Case Information
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA UNITED STATES OF AMERICA
v. Criminal Action No. 19-395 (BAH) LARRY DEAN HARMON, Chief Judge Beryl A. Howell Defendant.
MEMORANDUM OPINION
Defendant, Larry Dean Harmon, is charged in three counts related to his alleged operation of Helix, an underground tumbler for bitcoin, a form of virtual currency. See Indictment (Dec. 3, 2019) at ¶¶ 3, 8–9, ECF No. 1. As described in the indictment, Helix “enabled customers, for a fee, to send bitcoins to designated recipients in a manner which was designed to conceal and obfuscate the source or owner of the bitcoins.” Id. ¶ 4. This service, which was located on the Darknet — a collection of hidden websites accessible only to anonymized users — was allegedly “advertised . . . as a way to” mask drug, gun, or other illegal “transactions from law enforcement.” Id. ¶ 5. Between 2014 and 2017, Helix was used to “exchange[] . . . approximately 354,468 bitcoins — the equivalent of approximately $311 million in U.S. dollars.” Id. ¶ 8. On December 3, 2019, a federal grand jury in the District of Columbia indicted defendant for conspiracy to launder monetary instruments, in violation of 18 U.S.C. § 1956(h), id . ¶¶ 14–16 (Count One); operating an unlicensed money transmitting business, in violation of 18 U.S.C. § 1960(a), id . ¶¶ 17–18 (Count Two); and engaging, without a license, in the business of money transmission, as defined in D.C. Code § 26-1001(10), in violation of the District of Columbia’s Money Transmitters Act (MTA), D.C. Code § 26-1023(c), id . ¶¶ 19–20 (Count Three). Defendant has now moved to dismiss, for failure to state an offense, see F ED . R. C RIM . P. 12(b)(3)(B)(v), both Counts Two and Three, see Def.’s Mot. to Dismiss, ECF No. 31; Def.’s Mem. Supp. Mot. to Dismiss (“Def.’s Mem.”), ECF No. 31. The motion to dismiss raises two novel questions: Is bitcoin “money” for purposes of the District of Columbia’s MTA? Was Helix, which operated as a bitcoin tumbler, an “unlicensed money transmitting business” under 18 U.S.C. § 1960(b)(1)(B)? After examination of the relevant statutes, case law, and other sources, the Court concludes that bitcoin is money under the MTA and that Helix, as described in the indictment, was an “unlicensed money transmitting business” under applicable federal law. Accordingly, defendant’s motion to dismiss Counts Two and Three is denied.
I. BACKGROUND
The facts and charges in the indictment are summarized below, after a brief review of the operation of bitcoin and the Darknet.
A. Technical Primer on Bitcoin and the Darknet
Brief primers on bitcoin and the Darknet are helpful to understand the charged activity that is the focus of defendant’s pending motion to dismiss.
1. Bitcoin
“Bitcoin is a decentralized form of electronic or digital currency that exists only on the
[i]nternet.”
United States v. Lord
,
Transferring or otherwise using a bitcoin requires an address, a public encryption key,
and a private encryption key. “Units of [b]itcoin are stored by reference to” the “address[].”
Shawn S. Amuial, Josias N. Dewey & Jeffery R. Seul, The Blockchain: A Guide for Legal &
Business Professionals § 1:3 (2016). The address, “similar to a bank account number, . . . is a
long string of letters and numbers.”
Gratkowski
,
To transfer bitcoin from one address to another, the sender transmits a message — called a transaction — on the Bitcoin public network, and that transaction is eventually recorded on a blockchain, a public ledger that records every bitcoin transaction. See Gratkowski , 2020 WL 3530575, at *1; T HE L AW OF B ITCOIN , supra , at 31. [2] The transaction must contain: (1) the amount of bitcoin to be transferred; (2) the address to which the bitcoin will be sent; (3) the address from which the bitcoin is being sent; and (4) the public key associated with the sender and the sending address. See The Blockchain: A Guide for Legal & Business Professionals § 1:3; see also Chason, supra , at 147–48. With these elements in place, the sender must sign the transaction using a digital signature generated using the sender’s private key. Id. ; see also T HE L AW OF B ITCOIN , supra , at 31. Once signed, the transaction is broadcast to the Bitcoin network.
