United States v. FreemanUnited States v. Freeman
*2 THOMPSON , Circuit Judge . Ian Freeman ("Freeman") is, by his own description, a radio talk show host and church founder promoting peace, liberty, individual freedom, and morality. Freeman began selling bitcoin in 2014 as part of his mission to promote peace. The government, which launched an investigation into his bitcoin sales, took a different view of Freeman's conduct and convinced a jury to convict Freeman on counts of conspiracy to operate an unlicensed money transmitting business, operation of an unlicensed money transmitting business, conspiracy to commit money laundering, money laundering, and tax evasion. Post-verdict, the district court acquitted Freeman on the substantive money laundering count based on the insufficiency of the evidence. On appeal, Freeman argues that the district court should never have allowed the money-transmitting-business charges to reach trial, because something called the "major questions doctrine" —— which governs how we read statutes that convey regulatory authority to administrative agencies —— requires us to interpret the relevant statutes as not permitting agency regulation of virtual currencies like bitcoin. He also claims that the district court should have acquitted him based on the insufficiency of the evidence on his tax evasion charge and granted him a new trial on the remaining money laundering conspiracy count due to prejudicial evidentiary spillover. Finally, he claims that even if his convictions stand, the district court's imposition of a 96-month sentence is *3 substantively unreasonable. Having carefully considered all Freeman's arguments, we affirm.
BACKGROUND
Freeman's trial was an 11-day affair at which more than thirty witnesses testified. This appeal does not require us to recount every in-and-out of the evidence presented at trial, but to better orient the reader, we start with a brief overview of the events leading to Freeman's arrest. From there, we'll dive into the merits of each of Freeman's arguments on appeal, filling in the necessary factual details and announcing our standard of review as we go. [1]
Freeman's Bitcoin Business
Courts throughout the country have offered thorough descriptions of what bitcoin is and how it works. All that a reader need understand for today's opinion is that bitcoin is a virtual currency, with no physical coinage or government backing. [2] *4 Instead bitcoin is stored in a software program referred to as a "wallet." When bitcoin is moved from one wallet to another, the transfer is accounted for on a public, cryptographic ledger called the blockchain. Perkins, supra, at 1, 7 . But although the ledger is public and each wallet uniquely identifiable from other wallets, bitcoin offers relative anonymity compared to traditional bank transactions, because there is no information associated with a wallet that can identify who owns the wallet. (By contrast, a bank customer must provide personal information to a bank to open an account and conduct transactions.) And unlike electronic payments sent through banks, which can sometimes be cancelled or reversed, there is no way for a sender to claw back bitcoin once it has been sent.
buy items in that game). See David W. Perkins, Cong. Rsch. Serv., R45427, Cryptocurrency: The Economics of Money and Selected Policy Issues 1 n.2 (2020) (distinguishing between cryptocurrencies and other "digital representations of value"). For the purposes of today's opinion, unless we note otherwise, we use the phrase virtual currency to refer to cryptocurrencies like bitcoin, which can act as an alternative to traditional government-issued currency (we'll refer to this as "fiat currency") and which use cryptographic protocols (i.e., methods of sending information through codes) to ensure that transactions are accurately recorded. Id. at 1 n.2, 3-4, 7-8. This opinion is not meant to be a comprehensive or
authoritative account of bitcoin or cryptocurrencies, or of any advancements made in this arena since this case was appealed. Our recitation of the history, function, and value of bitcoin is drawn from the parties' presentation to the district court and jury below and in their briefs to us.
To run his bitcoin business, Freeman acquired bitcoin from large virtual currency exchanges for relatively small commissions (0.16% in one example) and then resold it to his customers while charging higher commissions (upwards of 10% in many cases). Freeman conducted sales through three platforms. First, he used bitcoin "kiosks" or "ATMs," physical machines in which a customer could deposit "fiat currency," scan a QR code associated with a bitcoin wallet, and receive a corresponding amount of bitcoin in their wallet. Second, he posted advertisements and communicated with customers on a website called localbitcoins.com, which allowed users to buy and sell bitcoin from each other, much as other websites allow users to buy and sell goods. Finally, Freeman engaged in direct negotiations with buyers on the messaging software Telegram.
Freeman had what he called a Know Your Customer procedure for buyers who were purchasing through localbitcoins.com or Telegram. He asked prospective customers to send him a photograph of their driver's license and a photograph of themselves holding a handwritten note indicating that they intended to purchase bitcoin. Sometimes, he would also ask for customers' phone numbers to confirm that they intended to buy bitcoin. These procedures did not apply to purchases made at Freeman's bitcoin kiosks, which did not require any form of personal verification, even though kiosk operators can and do impose various verification *6 requirements. Across all three of his platforms, Freeman instituted another policy —— one which eschewed any inquiries into why his customers were purchasing bitcoin. But it is questionable, as we'll explain, that such a no-ask policy truly insulated Freeman from the knowledge that his services were being used by customers who were, in fact, scammers and money launderers.
The government sought to show that even when Freeman implemented his Know Your Customer procedures, he ignored multiple red flags that would have suggested money laundering or scams. For instance, Freeman permitted individuals to execute transactions for hundreds of thousands of dollars within the course of a week, and worked with individuals seeking to exchange hundreds of thousands of dollars in cash. He also conducted transactions in which he accepted payment from one person but delivered bitcoin to another —— something the government calls a "third-party trade." In consummating these third-party transactions, Freeman sent individuals, whom the evidence strongly suggested were scam artists, bitcoin paid for by individuals over the age of 50, despite finding out in many cases that the elderly individuals paying for the bitcoin were geographically distant both from the *7 recipient of the bitcoin and from others paying to send bitcoin to the same recipient. And Freeman continued to trade with individuals after encountering signs that they were not who they claimed to be.
To establish money laundering, the government called an undercover agent who had made multiple bitcoin purchases from Freeman through Telegram and at a kiosk in New Hampshire. After building a rapport with Freeman through Telegram messages, the agent joined Freeman at a social gathering in New Hampshire and explained to Freeman that he was buying bitcoin with money he earned selling drugs. After this disclosure, Freeman wrote to the agent that he could not "KNOWINGLY sell bitcoin" to the agent and refused to conduct business with him over Telegram. He nevertheless invited the agent to continue socializing with him. At a gathering in Keene, New Hampshire less than a month later, the agent asked Freeman if the kiosk he had previously used was still available. Freeman responded that the kiosk was still there and said, "I can't tell you that you can use it." The agent went to the kiosk, located in a bar, and purchased nearly $20,000 in bitcoin. That same night, the agent also taped Freeman saying in a conversation with friends (including the agent) over drinks that "if you fall in love with a guy from Africa, I can't talk you out of it" and describing his kiosks as a way for smitten victims to *8 "take the money that they have and send it to the person they've fallen in love with."
In the summer of 2018, the Financial Crimes Enforcement Network ("FinCEN") of the United States Treasury Department sent correspondence to an email address associated with Freeman stating that "Shire Cryptocoin," purportedly one of Freeman's businesses, must register with FinCEN as a money transmitting business and comply with other anti-money-laundering regulations. Ignoring this directive, Freeman never registered this entity or any of his businesses with FinCEN. He also did not file tax returns from 2016 through 2019.
Procedural History
The indictment alleged that Freeman (as well as several co-defendants) exchanged more than $10 million worth of government-backed currency for bitcoin between May 25, 2016 and March 15, 2021. In relevant part, the indictment charged Freeman *9 with operation of an unlicensed money transmitting business, conspiracy to operate an unlicensed money transmitting business, money laundering, and conspiracy to commit money laundering, based on this conduct. It also charged Freeman with several counts of tax evasion for not paying taxes on income he received from his bitcoin sales. Freeman joined a motion to dismiss filed by one of his co-defendants regarding the counts related to operation of an unlicensed money transmitting business, 18 U.S.C. § 1960, which invoked the major questions doctrine and argued that businesses dealing in virtual currency do not come within the statutory definition of money transmitting businesses (more on the statutory scheme and relevant definition to come in our analysis). The district court denied the motion to dismiss in an oral ruling from the bench, and Freeman proceeded to trial . At the end of an 11- day trial, a jury convicted Freeman on all counts.
Freeman had moved for a judgment of acquittal after the close of the government's evidence, and renewed that motion after trial, arguing that insufficient evidence supported each count. The district court partially granted that motion, ruling that there was insufficient evidence that Freeman knowingly laundered money, but upheld the remaining convictions (including the conspiracy to commit money laundering count). In the same written order, the district court recognized that Freeman had incorporated by reference his earlier motion to dismiss arguments regarding the *10 major questions doctrine and rejected those arguments anew. Thereafter, Freeman moved for a new trial based on spillover prejudice from the evidence related to the money laundering count. He also moved for reconsideration of the court's ruling on the motion to dismiss. The district court denied both motions, ruling that they were untimely and unmeritorious.
