively new currency.
First, a quick explanation of Bitcoin:
In Florida, Miami-Dade Circuit Judge Teresa Mary Pooler dismissed a case claiming Michell Espinoza laundered money and transmitted it without authorization. Judge Pooler found that Mr. Espinoza did not meet the requirements to launder money because he did not launder money; he sold Bitcoin, which Judge Pooler equated to property. Although Bitcoin is growing as an acceptable digital currency – merchants, restaurants, and even a plastic surgeon accept it as payment in Miami alone – it still lacks regulation and backing by a governmental entity or bank. Among the reasons why the judge refused to classify Bitcoin as money, in the traditional definition, was because it is intangible and cannot be hidden under a mattress like cash or gold.
What I found most interesting in this case is Judge Pooler’s application of the law as it applies to Bitcoin. In the Court’s ruling (which is a great read and can be found here), she spends a decent amount of time defining terms which we all have a basic understanding of, but whose textbook meaning makes a world of difference.
Judge Pooler cited that in order to transmit money without authorization, one would have to be in the money services business, which Florida Statute defines as a person “‘who acts as a payment instrument seller, foreign currency exchanger, check casher, or money transmitter.’ (Emphasis added). The term ‘money transmitter’ means ‘a corporation, limited liability company, limited liability partnership, or foreign entity qualified to do business in this state which receives currency, monetary value, or payment instruments for the purpose of transmitting the same by any means, including transmission by wire, facsimile, electronic transfer, courier, the Internet, or through bill payment services or other businesses that facilitate such transfer within this country, or to or from this country.'”
However, Mr. Espinoza was not acting like a Western Union, which transfers money from one person to another person. Instead, he purchased Bitcoin at a low price and sold it at a higher price, just like investors trading on the stock market, intending to make a legal profit.
But even that did not qualify his actions as those of a “money transmitter.” Mr. Espinoza did not charge a fee for the transaction; instead, he made a commission or profit. Commission is defined as “an amount of money paid to an employee for selling something.” Mr. Espinoza did not sell Bitcoin for anyone else; he sold it as his own personal property. “The difference in the price he purchased the Bitcoin for and what he sold it for is the difference between cost and expenses, the widely accepted definition of profit, and what people do every day when they trade stocks on the stock market.”
The Court also found that Mr. Espinoza does not fit the definition of a “payment instrument seller”, as Bitcoin does not fall under the statutory definition of “payment instrument.” The decision states:
“The federal government, for example, has decided to treat virtual currency as property for federal tax purposes (See I.R.S. Notice 2014-21). “Virtual Currency” is not currently included in the statutory definition of a “payment instrument;” nor does Bitcoin fit into one of the defined categories listed.
In interpreting the Florida Statute on money laundering, Judge Pooler stated money laundering is “commonly understood to be the method by which proceeds from illicit activity (‘dirty money’) becomes legitimized. There are numerous ways through which this can occur, but it generally begins with money that is ‘dirty.'” Judge Pooler again explained that the virtual currency is not money, and therefore it was not a “financial transaction”, nor was it a violation of the money laundering statute.
The Court concluded that it was “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.” Reading this dismissal, I was reminded of the old saying that the devil is in the details. In this case, the details helped the Court determine how to interpret meaning behind a new currency that has yet to be defined and widely understood. In an ironic end to the case, the Miami Herald reported that the defense’s currency expert was paid $3,000 in Bitcoin “for his defense testimony.”