The network then verifies the transaction by confirming that (1) the public key is associated with the address of the sender and (2) the digital signature was produced for this transaction using the sender’s private key. See Chason, supra , at 150; T HE L AW OF B ITCOIN , supra , at 31. After the transaction is verified, the bitcoin being sent becomes associated with the recipient address and its attendant private and public keys. See The Blockchain: A Guide for Legal & Business Professionals § 1:3. The transaction is also recorded on the blockchain. Id. The recording process is a complex one that involves nodes on the network “bundl[ing] up transactions into blocks of aggregated transactions and append[ing] each block to the prior block.” Id. The result of this process is that every node in the network “ha[s] a current, immutable history of all transactions ever logged on the blockchain.” Id. ; see also Bitcoin 101: What is Bitcoin? , C OIN D ESK (Jul. 6, 2020), http://coindesk.com/learn/bitcoin-101/what-is-bitcoin (“The network records each transaction onto these ledgers and then propagates them to all of the other ledgers on the network”).
The Bitcoin blockchain records “only the sender’s address, the receiver’s address, and the
amount of Bitcoin transferred.”
Gratkowski
,
2. The Darknet
The Darknet is a collection of hidden websites “accessible only through anonymization
software that obscures users’ internet protocol addresses” by “filter[ing] their traffic through” a
network of relay computers called the Tor network.
United States v. Le
,
B. The Indictment
The following facts are taken from the indictment, and are assumed to be true, as is
required at the motion to dismiss stage.
See United States v. Park
,
Defendant began “own[ing] and operat[ing] a Darknet search engine called Grams” around April 2014. Indictment ¶ 2. As this description suggests, Grams allowed users to search the Darknet. Only a few months later, by July 2014, defendant had begun “own[ing] and operat[ing]” Helix. Id. ¶ 3. Helix was openly affiliated with Grams, “and the two services were sometimes referred to collectively as Grams-Helix.” Id.
As already stated, customers used Helix “to send bitcoins to designated recipients in a manner which was designed to conceal and obfuscate the source or owner of the bitcoins.” Id. “This type of service is commonly referred to as a bitcoin ‘mixer’ or ‘tumbler.’” Id. These services are so-called because they “work by literally mixing up a user’s payment with lots of other payments from other users.” Usha R. Rodrigues, Law and the Blockchain , 104 I OWA L. R EV . 679, 712 n.224 (2019).
In online posts, defendant portrayed Helix as a service for stripping bitcoin of any link to illegal Darknet transactions. Just before launching Helix, defendant wrote “that Helix was designed to be a ‘bitcoin tumbler’ that ‘cleans’ bitcoins by providing customers with new bitcoins ‘which have never been to the darknet before.’” Indictment ¶ 5. Around March 2015, defendant allegedly posted: “No one has ever been arrested just through bitcoin taint, but it is possible and do you want to be the first? . . . Most markets use ‘Hot Wallets,’ they put all their fees in these wallets. [Law enforcement] just needs to check the taints on these wallets to find all the addresses a market uses.” Id.
Starting “at least in or about November 2016, Helix partnered” with a Darknet market called AlphaBay. Id. ¶ 6. AlphaBay, which “was seized by law enforcement” in 2017 was a marketplace located on the Darknet where customers could “purchase a variety of illegal drugs, guns, and other illegal goods.” Id. In the fall of 2016, AlphaBay’s website “recommended to its customers that they use a bitcoin tumbler service to ‘erase any trace of [their] coins coming from AlphaBay,’ and provided an embedded link to the Tor website for Grams-Helix.” Id. An undercover FBI employee, in November 2016, “transferred 0.16 bitcoin from an AlphaBay bitcoin wallet to Helix. Helix then exchanged the bitcoin for an equivalent amount of bitcoin, less a 2.5 percent fee, which was not directly traceable to AlphaBay.” Id. ¶ 7.