At sentencing, the district court calculated the recommended range under the United States Sentencing Guidelines as 210 to 262 months. It then granted Freeman's motion for a variance and sentenced Freeman to 96 months in prison.
DISCUSSION
Motion to Dismiss Counts Related to Operation of an Unlicensed Money Transmitting Business
Freeman's appeal largely centers on the major questions
doctrine, a jurisprudential principle fleshed out in a line of
cases emanating from the Supreme Court. The doctrine's purpose is
to prevent administrative agencies from expanding their regulatory
powers beyond that which Congress has granted. See, e.g., Biden
v. Nebraska,
The indictment charged Freeman with violating 18 U.S.C. § 1960 ("Section 1960"). In relevant part, that statute punishes anyone who "knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business." Id. § 1960(a). "[M]oney transmitting," according to the statute, "includes transferring funds on behalf of the public by any and all means." Id. § 1960(b)(2). And an "unlicensed money transmitting business" means one that "fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section." Id. § 1960(b)(1)(B).
Thus, to understand what it means for a money transmitting business to be unlicensed, we must flip to 31 U.S.C § 5330 ("Section 5330"), which requires "[a]ny person who owns or controls a money transmitting business" to register that business "with the Secretary of the Treasury." How can someone tell if they need to register? Section 5330 defines "money transmitting business" to include one "who engages as a business in the transmission of currency, funds, or value that substitutes for *12 currency, including any person who engages as a business in an informal money transfer system." Id. § 5330(d)(1).
Because the government has deemed his financial endeavors to be money transmitting businesses, the Section 1960 crime Freeman is charged with is triggered by his failure to comply with Section 5330(a)(1)'s requirement that such money transmitting businesses must register with FinCEN (which is a subdivision of the Treasury Department). However, if, as Freeman contends, Section 5330 does not cover businesses such as his that trade bitcoin (i.e., if he does not operate a money transmitting business with registration requirements), he was not violating Section 5330, and by extension no criminal liability under Section 1960 would attach to him.
Of significance to Freeman's argument is one particular feature of Section 5330. As Freeman points out, when the indictment against him was filed, the definition in Section 5330(d)(1) looked a little different: it did not include the word *13 "currency" or the phrase "value that substitutes for currency." Instead, the only noun in the list of items being transmitted was "funds." Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act ("USA PATRIOT Act") of 2001, Pub. L. No. 107-56 § 359(b), 115 Stat. 272, 328 (2001) (codified as amended at 31 U.S.C. § 5330(d)(1)). In this language difference lies the rub of Freeman's grievance.
For simplicity's sake, we'll refer to the definition of money transmitting business in effect during the existence of Freeman's bitcoin business as the "effective definition" and the new definition, which was enacted in 2021 (more on this legislative history in a moment), as the "current definition." See William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 ("NDAA"), Pub. L. No. 116-283 § 6102(d)(2)(A)(i), 134 Stat. 3388, 4552-53 (2021) (codified as amended at 31 U.S.C. § 5330(d)). Unless we specify otherwise, our analysis (and the *14 cases we cite) refers to the effective definition of money transmitting business in Section 5330(d)(1).
An attentive reader may now be wondering what any of this has to do with the power of an administrative agency. And, as we'll see, the government says we shouldn't take up the major questions doctrine at all because agency authority is not implicated in these proceedings. This is how Freeman contends the doctrine factors into this dispute. According to Freeman, Section 5330's effective definition of "money transmitting business" cannot be properly understood to cover businesses dealing in virtual currencies like bitcoin, because (and here's where the link to an administrative agency arises) Section 5330(a)(2) instructs FinCEN to "prescribe, by regulation, the form and manner for registering a money transmitting business." 31 U.S.C. § 5330(a)(2). Thus, the 2001 effective definition of money transmitting business, which refers to the transmission of "funds," seemingly applies to both the statutory registration requirement in Section 5330(a)(1) and to the scope of FinCEN's argued that we should analyze the post-amendment conduct any differently from the pre-amendment conduct. And we thus focus our attention on the prior, effective definition. Section 1960 had not been amended since Freeman's offending
conduct began, and neither party asserts that any prior amendments to Section 1960 are relevant to our resolution of this case. See Violence Against Women and Department of Justice Reauthorization Act of 2005, Pub. L. No. 109-162 § 1171(a)(2), 119 Stat. 2960, 3123 (2006) (striking surplus words from Section 1960(b)(1)(C)). *15 regulatory authority under Section 5330(a)(2). The major questions doctrine arises, says Freeman, because we should not conclude that Congress intended to grant FinCEN regulatory authority over virtual currencies that did not exist in 2001, solely by virtue of Congress's use of the word "funds" in the effective definition in Section 5330(d)(1). And how we interpret the effective definition necessarily circumscribes the scope of the statutory registration requirement in Section 5330(a)(1). In other words, the statutory assumption underlying Freeman's prosecution (i.e., that Congress's use of the word "funds" in Section 5330(d)(1) covers virtual currencies) fails under the major questions doctrine, because, according to Freeman, such an interpretation runs contrary to congressional intent.
Ultimately then, Freeman's appeal poses the following
question for us: does the effective definition of "money
transmitting business" in Section 5330 capture businesses that
transmit virtual currency? In our opinion, the usual principles
of statutory construction say, resoundingly, yes, and we'll take
a step back to briefly explain why. We'll then dive into the heart
of Freeman's appeal and assess whether the major questions doctrine
nonetheless "provide[s] a reason to hesitate" before definitively
saying yes and adopting that construction. West Virginia, 597
U.S. at 721 (citation and quotation marks omitted). Because this
is a matter of statutory construction, our standard of review is
*16
de novo. See United States v. McGlashan,
Traditional Plain Meaning Analysis
We start by analyzing Sections 1960 and 5330 without
reference to the major questions doctrine. In interpreting a
statute, we strive "to effectuate congressional intent." City of
Providence v. Barr,
In this case, the parties ask us to define a specific
word, "funds," in Sections 1960 and 5330. Other courts have been
asked to respond to this same query and those who have done so
have concluded this: that the plain meaning of "funds" is "money"
or " something generally accepted as a medium of exchange, a measure
of value, or a means of payment." United States v. Murgio, 209 F.
*17
Supp. 3d 698, 707 (S.D.N.Y. 2016) (quoting Webster's Third New
International Dictionary 921 (2002)); see also United States v.
Faiella,
Within our ordinary interpretive framework, our inquiry
into whether the word "funds" covers bitcoin would usually end
here, as there is no reason to look past the statutory text itself
if that text is unambiguous and consistent with a coherent
statutory scheme. Penobscot Nation v. Frey,
Major Questions Doctrine
Before we delve into the details of the major questions doctrine, we pause to address the government's threshold assertion that we "need not indulge" Freeman's invocation of the doctrine at all because his criminal prosecution involved no "regulatory assertions" whatsoever by the Department of Treasury. Rather, it argues "the indictment neither depended on nor referenced the FinCEN guidance" and as such, the major questions doctrine "is not triggered" here. However, we think the government's position oversimplifies Freeman's argument and here's why.
As our preface noted, the "major questions doctrine" can
arise in cases where we are asked to interpret a legislative
enactment that "confers authority upon an administrative agency"
in the executive branch to implement its terms. West Virginia,
This statutory scheme makes clear that the legislation's substantive provisions work hand in hand with those provisions granting regulatory authority to FinCEN to implement the terms of the statute itself. Given the necessary interplay between the statutory and regulatory provisions, we agree with Freeman that skirting the major questions doctrine would incorrectly treat the statutory registration requirement as completely divorced from any of FinCEN's regulatory authority. Indeed, as Freeman pointed out during oral argument, requiring a business to register by statute means very little without a corresponding mechanism by which said business can, in fact, register. For the registration requirement in Section 5330(a)(1), the regulations FinCEN promulgates under Section 5330(a)(2) appear to be that mechanism. And although the government would like us to conclude the major questions doctrine has no place here, it offers no direct response to this point. All this to say, Freeman steps over the threshold of identifying a statute which, at least in part, confers regulatory authority upon an administrative agency, a power Freeman insists Congress never intended to delegate.
Having explained the relationship between this case and
FinCEN's regulation of money transmitting businesses, we must now
determine "whether Congress in fact meant to confer the power the
agency has asserted" as the major questions doctrine requires us
to do. West Virginia, 597 U.S. at 721 (quoting FDA v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 159 (2000)). "In the
ordinary case," this consideration "has no great effect on the
appropriate analysis." Id. But the Supreme Court has recognized
the existence of "extraordinary cases." Id. In such instances,
we cannot conclude that Congress granted an agency authority "to
exercise powers of vast economic and political significance"
unless the statutory text "speaks clearly" of such a grant. Ala.
Ass'n of Realtors v. Dep't of Health & Hum. Servs.,
764 (2021) (quotation marks omitted) (quoting Util. Air Regul. Grp., 573 U.S. at 324). In basic terms, the major questions doctrine tells us that when an administrative agency in the executive branch wants to do something that is an extraordinarily big deal, it must show that Congress clearly gave it permission to do so in the statutory text. See Nebraska, 600 U.S. at 514 (Barrett, J., concurring) (analogizing major questions doctrine to expectation that a parent authorizing a babysitter to take the children on an overnight trip would provide "much more clarity than a general instruction to 'make sure the kids have fun'").
What, then, makes for an extraordinary case? The Supreme
Court defines it in broad strokes as one "in which the 'history
and the breadth of the authority that [the agency] has asserted,'
and the 'economic and political significance' of that assertion,
provide a 'reason to hesitate before concluding that Congress'
meant to confer such authority." West Virginia,
707, 725-28 (10th Cir. 2024) (rejecting application of major
questions doctrine where agency did not "locate expansive
authority in modest words, vague terms or ancillary provisions,"
was not regulating private industry, did not "discover regulatory
authority for the first time in a long-extant statute," and did
not "lack[] expertise in the relevant area of policymaking"
(citation modified)), cert. denied,
its "economic and political significance."
[15]
West Virginia, 597
U.S. at 721; see Nebraska v. Su,
History and Breadth of FinCEN's Assertion History
To understand the "history and breadth" of FinCEN's regulation as is relevant here, a short history of Section 5330 is in order. [16] As part of a statutory scheme (the Bank Secrecy Act) designed to combat money laundering, Congress has long required "money transmitting businesses" to register with the Treasury Department. Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325 § 408, 108 Stat. 2160, 2249-51 (1994) (codified at 31 U.S.C. § 5330). In the wake of the September 11, 2001 terrorist attacks, Congress that year amended *26 the definition of "money transmitting business" in Section 5330 to include "any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system ." USA PATRIOT Act § 359(b), 115 Stat. at 328 (emphases added). According to the report of the Committee on Financial Services, the amendment did not expand the definition of money transmitting business, but instead clarified that the existing definition reached black market, non-bank money exchangers —— what the Committee referred to as "informal value transfer banking systems" —— which helped to fund terrorist and criminal organizations. H.R. Rep. No. 107-250, at 34, 63-64 (2001).
This was the effective version of Section 5330 when bitcoin came into being in 2008. Perkins, supra, at 2. In Freeman's telling though, FinCEN's first step towards the regulation of bitcoin didn't occur until 2011, when FinCEN updated its regulatory definition of "money transmission services" to require the "acceptance of currency, funds, or other value that substitutes for currency from one person." Bank Secrecy Act Regulations; Definitions and Other Regulations Relating to Money Services Businesses, 76 Fed. Reg. 43585, 43596 (July 21, 2011) *27 (codified at 31 C.F.R. § 1010.100(ff)(5)) (emphasis added). Such a theory, he argues, is consistent with the guidance FinCEN issued in 2013 which, for the first time, stated that "value that substitutes for currency" includes virtual currencies. Specifically, the guidance said, "[t]he definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the [Bank Secrecy Act]." FinCEN, FIN-2013-G001, Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, at 3 (2013) . Freeman says the fact that FinCEN never sought to regulate bitcoin before 2013 demonstrates the agency's understanding of its statutory inability to do so. Needless to say, the government takes issue with Freeman's historical *28 interpretation, but neither party has pointed to any evidence that FinCEN engaged in any enforcement activities against businesses transmitting bitcoin which sought to compel them to register (or comply with other regulations) prior to issuance of the 2013 guidance. And for the purposes of this opinion, we'll operate with the understanding that FinCEN, at least, first began to regulate businesses that transmit virtual currencies in 2013. Doing so lets us focus on the parties' key dispute: whether FinCEN, nonetheless, had statutory authority to regulate virtual currencies when it issued the 2013 guidance.
Freeman would like us to conclude it "inconceivable" (as
he tells it) that the single word "funds" as contained in the
effective version could refer to virtual currency, but we believe
his focus on that single word is misplaced and here's why. In
full, the effective definition (when bitcoin was created)
specified that businesses engaged in the "transmission of funds"
could include an "informal money transfer system . . . outside of
the conventional financial institutions system." USA PATRIOT Act
§ 359(b),
And even if we adopted Freeman's approach and looked at the word "funds" in isolation, we'd be hard-pressed to think it "inconceivable" that Congress would have intended "funds" to reach cryptocurrency given that judicial decisions dating back to 2008 had already interpreted "funds" expansively to capture non- physical currency. See, e.g., United States v. E-Gold, Ltd., 550 F. Supp. 2d 82, 85, 94-97 (D.D.C. 2008) (concluding that Section 5330's definition of money transmitting business included internet service which allowed users to exchange fiat currency for digital currency).
Nor does Freeman, relative to his historical argument, make a showing that FinCEN has engaged in the sort of about-face agency behavior typically found in the major questions cases. That is significant because the Supreme Court, in applying the doctrine, has particularly scrutinized with suspicion when an agency reverses course on its long-standing decision not to regulate in a particular field or in a particular manner. See West Virginia, 597 U.S. at 710-11, 713, 724 (striking regulation requiring electricity generators to undergo sector-wide switch to sources that produced less carbon dioxide, where EPA had previously only exercised power under Section 111 of the Clean Air Act to set emissions limits for individual plants). FinCEN had no history of explicitly disclaiming its authority to regulate virtual currency (or any other type of "informal transfer banking system") prior to its 2011 and 2013 updates to its regulatory regime. Cf. Brown & Williamson, 529 U.S. at 143-48 (concluding that the Food and Drug Administration's ("FDA") decades-long position that it had no jurisdiction over tobacco products and Congress's implicit ratification of that position in subsequent tobacco-specific views and treats both "e-precious metals" and cryptocurrencies as convertible virtual currencies. 2013 Guidance at 3. Nor do we understand why Freeman highlights that "the e-Gold indictment explicitly relied on FinCEN's implementing regulations" as a point of distinction. After all, Freeman similarly claims his prosecution relies on FinCEN's implementing regulations (which is the premise for applying the major questions doctrine).
legislation demonstrated a lack of legislative intent to delegate authority over tobacco products to the FDA).
And simply because FinCEN declined to exercise such
authority prior to issuance of the 2013 guidance can hardly, by
our lights, be held against it; by Freeman's count, the agency
acted only five years after bitcoin was invented. The five-year
delay —— if we can call it such —— is understandable because the
money laundering risk posed by bitcoin and other cryptocurrencies
(and thus the need for targeted regulation) may not have been
instantly apparent upon bitcoin's invention. Cf. Ocean State
Tactical, LLC v. Rhode Island, 95 F.4th 38, 50 (1st Cir. 2024)
("Law advances more slowly than the technology it regulates, but
must nonetheless be able to respond when the ramifications of a
technological development become more apparent over time."). Plus
five years is a far cry from the decades of regulatory inaction
emphasized in the Supreme Court's major questions cases. See,
e.g., West Virginia,
"Subsequent" History
Unable to find a firm foothold in the history leading up
to FinCEN's exercise of regulatory authority over bitcoin, Freeman
points to events that occurred after FinCEN's issuance of the 2013
guidance. Reliance on this sort of "subsequent" history is rather
unorthodox. As the government notes, we've previously warned
against using the views of a later Congress to interpret "the
meaning of statutes enacted by an earlier Congress" when conducting
traditional statutory interpretation. Parlane Sportswear Co. v.
Weinberger, 513 F.2d 835, 837 n.2 (1st Cir. 1975)
;
see also
Bruesewitz v. Wyeth LLC,
First, Freeman discusses subsequent legislative activity
related to the regulation of virtual currencies, including failed
legislation and the 2021 amendment that enacted the current
definition of "money transmitting business" in Section 5330, and
concludes that Congress "considered and repeatedly rejected
legislation" that would have expressly empowered FinCEN to
regulate virtual currencies. Second, Freeman identifies
statements that FinCEN made regarding virtual currencies after
issuing the 2013 guidance and claims the statements reveal that
"the agency recognized that the statute did not authorize the
regulation" but nevertheless "expanded" its authority "before the
authorization
from
Congress."