Defendant “shut down” both Grams and Helix in 2017. Id. ¶ 9. Before then, between 2014 and 2017, “[i]n total, Helix exchanged at least approximately 354,468 bitcoins — the equivalent of approximately $311 million in U.S. dollars at the time of the transactions.” Id. ¶ 8. According to the indictment, “[t]he largest volume of funds sent to Helix came from Darknet markets selling illegal goods and services, including AlphaBay, Agora Market, Nucleus, and Dream Market, and other Darknet markets.” Id.
Helix’s customers included people in the District, id. , but “Helix was not licensed” as a money transmitter “by the District of Columbia,” id. ¶ 13. Nor was Helix “registered with” the federal Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of Treasury. Id. ¶ 11.
Based on these factual allegations, a federal grand jury indicted defendant in December 2019, but the indictment remained under seal until after the defendant was arrested in February 2020. See Entry (Feb. 6, 2020); Order Granting Motion to Unseal, ECF No. 5. He is charged in three counts. [3] Count One, which is not at issue in defendant’s pending motion to dismiss, charges that, from about July 2014 until about December 2017, defendant conspired with others, including the administrator of AlphaBay, to conduct financial transactions — namely, “the sending and receiving of bitcoin” — that he knew involved the proceeds of illegal drug activity, Indictment ¶ 15(a) (citing 18 U.S.C. § 1956(a)(1)(A)(i)), and that he knew were designed to “conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of [the] unlawful activity,” id. at ¶ 15(b) (citing 18 U.S.C. § 1956(a)(1)(B)(i)). The “goal” of this conspiracy was for defendant and his co-conspirators “to unlawfully enrich themselves by operating a bitcoin money laundering service which would conceal and promote illegal Darknet drug sales and other illegal activity.” Id . ¶ 16.
Count Two charges that defendant, in running Helix, “knowingly conducted, controlled, managed, supervised, directed, and owned an unlicensed money transmitting business,” in violation of 18 U.S.C. § 1960(a). Id. ¶ 18. Section 1960(b)(1) defines an “unlicensed money transmitting business” as “a money transmitting business which affects interstate or foreign commerce in any manner or degree and” and is illegal one of the following three ways:
(A) is operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable;
(B) 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; or (C) otherwise involves 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.
18 U.S.C. § 1960(b)(1). Subparagraph (B) references section 5330, which is part of the Bank Secrecy Act (“BSA”), 31 U.S.C. § 5311 et seq. , and requires all “money transmitting businesses” to register with FinCEN. 31 U.S.C. § 5330(a)(1). According to Count Two, defendant violated § 1960(a) by (a) operating Helix without the appropriate money transmitting license in the District, where failure to obtain the proper license is a felony, see D.C. Code § 26-1023(c); (b) failing to comply with 31 U.S.C. § 5330 and its regulations; and (c) involving Helix in the transmission of funds known to defendant “to have been derived from a criminal offense and intended to be used to promote and support unlawful activity,” Indictment ¶ 18 (a)–(c).
Finally, Count Three charges that defendant failed to obtain a money transmitter license in the District, while, through the operation of Helix, he was engaged in the business of money transmission, as that term is defined by the MTA. Id. ¶¶ 19–20 (citing D.C. Code § 26- 1001(10)). [4] The District’s MTA defines money transmission as “engaging in the business of receiving money for transmission or transmitting money within the United States, or to locations abroad, by any and all means, including but not limited to payment instrument, wire, facsimile, or electronic transfer.” D.C. Code § 26-1001(10). Operation of a money transmission business without a license violates D.C. Code § 26-1023(c), which provides that “[a]ny person who engages in the business of money transmission without a license as provided herein shall be guilty of a felony and, on conviction thereof, shall be fined not more than $25,000, or imprisoned for not more than 5 years, or both.”