Accepting
Freeman's
characterization of these occurrences, we see there may be some
*35
facial resemblance between these facts and a major questions case.
See Util. Air Regul. Grp.,
In our view, the subsequent history only confirms that
FinCEN's interpretation of the breadth of its authority to regulate
was consistent with congressional intent. That is because "when
Congress revisits a statute giving rise to a longstanding
administrative interpretation without pertinent change, the
'congressional failure to revise or repeal the agency's
interpretation is persuasive evidence that the interpretation is
the one intended by Congress.'" Commodity Futures Trading Comm'n
v. Schor, 478 U.S. 833, 845-46 (1986) (citation omitted)
(concluding that deference to agency's interpretation was
warranted where Congress had twice amended the statute without
overruling the agency's assertion of jurisdiction); see Am. Forest
Res. Council v. United States,
In the years following FinCEN's issuance of the 2013
guidance, FinCEN informed Congress on multiple occasions that it
had been regulating virtual currency exchangers as businesses that
transmit "value that substitutes for currency." Illicit Use of
Virtual Currency and the Law Enforcement Response: Hearing Before
the Subcomm. on Terrorism and Illicit Fin. of the H. Comm. on Fin.
Servs. 9, 25 (2018) (statement of Thomas Ott, Associate Director,
FinCEN Enf't Division) (testifying that "value that substitutes
for currency" is "sufficient to cover virtual currency")
[hereinafter H. Hrg. 115-102]; The Present and Future Impact of
Virtual Currency: Joint Hearing Before the Subcomm. on Econ. Pol'y
and Subcomm. on Nat'l Sec. and Int'l Trade and Fin. of the S. Comm.
on Banking, Hous., and Urban Affs., 113th Cong. 8, 11 (2013)
(statement of Jennifer Shasky Calvery, Director, FinCEN)
(testifying that FinCEN was "able to cover [virtual currency] under
our pre-existing definitions and regulations, which include the
*38
concept of other value that substitutes for currency")
[hereinafter S. Hrg. 113-210]. Indeed FinCEN wrote to a Senate
committee that FinCEN "would not object to Congress considering
codifying elements of money transmission to involve the
transmission of currency, as well as value that substitutes for
currency." Combatting Money Laundering and Other Forms of Illicit
Finance: Regulator and Law Enforcement Perspective on Reform:
Hearing Before the S. Comm. on Banking, Hous., and Urb. Affs.,
115th Cong. 59, 62 (2018) (written statement of Kenneth A. Blanco,
Director, FinCEN). As we previewed earlier, Congress subsequently
added "currency" and "value that substitutes for currency" into
the definition of "money transmitting business" in Section
5330(d)(1). NDAA § 6102(d)(1)(2),
Freeman takes an alternative view of the same sequence
of events, arguing that we should treat the 2021 amendment instead
as evidence that the effective definition could not have supported
FinCEN's earlier reading. This view relies on a principle of
statutory interpretation that tells us to give meaning to the words
of a statute in a manner that avoids redundancies. See City of
Providence,
But we have previously warned that the canon against
superfluities "is not a straitjacket" and "should not, therefore,
be employed inflexibly to rule out every interpretation of a
statute that treats certain language as illustrative or
clarifying." City of Providence,
And it's worth noting that Congress also has a history
of revising the Section 5330 definition of "money transmitting
businesses" for the purpose of clarification, rather than
substantive expansion. H.R. Rep. No. 107-250, at 63-64 ("Although
the Committee believes that informal value transfer banking
systems like hawalas are already adequately covered by references
to money transmitting businesses in certain provisions of existing
law, this section makes that understanding explicit."). Under
these circumstances, we need not blindly apply the canon against
surplusage to invalidate an agency regulation that Congress deemed
worthy of codification. See Bufkin v. Collins, 145 S. Ct. 728,
742 (2025) ("[S]ometimes the better overall reading of the statute
contains some redundancy." (citation omitted)); City of
Providence,
Freeman nevertheless insists that "Congress struggled
with deciding how to classify and regulate virtual currencies" and
"considered and repeatedly rejected legislation to assign
regulatory authority to agencies like FinCEN." See West Virginia,
In a major questions case, an agency's assertion that it
can regulate in a manner in which Congress has refused to legislate
might give us reason to question whether the agency is contravening
congressional intent. See West Virginia,
Finally, Freeman claims that "FinCEN admitted that it had to expand its authority beyond the statutory language to capture virtual currency." He seemingly raises this argument because at times, the Supreme Court has emphasized that the agency's express disclaimer of its authority to regulate a particular industry or in a particular manner shows that a later attempt to assert the same authority exceeds the bounds of the *44 governing statute. See Util. Air Regul. Grp., 573 U.S. at 321
("EPA itself has repeatedly acknowledged that applying the PSD and Title V permitting requirements to greenhouse gases would be inconsistent with —— in fact, would overthrow —— the Act's structure and design."); Brown & Williamson, 529 U.S. at 146 (noting FDA's "disavowal of jurisdiction" over tobacco products). But we see no such history of disclaimer here. The supposed agency admissions Freeman refers to in support of his argument are various statements made by FinCEN officials in testimony before Congress and in a bar association speech. See, e.g., Crypto Crime in Context: Breaking Down the Illicit Activity in Digital Assets: Hearing Before the Subcomm. on Digit. Assets, Fin. Tech. and Inclusion of the H. Comm. on Fin. Servs., 118th Cong. (2023) (witness statement of Jane Khodarkovsky, Former Trial Att'y and Hum. Trafficking Fin. Specialist, Dep't of Justice) (no official transcript of hearing available) (quoted material appears on page 11 of written witness statement), https://perma.cc/7RBZ-CPWX [hereinafter Khodarkovsky Statement]; H. Hrg. 115-102, supra, at 9, 25 (statement of Thomas Ott, Associate Director, FinCEN Enf't Division); S. Hrg. 113-210, supra, at 5, 36 (statement of Jennifer Shasky Calvery, Director, FinCEN); FinCEN, Prepared Remarks of FinCEN Acting Dir. Him Das Delivered Virtually at the American Bankers Association/ American Bar Association Financial Crimes Enforcement Conference (Jan. 13, 2022), https://perma.cc/JXQ9- *45 BLNR. In Freeman's telling, these statements acknowledge that FinCEN lacked statutory authorization to regulate virtual currency.
As an initial matter, we note that Freeman's argument appears to be an odd fit with the major questions cases, where a later assertion of authority contradicts an earlier disclaimer. That is so because each of the statements Freeman references post-date FinCEN's assertion in 2013, that virtual currency exchangers were subject to its regulations. And when we take a closer look at the statements Freeman has identified, we do not see FinCEN acknowledging any discrepancy between its statutory authority and its regulatory assertion (as Freeman claims it has). Most of these statements express FinCEN's concerns that virtual currencies might not be adequately addressed by the pre-existing regulatory framework (rather than concerns about any gap in the statutory scheme) and inform Congress of how FinCEN had updated its definitions to be in sync with Congress's statutory intent. See, e.g., S. Hrg. 113-210, supra, at 5, 36 (warning that virtual currencies are preferred by "[i]llicit actors" in part because they "provide[] a loophole from the [anti-money laundering and combatting the financing of terrorism] regulatory safeguards in most countries around the world" and explaining that FinCEN's regulatory guidance, rulings, and updates "have been able to accommodate the development of new payment systems, including *46 virtual currency"); H. Hrg. 115-102, supra, at 9, 25 (statement of Thomas Ott, Associate Director, FinCEN Enf't Division) (recounting regulatory acts intended to address virtual currencies and testifying that the "regulatory regime right now, that we have in place, is sufficient to cover virtual currency . . . whether or not . . . a money transmitter is located within the continental United States"); Das, supra ("[W]e need a regulatory regime to match, one that accounts for crypto and other digital assets, evolution in the payments space, and other innovations that are driving the creation of new products, services, and delivery channels."). Another simply acknowledges the codification of FinCEN's existing interpretation in 2021. Khodarkovsky Statement, supra, at 11. None of these statements amounts to an admission that FinCEN lacked statutory authority to regulate virtual currency exchangers as money transmitting businesses.
Freeman also latches onto the following sentence from a 2019 guidance document issued by FinCEN stating, "The term 'other *47 value that substitutes for currency' encompasses situations in which the transmission does not involve currency, or funds, but instead involves something that the parties to a transaction recognize has value that is equivalent to or can substitute for currency." FinCEN, Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies, FIN- 2019-G001, at 4 (2019). According to Freeman, this sentence shows that FinCEN recognized that "funds" are different from "value that substitutes for currency" and "that the word 'funds' in the 2001 version of § 5330 did not capture virtual currency." We note, however, that the 2019 guidance does not mention Section 5330 at all and does not attempt to define the meaning of "funds," even within the limited universe of the guidance document. Elsewhere in the same document, the word "funds" is used when referring to convertible virtual currencies. FIN-2019-G001, at 15, 19 (referring to "funds" held in virtual currency wallets and "funds" accepted and retransmitted by service providers that anonymize virtual currency transactions). To read FinCEN's use of "funds" in this guidance document as a disclaimer of its statutory authority to regulate virtual currency under Section 5330 would simply blink reality.
Breadth
With the relevant history in mind, we examine the breadth
of the power FinCEN has asserted, another factor the Supreme Court
has directed us to consider as we decide if "hesitation" is called
for before we affirm an agency's claim of regulatory authority.
See West Virginia, 597 U.S. at 721. To begin, we do not buy
Freeman's argument that FinCEN "claim[ed] to discover in a long-
extant statute an unheralded power." Util. Air Regul. Grp., 573
U.S. at 324. In requiring virtual currency transmitters to
register, FinCEN was not regulating in an "unheralded" or
"unprecedented" manner, West Virginia, 597 U.S. at 724-25, 728
(citations omitted) (explaining that EPA had never before
attempted to systemically reduce emissions by "'shifting'
polluting activity 'from dirtier to cleaner sources'" (citations
omitted)), nor was FinCEN relying on an obscure, "ancillary" or
"gap filler" statutory provision, id. at 724. To the contrary,
that agency has continuously relied on Section 5330 as authority
to regulate money transmitters since 1994. See Riegle Community
Development and Regulatory Improvement Act of 1994, Pub. L. No.
103-325 § 408, 108 Stat. 2160, 2249-51 (1994) (codified at 31
U.S.C. § 5330). All it did in 2013 was explicitly specify that
businesses transmitting virtual currency would be treated the same
as those transmitting physical currency. In short, this
"unheralded power" argument is doomed because FinCEN's regulation
*49
of bitcoin is not the kind of "unprecedented" program, one so
unlike FinCEN's historical approach to regulation, that would call
for application of the major questions doctrine. See Biden v.
Missouri,
Nor in challenging FinCEN's breadth of reach does
Freeman attempt to argue that FinCEN's exercise of regulatory
authority over virtual currency transmitters somehow falls outside
its "sphere of expertise." See Nat'l Fed'n of Indep. Bus. v. OSHA,
Ultimately, and in the absence of facts suggesting
FinCEN tried to wield unheralded power, or regulate in an area
beyond its expertise, what Freeman's case seems to boil down to is
this: Congress, in amending Section 5330 in 2001, simply could
not have intended to regulate something that did not yet exist.
But there is nothing compelling about this timing-of-events
argument. Taken to its logical conclusion, Freeman's argument
more or less advocates for a principle of statutory construction
that exempts new technologies from existing statutory schemes
unless Congress had somehow foreseen the course of technological
innovation and had expressly accounted for it ahead of time. But
no such legal principle exists that we are aware of. Cf. Steele
*51
v. Comm'r of Soc. Sec., 51 F.4th 1059, 1060-61 (11th Cir. 2022)
(certifying questions related to whether a child conceived via in
vitro fertilization with cryo-preserved sperm after father's death
was entitled to benefits as father's child under the Social
Security Act and Florida law), certified question answered, 385
So. 3d 587 (Fla. 2024); Application of Sarkar,
(C.C.P.A. 1978) ("Congress cannot be expected to foresee, or to
annually amend [the Patent Act] to incorporate, every future
breakthrough onto entirely new technological terrain."). Courts
routinely enforce "plain statutory commands" even where Congress
may not have expected the statute to apply to certain factual
situations at the time of passage. See Bostock,
no coherent analogy between the unprecedented nature of OSHA's regulatory assertion in that case and what happened here.
Put differently, under Freeman's characterization of National Federation, the major questions doctrine would apply any time an agency relied on a long extant statute to regulate an impactful new technology. This would transform a legal doctrine meant for extraordinary cases into a commonplace principle of statutory interpretation. Because nothing in the history or *53 breadth of FinCEN's regulation of money transmitting businesses calls for application of the major questions doctrine, we turn now to the political and economic significance of the regulation to see if those considerations are difference-makers.
Political and Economic Significance Political Significance
Freeman asserts that virtual currencies have "provoked
much political debate" (though he identifies no specific example
of it), and by this assertion seems to suggest that political
debate equates to political significance. As best we can tell, he
relies on his account of the legislative history of Section 5330
(which we've just explained only shows Congress's approval of
FinCEN's regulation of virtual currencies) rather than on any
meaningful or controversial legislative flashpoint that might call
into question Congress's intent to regulate virtual currencies.
To his nebulous "provoked much political debate" political
significance contention, Freeman, in his reply brief, adds a
federalism concern —— that FinCEN's regulation of virtual
currencies "intrudes into an area that is the particular domain of
state law." See Ala. Ass'n of Realtors,
Economic Significance
Freeman puts some more elbow grease into his argument
regarding economic significance, citing statistics to show the
growth in the bitcoin market in the last decade and a half.
According to Freemans's sources, the overall market capitalization
of bitcoin grew from less than $200,000 to approximately $1.2
trillion between July 2010 and May 2024, and virtual currencies
combined had a total market capitalization of approximately $2.22
trillion in July 2024. But Freeman's citation to the value of
bitcoin and other virtual currencies misunderstands the nature of
our inquiry in at least two ways. First, the major questions cases
direct our attention to, inter alia, the economic significance of
the agency's assertion of regulatory power, not just the size of
the industry being regulated. West Virginia, 597 U.S. at 721.
For instance, in applying the major questions doctrine to a
Department of Education attempt to cancel student debt, the Supreme
Court did not cite to the total amount of outstanding student loan
debt nationwide; instead it calculated the economic impact based
on an estimated total amount of debt to be cancelled by the agency.
Nebraska,
(describing growth in administrative and permitting costs that would result from the proposed rule).
As the district court recognized below (and the government repeats on appeal), FinCEN has not banned all transactions in virtual currency or attempted to regulate all users of virtual currency (such as those who use virtual currency to purchase other goods or services). See FIN-2013-G001, at 2 (explaining that a "user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is . . . not subject to FinCEN's registration, reporting, and recordkeeping regulations."). Instead, it is simply requiring businesses that transmit virtual currencies to register. Thus, *57 the relevant question, in our view, is whether the cost of complying with FinCEN's regulation is so high that we should hesitate before assuming that FinCEN was permitted to enact such a regulation. Freeman has made no attempt to demonstrate the cost of compliance. By contrast, the government cites trial testimony suggesting that registration is free and that other small businesses that exchanged virtual currencies complied or planned to comply with the registration requirement. Indeed Freeman's breathless account of the rise of virtual currencies suggests that FinCEN's regulation placed no meaningful economic burden on the industry.
Second, it seems rather puzzling for Freeman to argue to us that FinCEN undertook an extraordinary expansion of its regulatory authority in 2013, by citing to the market capitalization of bitcoin and other virtual currencies eleven years later in May and July of 2024. To illustrate the problem with Freeman's approach, we look to the motion to dismiss papers (joined by Freeman), which asserted that the relevant data point was the overall market capitalization of "non-state issued digital assets" in November 2021, estimated to be $3 trillion. Apparently, in less than three years, the market capitalization of virtual (explaining that "we are generally reluctant to venture beyond the ambit of the parties' arguments to decide an issue without full briefing").
currencies fell by roughly $800 billion (which would be more than
a quarter of the 2021 value). By relying on this data, does
Freeman intend to assert that a legal defense positing that
regulation of virtual currencies is a major question would have
been more likely to succeed in November 2021 than in July 2024?