Defendant has now moved to dismiss Counts Two and Three of the indictment, which motion, following a motion hearing on July 15, 2020, is ripe for resolution. [5] defendant conceded that, if Count Two survives this motion to dismiss, the motion for release of funds “should be denied.” Rough Release Hr’g Tr. (July 21, 2020) at 5:1–2. In light of that concession, the pending request for release of funds is denied.
Concession aside, the request would still be denied. Following the parties’ stipulation that defendant lacks
enough funds to retain counsel of his choice,
see
Joint Stip. Regarding Mots. Hr’g and Evidentiary Hr’g, ECF No.
54, an evidentiary hearing was held on the links between the seized bitcoin and the conduct charged in Count One,
see United States v. Emor
,
Defendant maintains that only those commissions or fees shown to be from narcotics transactions are
forfeitable.
See
Def.’s Reply in Supp. Mot. for Release of Funds at 7–8, ECF No. 50;
see id.
at 8 (citing
United
States v. Hodge
,
II. LEGAL STANDARD
“[A] court’s use of its supervisory power to dismiss an indictment directly encroaches
upon the fundamental role of the grand jury,” so “dismissal is granted only in unusual
circumstances.”
United States v. Ballestas
,
An indictment’s primary purpose is “to inform the defendant of the nature of the
accusation against him.”
Russell v. United States
,
When considering a motion to dismiss for failure to state an offense, “the court is bound
by the language of the indictment.”
United States v. Hitt
,
III. DISCUSSION
Defendant’s motion to dismiss raises two arguments of first impression: that “bitcoin is not money” under the MTA, see Def.’s Mem. at 2 (capitalization altered), and that Helix, as a bitcoin tumbler, “was not a ‘money transmitting business’ under 18 U.S.C. § 1960,” id. at 4. The first argument is primarily an attack on Count Three and the second argument targets Count Two.
Taking the first question first: the MTA never defines “money.” When a statute does not supply a definition, a court generally gives a statutory term its ordinary meaning. The term “money,” as detailed below, commonly means a medium of exchange, method of payment, or store of value. Bitcoin is these things. Indeed, defendant never disputes that bitcoin is money as that term is ordinarily used, and he concedes that bitcoin is a form of currency, see Def.’s Mem. at 1–2, that bitcoins qualify as funds, see Def.’s Reply Supp. Mot. to Dismiss (“Def.’s Reply”), at 7, ECF No. 49, and that bitcoin is a medium of exchange, see Rough Hr’g Tr. (July 15, 2020) (“Rough MTD H’rg Tr.”) at 10:22–23. Yet, instead of applying the ordinary definition of money, seeing no definition in the MTA, defendant would import the District’s adoption of the Uniform Commercial Code’s (UCC) definition of money: “a medium of exchange currently authorized or adopted by a domestic or foreign government.” See Def.’s Mem. at 1 (quoting D.C. Code § 28:1-201(b)(24)). Conventional tools of statutory interpretation — text, structure, history, and purpose — point away from defendant’s view and toward the conclusion that the MTA adopts the ordinary definition of money, which encompasses bitcoin. Given that bitcoin qualifies as money under the MTA, Helix was in the business of money transmission for purposes of the MTA. As a result, defendant’s motion to dismiss will be denied as to Count Three.
The second question relates to Count Two, which charges that defendant violated § 1960 in three ways: (1) by failing to comply with the District’s money transmitter requirements, see 18 U.S.C. § 1960(b)(1)(A); (2) by “fail[ing] to comply with the money transmitting business registration requirements under” 31 U.S.C. § 5330 of the BSA, or “regulations prescribed under such section,” see id. § 1960(b)(1)(B); and (3) by otherwise transmitting illegal funds, see id. § 1960(b)(1)(C); see also Indictment ¶ 18. Defendant challenges the first and second parts of Count Two but not the third, and his challenge to the first part is identical to his attack on Count Three, and fails for the same reasons. Defendant argues that the second part of Count Two fails to state an offense because an “unlicensed money transmitting business” under 18 U.S.C. § 1960(b)(1)(B) must transmit funds from one person or location to another person or location but “the Indictment fails to allege that Helix did anything other than provide bitcoin back to the user from whom it was sent.” Def.’s Reply at 2. Helix’s business, though, was receiving bitcoin to send to another location or person in order to mask the original source of the bitcoin. Under the relevant authorities, that qualifies as money transmission. Count Two will not be dismissed.