Clearly it would be absurd to hold that FinCEN's regulatory
authority waxes and wanes with the price of volatile assets like
bitcoin. In our view, the relevant inquiry is whether regulation
of virtual currencies was a matter of vast political and economic
significance at or around the time FinCEN purportedly decided to
exercise its authority (back in 2011 and 2013). See West Virginia,
* * *
Summing up, Freeman's appeal is chock-full of major- questions rhetoric, but under scrutiny, it bears little resemblance to the line of extraordinary cases the Supreme Court has held triggers the major questions doctrine. Requiring money transmitting businesses that deal in virtual currency to register is not a matter of such vast political and economic significance, nor so broad as to be inconsistent with FinCEN's history, that we should "hesitate" to interpret Section 5330 consistent with the existence of such regulation. West Virginia, 597 U.S. at 721 (citation omitted). Because there is no major question, we need not reach the question of whether Congress spoke with sufficient clarity to permit FinCEN's to registration requirement for money transmitters dealing in virtual currencies. We thus affirm the district court's ruling on the motion to dismiss the indictment. *60 Sufficiency of Tax Evasion Evidence
We turn now to Freeman's claim that the government
presented insufficient evidence of tax evasion to support his
conviction. Because Freeman preserved this argument below, we
conduct de novo review of the district court's denial of his motion
for judgment of acquittal. See United States v. Soler-Montalvo,
"(1) the existence of a tax deficiency, (2) an affirmative act
constituting an evasion or attempted evasion of the tax, and (3)
willfulness." United States v. Lavoie,
The government can prove a tax deficiency exists by
showing that the defendant did not file a tax return and had a tax
liability pursuant to the tax code. See United States v. Hogan,
Freeman does not dispute Ranahan's method for determining his profits from localbitcoins.com or the accuracy of her calculations. Freeman primarily argues that Ranahan did not have a complete view of his finances from 2016 through 2019 and admitted on the witness stand that he might well have no liability. To get our bearings, we start with one aspect of Ranahan's testimony. On cross-examination, Ranahan admitted that her calculation of Freeman's tax liability was based on a standard deduction instead of itemized deductions for "things like overhead," "property tax," and "charitable giving." She further agreed that "if [Freeman] went through an itemization . . . he may *63 owe nothing." Read in context, Ranahan agreed to the hypothetical possibility that if Freeman had submitted a tax return with itemized deductions, those deductions could have reduced his tax liability to zero.
But the government was not required to disprove every
hypothetical version of events in which Freeman was innocent. See
Soler-Montalvo,
Another problem for Freeman is that taxpayers are not
automatically entitled to itemized deductions. Instead, under the
tax code, "no itemized deduction shall be allowed" unless the
taxpayer "makes an election" on his or her tax return. 26 U.S.C.
§ 63(e)(1)-(2). Thus, even if Freeman had presented evidence of
a factual basis for claiming itemized deductions, he was not
entitled to those deductions under the tax code, because he never
filed a tax return, much less elected to itemize deductions. See
George v. Comm'r of Internal Revenue,
As to willfulness, the government must prove that
Freeman voluntarily and intentionally violated a known legal duty
to pay taxes on his income. United States v. Stierhoff, 549 F.3d
19, 26 (1st Cir. 2008) (quoting Cheek v. United States, 498 U.S.
192, 201 (1991)). Willfulness "may be inferred from 'any conduct,
the likely effect of which would be to mislead or to conceal.'"
Id. (quoting Spies v. United States, 317 U.S. 492, 499 (1943))
(identifying defendant's "employment of aliases and nominee
entities when conducting business," "pervasive use of non-
interest-bearing accounts (which do not trigger mechanical
reporting of income earned)," and regular use of cash or
"untraceable money orders" even though "checks normally would be
used" as facts supporting inference of willfulness (citations
omitted)); see United States v. Zanghi,
65 (1st Cir. 2008) (citation omitted). This is because " deliberate ignorance of a duty to pay taxes is contrary to a good-faith belief." Id. at 65 (emphasis added).
We think the government presented sufficient evidence of concealment to permit a jury to infer that Freeman acted willfully. For a period of four years, Freeman earned a substantial amount of income and never reported that income or filed a tax return on it. He accepted large cash transactions by mail. And when customers sent him money through bank wires, he instructed them to lie to their banks about the purpose of their purchase, often telling *67 them to call it a "church donation." During trial, the jury also heard that Freeman was conducting business through multiple churches: Shire Free Church, the Church of the Invisible Hand, the New Hampshire Peace Church, and the Crypto Church of New Hampshire. And there was evidence that at least some of these churches were organized simply as nominal entities for Freeman to invoke at his convenience.
The government also offered evidence suggesting that
Freeman had a political or philosophical objection to paying taxes.
Such an objection, however sincerely held, does not negate
willfulness. United States v. Bonneau, 970 F.2d 929, 932 (1st
Cir. 1992) (citing Cheek,
Of course, that is not to say that the government's
evidence left him no room to argue his innocence. As Freeman
points out, there is no evidence that he received any letter or
notification from the IRS regarding taxes owed. But the absence
of certain types of evidence (such as notification letters) does
not make the evidence insufficient. While the jury may infer
willfulness from the presence of such evidence, "it is by no means
a necessary part of the needed mosaic of proof." Stierhoff, 549
F.3d at 26. Freeman also cites to his own testimony that he held
a sincere belief he had no tax liability because, according to his
own research, "churches under the IRS rules don't pay taxes."
Certainly, if the jury credited Freeman's testimony and determined
that he sincerely believed that he had no tax liability, it would
have been "duty bound to acquit." McGill,
that in mind, we presume the jury discredited the testimony
supporting Freeman's good faith belief as it was permitted to do.
See United States v. Tierney, 266 F.3d 37, 40 (1st Cir. 2001)
(explaining that appellate court does not "second-guess" the
jury's credibility calls and "make[s] all credibility choices in
favor of the verdict"); see also Bonneau, 970 F.2d at 933
(acknowledging that defendant could believe both that wages were
not income under the tax code and that tax laws were
unconstitutional "at the same time," but affirming guilty verdict
where "the force and persistence of the defendant's views on the
constitutional issue certainly were evidence for the jury to
consider in deciding what he actually believed"); United States v.
Street,
Spillover Prejudice
In a final attack on his convictions, Freeman asserts
that we should order a new trial because he was acquitted of the
money laundering charge by the district court after the trial.
His theory is that "the evidence admitted to prove [the money
laundering] charge as to which [he] was acquitted was so extensive,
inflammatory, and prejudicial that it necessarily spilled over
into the jury's consideration of his guilt on other charges." See United States v. Correia, 55 F.4th 12, 36 (1st Cir. 2022)
(citation and quotation marks omitted)
.
In previous cases, we've
sometimes described this type of claim as "spillover prejudice" or
"evidentiary spillover." United States v. Abdelaziz,
Freeman argues, as he did below in his motion for a new
trial, that "[t]he government relied heavily on the money
*71
laundering charge to paint Freeman as a person connected to the
sale of illegal drugs and to enhance his culpability for otherwise
regulatory offenses." In his appellate brief and his motion,
Freeman points to portions of the government's opening statement
and closing argument which referred to Freeman's interactions with
the undercover agent, and especially his awareness that the agent
purportedly was exchanging his drug proceeds for bitcoin. The
district court rejected his argument on the basis that any evidence
regarding Freeman's interactions with the undercover agent would
have been admissible to prove the allegation that Freeman conspired
to commit money laundering (a conviction which Freeman was not
acquitted of post-trial). Even though this was the basis for the
district court's decision and emphasized in the government's
appellate brief, Freeman has offered us no explanation as to what
evidence regarding the undercover agent would have been excluded
if the direct money laundering charge had been left out of the
trial. We agree with the district court that the undercover
agent's discussion of purported drug proceeds with Freeman was
relevant to establishing whether Freeman conspired with the
*72
undercover agent to perpetrate money laundering and thus could
have been admitted even if the underlying money laundering charge
had never been brought. See United States v. George,
denial of motion for new trial where any retrial on the "still- *73 standing convictions . . . would have involved much of the same evidence" as the evidence in support of the dismissed counts). Substantive Reasonableness of the Sentence
We turn now to Freeman's challenge to the substantive
reasonableness of his 96-month sentence, which represented a
substantial downward variance from the 210- to 262-month sentence
recommended by the United States Sentencing Guidelines. Freeman
is in for an "uphill" battle. See United States v. Dávila-Bonilla,
968 F.3d 1, 12 (1st Cir. 2020). We analyze Freeman's preserved
sentencing arguments "under the deferential abuse of discretion
standard, reviewing findings of fact for clear error and issues of
law de novo." United States v. Pupo,
133 (1st Cir. 2021)). Under these standards, sentences falling
significantly below the guidelines range, as here, are "rarely"
disturbed for substantive unreasonableness. See, e.g., United
States v. Rivera-Gerena,
None of Freeman's arguments convince us that this is one
of those rare cases. Freeman begins by listing several mitigating
factors, including his "minimal" criminal history, the lack of any
*74
evidence that he engaged in violent conduct, and his strong
community support. To the extent that Freeman is arguing that the
district court overlooked these factors, the record compels the
opposite conclusion. In imposing the sentence, the district court
explicitly referenced Freeman's "peace advocacy," "his lack of a
violent history, his many supporters, many of whom submitted
letters to the Court vouching for him and his character," and "his
lack of prior significant incarceration." The court believed that
these were among the factors that "make a variance below the
guideline sentencing range appropriate in this case." Against
this, the district court noted aggravating factors, some of which
were reflected in the guidelines range, including the enhancement
Freeman received as a "manager or leader" and the impact of the
crimes on his victims. It also noted that Freeman had a criminal
history but characterized it as "not substantial." Considering
all these circumstances, the court decided on "a very serious
sentence" of 96 months, which it emphasized was "less than half of
the low end of the guideline sentencing range" —— though more than
the 38 months Freeman asked for. Given the district court's
express attention to the factors identified by Freeman in his brief
to us, we readily conclude that the district court articulated a
plausible sentencing rationale. See United States v. Fuentes-
Moreno,
Freeman also points to six other "virtual currency
related money laundering crimes" from around the country, in which
the defendants were sentenced to between four and 36 months. As
an initial matter, the government asserts that this sentencing
disparity argument was not preserved because Freeman only objected
*76
generally to the substantive reasonableness of this sentence
below. As a result, the government says Freeman forfeited the
argument and we must review this claim for plain error, a standard
that is even tougher on appellants than the abuse of discretion
standard advocated for by Freeman and which we've been relying on
thus far. United States v. Cruz-Ramos,
Freeman is right that 18 U.S.C. § 3553(a)(6) reflects a
goal of avoiding unwarranted "sentencing disparities among like
criminals who commit like crimes" across the nation. United States
v. Romero, 906 F.3d 196, 211 (1st Cir. 2018). However, a
sentencing disparity is not unwarranted "if material differences
between the defendant and the proposed comparator[s] suffice to
explain the divergence." Id. (alteration in original) (quoting
*77
United States v. Demers,
Here, Freeman asks us to compare him to other defendants
sentenced for processing millions of dollars in virtual currency
and cherry picks the aspects of those cases most similar to his
own. Cf. United States v. Rosario, __ F.4th __,
In sum, Freeman has failed to show that his sentence was substantively unreasonable, either based on the district court's assessment of the Section 3553(a) sentencing factors or based on any disparity with similarly situated defendants. Accordingly, we affirm his sentence.