A. Bitcoin Is Money under the District’s Money Transmitters Act Count Three charges a violation of D.C. Code § 26-1023(c), which criminalizes engaging in money transmission in the District without a license. Indictment ¶ 19–20 (citing D.C. Code § 26-1023(c)). The MTA, which contains § 26-1023(c) and the District’s licensing requirements for money transmitting businesses, defines money transmission as “engaging in the business of receiving money for transmission or transmitting money within the United States, or to locations abroad, by any and all means, including but not limited to payment instrument, wire, facsimile, or electronic transfer.” D.C. Code § 26-1001(10). The MTA does not, however, define money. See generally id. § 26-1001 (“Definitions”).
1. The Ordinary Meaning of Money Covers Bitcoin and the MTA Adopts That Ordinary Meaning
Where a statute does not define a term, courts “look first to the word’s ordinary
meaning.”
Mohamad v. Palestinian Auth.
,
Bitcoin is just that — a medium of exchange, method of payment, and store of value.
See, e.g.
, Robert C. Hockett & Saule T. Omarova,
The Finance Franchise
, 102 C ORNELL L. R EV .
1143, 1208 (2017) (defining “bitcoins, electronic tokens or bits of data, as a means of payment
and exchange similar to regular currencies”); Internal Revenue Service,
IRS Virtual Currency
Guidance Notice 2014-21
, 2014-
Other federal courts have similarly concluded that bitcoin qualifies as money under these
ordinary definitions.
See Faiella
,
Faced with this overwhelming authority, defendant, unsurprisingly, concedes that bitcoin
is a medium of exchange,
see
Rough MTD Hr’g Tr. at 10:22–23, that bitcoin qualifies as funds,
see
Def.’s Reply at 7, and that bitcoin is a form of currency,
see
Def.’s Mem. at 1–2. Indeed,
defendant’s own cited authorities repeatedly describe bitcoin as a “currency,”
United States v.
Ulbricht
,
Defendant maintains that the ordinary meaning of money is supplanted here by a
specialized definition of money located in Title 28 of the D.C. Code, which is where the District
codified the UCC.
See
D.C. Code § 28:1-101(a) (“This subtitle may be cited as the ‘Uniform
Commercial Code.’”);
Heller v. Buchbinder
,
Clues in the MTA indicate that the D.C. Council intended for money to be given its
ordinary meaning, not a specialized one. To start, the breadth of the MTA’s definition of money
transmission suggests that the goal is to regulate not just traditional transfers of fiat currency but
all kinds of transfers of funds. That definition covers “receiving money for transmission” or
“transmitting money” “by any and all means, including but not limited to payment instrument,
wire, facsimile, or electronic transfer.” D.C. Code § 26-1001(10).
United States v. E-Gold, Ltd.
relied on similar textual breadth to conclude that the BSA’s definition of “money transmitting
business” covers virtual currency transmission.
In addition, the MTA does not define money but does define fifteen other terms “[f]or the purposes of this chapter,” including ones like “remit” that have ready common meanings. D.C. Code § 26-1001. Other chapters in Title 26 also include sections giving specialized meanings to terms (but never money), in those chapters. See, e.g. , D.C. Code § 26-301 (defining terms “for purposes of” the chapter on check cashers); id. § 26-631 (defining terms “for purposes of” the chapter on international banking). That the D.C. Council chose to give some banking and financial terms specialized definitions but left money undefined signals that the D.C. Council did not intend for money to have a specialized definition for purposes of the MTA. Put differently, if the D.C. Council had wanted to give money a specialized definition for purposes of the MTA, such a specialized definition could have been provided or cross-referenced.