CONCLUSION
For the reasons stated, we affirm.
Notes
[1] Because Freeman raises a sufficiency of the evidence
challenge to his tax evasion count, we'll present the facts
relevant to that count in the light most favorable to the jury's
verdict once we get there. See United States v. Paz-Alvarez, 799
F.3d 12, 18 (1st Cir. 2015). For the overview of Freeman's bitcoin
sales that follows, however, we summarize the trial record in a
"balanced" fashion, because the manner in which we relate these
background facts does not impact our analysis of Freeman's
remaining claims of error. See United States v. Burgos-Montes,
[2] In everyday speech, the phrase virtual currency would seemingly capture any currency that exists on a computer in a non-physical form (for instance, currency used in video games to
[4] For instance, a government investigator testified at trial that other bitcoin kiosks required him to scan a piece of government-issued identification (like a driver's license), enter a non-prepaid phone number, provide his name, and communicate with the owner or operator of the kiosk to verify his purchases.
[5] It's not clear whether Freeman himself used the name "Shire Cryptocoin" in connection with any of his businesses. Also, to be exact, FinCEN wrote that Shire Cryptocoin was a money services business. Under FinCEN's regulations, money transmitting businesses are a subcategory of money services businesses (which are all required to register). 31 C.F.R. § 1010.100(ff)(5) (defining money transmitter as type of money services business); id. § 1022.380(a)(1) (requiring registration of money services businesses). For the sake of simplicity, this opinion will primarily use the term "money transmitting business" or "money transmitter" as resolution of this case does not require us to make fine distinctions between money transmitting businesses and other categories of money services businesses.
[6] More precisely, the district court sentenced Freeman to 60 months of imprisonment on tax evasion and the counts related to operation of a money transmitting business to be served concurrently with a 96-month sentence for conspiracy to commit money laundering.
[7] Eagle-eyed readers will have remembered that Section 5330(a)(1) referred to registration with the Secretary of the Treasury and never mentioned FinCEN. The Secretary of the Treasury delegated regulatory responsibilities under Section 5330 (which is part of the Bank Secrecy Act) to FinCEN. See generally U.S. Gov't Accountability Off., GAO/GGD-98-18, Money Laundering: FinCEN Needs to Better Communicate Regulatory Priorities and Time Lines 1 (1998). For simplicity's sake, any time Section 5330 gives certain responsibilities to the Secretary of the Treasury, we will substitute in FinCEN as the office of the Treasury Department that carries out that work.
[8] For those tracking the dates, it may seem strange that we're
saying the current version of Section 5330 was not effective for
the purposes of this prosecution, even though the indictment
alleges that violations of Section 1960 continued until the date
of Freeman's arrest, March 15, 2021, which was more than three
months after the current definition became law on January 1, 2021.
NDAA § 6102(d)(2)(A)(i),
[10] The parties analyze the meaning of the word "funds" under both statutes, and neither suggests that the term "funds" should be interpreted differently between Sections 1960 and 5330. Thus, we discuss the meaning of the term "funds" under both statutes.
[11] For instance, the evidence at trial showed that the bar where one of Freeman's kiosks was located accepted bitcoin in exchange for food.
[12] While summarizing the nature of Freeman's convictions in
its brief, the government claims that Freeman was also convicted
under Section 1960(b)(1)(C). Section 1960(b)(1)(C) defines an
unlicensed money transmitting business seemingly independently
from Section 5330. See 18 U.S.C. § 1960(b)(1)(C) (defining term
to mean a money transmitting business "otherwise involv[ing] the
transportation or transmission of funds that are known to the
defendant to have been derived from a criminal offense or are
intended to be used to promote or support unlawful activity").
The government does not argue, however, that we can ignore Section
5330 because the jury convicted Freeman under Section
1960(b)(1)(C), presumably because the verdict form did not ask the
jury to indicate which of the two subsections Freeman had violated.
Even if the record could support such an argument, we would treat
it as waived given the government's failure to brief the issue.
See Mass. Lobstermen's Ass'n v. Menashes,
[13] We acknowledge that this is a somewhat unusual case for the invocation of the major questions doctrine: FinCEN is not a party and Freeman is seeking to overturn his conviction, not to enjoin
[14] Our circuit has addressed the major questions doctrine only
in passing since the doctrine was formalized in West Virginia.
See Hornof v. United States,
[15] In so doing, we acknowledge that the major questions doctrine has been an area of dynamic development in the last few years, and it is not always clear what factors fall under which prong. For instance, a discussion of the wider statutory scheme and legislative history might well be introduced as a relevant piece of the agency's regulatory history or as indicative of the political significance of the regulatory assertion. In today's decision, we place less importance on categorizing the relevant characteristics and focus on whether the facts of this case, stripped of Freeman's rhetorical flourishes, actually fit into the major questions precedent.
[16] Our focus is on the legislative history of Section 5330 rather than Section 1960, because (1) that is what the parties briefed and (2) Section 5330, which enables agency regulation, is more squarely implicated by the major questions doctrine than Section 1960, which focuses on the circumstances of criminal liability.
[17] FinCEN laid out precise definitions for "real currency," "convertible currency," and "virtual currency" in its 2013 guidance. FIN-2013-G001, at 3. For the purposes of this opinion, it suffices to say that "real currency" is equivalent to what we have been calling "fiat currency" and that bitcoin is a form of "convertible virtual currency." The guidance clarified that the fact that a business exchanged bitcoin instead of fiat currency would not exempt it from registration as a money transmitter. Id. at 2 (explaining that "a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency" is a money transmitter under FinCEN's regulation).
[18] Freeman takes the view that FinCEN did not begin regulating bitcoin until "long after the invention of bitcoin" in 2008, when it added the phrase "value that substitutes for currency" into its regulations and then interpreted that phrase to refer to virtual currencies. The government claims that FinCEN was regulating virtual currencies all along and that FinCEN's actions in 2011 and 2013 merely "confirmed" its existing regulatory scheme.
[19] According to the findings of the House Committee on Financial Services, "hawala" is the word for an "ancient South Asian money exchange system" which "consists of an international network of non-bank financial agents, often built on trusted family or cultural relationships." H.R. Rep. N O . 107-250, at 34. These trusted relationships permit value to be transferred based on messages rather than the physical movement of funds from one party to another. Id. Presumably, when Freeman refers to "hawala-type systems," he refers to value transfer systems that function in a similar manner.
[20] We are mindful, as Freeman points out, that the virtual
currency at issue in E-Gold is not a "cryptocurrency" like bitcoin.
See
[21] In fact, FinCEN proposed the addition of the phrase "value that substitutes for currency" as early as 2009, the year following bitcoin's invention. Amendment to the Bank Secrecy Act Regulations-Definitions and Other Regulations Relating to Money Services Businesses, 74 Fed. Reg. 22129, 22137, 22142 (proposed May 12, 2009) (to be codified at 31 C.F.R. pt. 103).
[22] In some instances, the Court's major questions cases have
referenced congressional acts or omissions that post-date the
agency's challenged regulatory assertion, but without relying on
them to resolve the major questions determination. See Ala. Ass'n
of Realtors,
[23] The Supreme Court came closest to doing so in Alabama Association of Realtors, 594 U.S. 758. That case involved a challenge to an eviction moratorium issued by the CDC after Congress had allowed a legislative eviction moratorium to expire. Id. at 760. When the CDC's administrative moratorium was set to expire for the first time, Congress passed legislation extending the CDC's moratorium for one month, but subsequently declined to extend the moratorium any further. Id. The CDC nevertheless renewed the moratorium several times. Id. The Court's analysis in its per curiam opinion focused on the political and economic significance of the eviction moratorium rather than on whether Congress's subsequent legislative activity (and inactivity) amounted to tacit approval (or disapproval) of the moratorium. Id. at 764-65. In any event, Congress's one-month extension of the eviction moratorium did not amount to a word-for-word codification of the agency's interpretation of its statutory authority into the enabling statute, as occurred in this case. See Consolidated Appropriations Act, 2021, Pub. L. No. 116 – 260, § 502, 134 Stat. 1182, 2078 – 2079 (2020) (stating simply that CDC's order "is extended through January 31, 2021" without amending enabling statute). And, moreover, Freeman does not attempt to argue that Alabama Association of Realtors stands for the proposition that the major questions doctrine applies even when Congress expressly approves of the agency's decision.
[24] Freeman also claims that "[a] former acting director of FinCEN, Himamauli Das, stated that the 2021 updates to the Patriot Act, including the amendment to § 5330, were necessary because the 2001 law 'never anticipated the challenges of the 2020s: digital assets . . . ." Appellant's Br. 49 (alterations in original) (quoting Das, supra). But of course, Congress did not need to "anticipate" the application of Section 5330 to virtual currencies in order for FinCEN to apply the statute's plain terms. See Bostock, 590 U.S. at 683. Nor does a high-level remark on the need to modernize the anti-money laundering legal framework amount to an admission that FinCEN had no statutory authority over virtual currencies until passage of the 2021 law.
[25] Freeman's brief incorrectly identifies the source of this sentence as the 2013 guidance. The language Freeman quotes actually appears in a separate document. FIN-2019-G001, at 4.
[26] Freeman claims that this argument properly responds to the
government's assertion that he had not made any showing of an
intrusion into the particular domain of state law and is thus a
proper subject for a reply brief. See Wills v. Brown Univ., 184
F.3d 20, 27 (1st Cir. 1999) ("Reply briefs are to counter the
appellee's arguments, not to offer new theories of error for the
first time."). In our view, Freeman is not responding to a
counterargument. He is belatedly raising an argument which the
government pointed out he had neglected to include in his opening
brief. See United States v. Mojica-Ramos,
[27] This opinion focuses on the registration requirement under
Section 5330 and does not address other aspects of compliance for
money transmitting businesses, such as reporting. See
FIN-2013-G001, at 2. This is because neither party has developed
any argument about the other regulatory requirements, and so we
have no information to go on. See Borrás-Borrero v. Corporación
del Fondo del Seguro del Estado,
[28] That said, we have difficulty imagining how Congress could have spoken more clearly under these circumstances, where (1) the plain meaning of "funds" includes virtual currency; (2) the effective statute also explicitly refers to "an informal money transfer system" and "the transfer of money . . . outside of the
[29] Freeman also emphasizes that the IRS never sent him an audit letter explaining that he owed taxes, but whether the IRS conducted a formal assessment of Freeman's liability and forewarned him is irrelevant to whether he actually owed those taxes. See Hogan, 861 F.2d at 315-16 (rejecting insufficiency challenge based on lack of "proper assessment of the tax due and owing").
[30] Our analysis that follows does not draw a fine line between
evidence relevant to "willfulness" and evidence relevant to
"willful blindness," as some of the government's evidence supports
both theories. See Azubike, 564 F.3d at 67 (explaining that
evidence need not "be placed in either an actual knowledge or a
deliberate ignorance category" (quoting United States v. Griffin,
[31] For instance, one of Freeman's friends signed the formation documents of the Crypto Church of New Hampshire as a director or trustee. At trial, the friend testified that apart from signing the formation documents, he had no other participation in the activities of the church and did not know what its religious principles were. Another acquaintance testified that Freeman would discuss his church "[w]hen he needed it as a legal entity for some legal reason." Freeman reportedly asked that same acquaintance to prepare an accountant certification letter to send to a cryptocurrency exchange because he was "in the unusual position of not legally owning things but having the ability to control well over 2.5M in various assets." The acquaintance, who was not a certified accountant, prepared a letter stating that Freeman held "$2.4 million in various liquid assets" without reference to a church.
[32] Freeman's brief asserts that his spillover prejudice argument would be "even stronger" if we vacated his other convictions for operation of an unlicensed money transmitting business and tax evasion. Because we do not vacate those convictions, we do not need to consider whether any evidence spilled over from those charges.
[33] The district court granted Freeman's motion for judgment of acquittal only as to the direct money laundering conviction, on the basis that there was not sufficient evidence presented that Freeman knew that the undercover agent went to the bitcoin kiosk after Freeman told the agent that the kiosk was still there. The district court did not acquit Freeman of conspiracy to commit money laundering, a decision that Freeman has not challenged.
[34] The cases in which we have granted a new trial for
evidentiary spillover tend to involve multiple defendants or
multiple conspiracies. See, e.g., United States v. Weadick, 15
F.4th 1, 16 (1st Cir. 2021) ("Some amount of spillover is inherent
in trying multiple defendants together."). In such cases, "one
defendant allegedly may not be involved at all in one of the
conspiracies, but may suffer from the evidence in support of the
other defendants in those other conspiracies." United States v.
Chan,
[35] Transcript of Sentencing Hearing at 17:2-3, United States v. Randol, 23-cr-00440 (C.D. Cal. Jan. 17, 2024), ECF No. 56 (six to 12 months); Government Sentencing Memorandum at 2, United States v. Farace, No. 21-cr-00294 (D. Md. Dec. 15, 2023), ECF No. 92 (parties agreed to seek a sentence between 19 and 30 months based on consensus that guidelines range was 30 to 37 months); Government's Sentencing Memorandum at 3, United States v. Zhao, 23-cr-00179 (W.D. Wash. Nov. 21, 2023), ECF No. 78 (arguing for range of 12 to 18 months); Transcript of Sentencing Hearing at 5:8, United States v. Mejia, No. 21-cr-00008 (C.D. Cal. Nov. 18, 2021), ECF No. 44 (57 to 71 months); Defendant's Sentencing Memorandum at 2, United States v. Tetley, No. 17-cr-00738 (C.D. Cal. June 4, 2018), ECF No. 32 (uncontested range of 46 to 57 months); Defendant's Sentencing Memorandum at 27, United States v. Lebedev, No. 15-cr-00769 (S.D.N.Y. Aug. 29, 2017), ECF No. 585 (108 to 135 months as calculated by probation, 10 to 16 months as argued by defendant).
[36] Judgment at 1, Unites States v. Zhao, 23-cr-00179, ECF No. 90 (one count of failure to maintain an effective anti-money laundering program); Transcript of Sentencing Hearing at 26:2-5, Randol, 23-cr-00440, ECF No. 56 (same); Amended Judgment at 1-2, Lebedev, 15-cr-00769, ECF No. 748 (various bribery and fraud charges).
[37] Plea Agreement, Zhao, 23-cr-00179, ECF No. 31; Transcript of Sentencing Hearing at 26:22-23, Randol, 23-cr-00440, ECF No. 56 (noting acceptance of responsibility deduction from offense level); Plea Agreement, Farace, 21-cr-00294, ECF No. 79; Plea Agreement, Mejia, No. 21-cr-00008, ECF No. 5; Judgment at 1, Tetley, 17-cr-00738, ECF No. 45.
[38] Defendant's Sentencing Memorandum at 8, Zhao, 23-cr-00179, ECF No. 82; Government's Sentencing Memorandum at 3, Farace, 21- cr-00294, ECF No. 92; Government's Sentencing Memorandum at 16, Tetley, 17-cr-00738, ECF No. 31; Defendant's Sentencing Memorandum at 32, Lebedev, 15-cr-0069, ECF No. 585.