Defendant resists this inference, insisting instead that, where a statute leaves a term
undefined, courts should assume that the legislative body intended to define that term as it is
defined elsewhere in the legal code. This version of the presumption of consistent usage,
sometimes called the whole code canon or rule,
see, e.g.
,
K.L.
,
Before addressing practice, though, the first problem with defendant’s whole code argument is that the definition of money he favors — the one from the UCC that turns on sovereign backing — is not the only definition of money in the D.C. Code. Title 15 of the D.C. Code’s Chapter on Uniform Foreign-Money Claims defines “money” more broadly than the definition provided in UCC’s title 28, as follows: “for the purposes of th[at] chapter,” as “a medium of exchange for the payment of obligations or a store of value authorized or adopted by a government or by an intergovernmental agreement.” D.C. Code § 15-901(7). Defendant offers no reason to favor importing in the MTA the UCC definition over the one in Title 15. The mere existence of multiple definitions of money in the D.C. Code undermines defendant’s unexplained assumption that the Title 28 definition must control across the whole code.
The second problem with defendant’s whole code argument is that the whole code rule
has recently been applied by the Supreme Court and the D.C. Court of Appeals only where the
statutory provisions were enacted very close in time.
See
Mendelson,
supra
, at 119 (concluding
this about the Supreme Court based on a comprehensive empirical survey of Supreme Court
cases since 2006).
[9]
In
Fadero v. United States
, the D.C. Court of Appeals explained that
“[w]here a particular term is used in different sections of the same statute, we assume that the
term will have a ‘consistent definition,’” and extended “that . . . same interpretive principle” to
cases where “two amendments to similar statutes . . . were enacted by the Council in the same
bill containing (at the time) the only two appearances of the” relevant “phrase.” 59 A.3d at
1250–51 (footnotes omitted) (quoting
Carey
,
Features of the UCC other than its date of enactment confirm that the UCC’s definition of money should not supersede that term’s ordinary meaning for purposes of the MTA. The text of the UCC’s general definitions section, which contains defendant’s favored definition of money, states that the “words or phrases defined in this section,” apply “[u]nless the context otherwise requires,” D.C. Code. § 28:1-201(a), and the editor’s notes explain that “[t]he reference . . . to the ‘context’ is intended to refer to the context in which the defined term is used in the Uniform Commercial Code,” Editor’s Notes to § 28:1-201. A leading treatise reads this language as a rule that the UCC’s definitions “only apply with respect to transactions covered by the UCC.” Lawrence’s Anderson on the Uniform Commercial Code § 1-103:81 [Rev] (3d. ed. 2019 Update). [10] At the very least, the text of the UCC urges attention to “context” before applying UCC definitions, a caution that should especially apply outside that law. D.C. Code. § 28:1- 201(a).
Differences in the purposes and objects of the UCC and MTA counsel against applying
the UCC definition in the MTA context. Contrast the two laws: The UCC generally governs
commercial transactions between private parties. Among the law’s stated “purposes” are “[t]o
simplify, clarify, and modernize the law governing commercial transactions” and “[t]o make
uniform the law among the various jurisdictions.” D.C. Code § 28-103. Meanwhile, the MTA
establishes a regulatory and licensing scheme for money transmitters, and its purposes, discussed
further below, are consumer protection and ensuring the stability of money transmitting
businesses.
See infra
Part II.A.3. Consistent with these purposes, the UCC contains no criminal
penalties, while the MTA does. The UCC thus aims to lay down uniform rules for private
parties’ commercial transactions, while the MTA uses licensing requirements and other tools —
including criminal penalties — to regulate a type of business.
Cf.
Sarah Jane Hughes & Stephen
T. Middlebrook,
Advancing A Framework for Regulating Cryptocurrency Payments
Intermediaries
, 32 Y ALE J. ON R EG . 495, 502 (2015) (describing the UCC as a form of regulation
that “serve[s] private-law purposes by, for example, establishing default rules among
counterparties to certain kinds of transactions” and contrasting this with forms of regulation “for
primarily public-law purposes such as collecting taxes or deterring money laundering” or for
“market-enhancing” purposes). The laws thus have different purposes and objects, even if they,
in part, touch on and regulate a similar subject matter — money.
Cf. Burney v. Thorn Americas,
Inc.,
Tellingly, defendant does not attempt to argue that previous courts have applied the
UCC’s definition of money to clarify substantive criminal law.
[11]
When other courts have
referred to the UCC’s definition of money in non-UCC cases, they have done so in commercial
settings: bankruptcy suits,
e.g.
,
In re Tusa-Expo Holdings, Inc.,
2. The MTA’s History Supports Construction Encompassing Transmission of Bitcoin
Defendant argues that both past practice and the legislative history of the MTA support his reading. He misreads both. Consequently, neither changes the conclusion already reached: that the MTA adopts the ordinary definition of money, which encompasses bitcoin.
a) Past Practice under the MTA In support of his narrower construction of the MTA, defendant asserts that the District has, in practice, left bitcoin unregulated. He cites to a webpage about virtual currency published in 2014 by the District’s Department of Insurance, Currency, and Banking (DISB), which is charged with enforcing the MTA. See D.C. Code § 26-1002(a); see also D.C. Reg. § 26-C2299. This webpage states: “Until this form of currency is regulated, D.C. residents should be aware of the increased risks.” See Def.’s Mem. at 3 (quoting D.C. Dep’t of Insurance, Securities, and Banking, What you Should Know About Bitcoin and Other Virtual Currencies (July 11, 2014), https://disb.dc.gov/sites/default/files/dc/sites/disb/page_content/attachments/DISBConsumerGui deVirtualCurrency%202018.pdf). [12] Based on this isolated quotation, defendant concludes that “for now, and in 2017,” the sending and receiving of bitcoin “is and was unregulated.” Def.’s Reply at 3. This DISB webpage cannot bear the weight defendant places on it. The page’s purpose is to alert consumers that virtual currency poses risks that traditional currency does not. Given that audience and purpose, DISB’s statement that bitcoin is not yet “regulated” is neither an official interpretation of the law nor, as it turns out, a precise description of past practice.
In reality, past practice cuts against defendant’s reading of the MTA. Five virtual currency companies have obtained money transmitter licenses from DISB. The granting of these licenses — to BitPay (MTR 1496848), Circle (MTR 1201441), Coinbase (MTR1163082), CoinList (MTR1785267), TZero Crypto (MTR1749137) — belies the contention that the District does not consider bitcoin a form of money that can be regulated under D.C. law. See N ATIONWIDE M ULTISTATE L ICENSING S YSTEM : C ONSUMER A CCESS , https://www.nmlsconsumeraccess.org/ (containing listings of these registrations). [13] In addition, that virtual currency companies have sought licenses in the District signals awareness among those companies that the District’s MTA reaches virtual currency. That Coinbase and Circle both obtained licenses in 2015 further evinces that companies have been so aware over the period that Helix was operating. See id .
In addition, as the government notes, this is not the first prosecution applying the MTA to virtual currency. In E-Gold , defendants who operated a business that exchanged traditional currency for bitcoin were charged with violations of the MTA, among other offenses. Two defendants pled guilty to the D.C. charge alone. See United States v. E-Gold, Ltd. , No. 07-cr- 109, ECF Nos. 130 (Plea Agreement of R. Jackson); 142 (Plea Agreement of B. Downey).
An isolated statement on a webpage geared toward consumers cannot overcome this evidence that, in practice, virtual currency businesses have been regulated under the MTA.
b) Legislative History of the MTA Relying on definitions of “money transmission” in two other states, defendant suggests that, if the District wanted virtual currency businesses to register as money transmitters, the D.C. Council would “do what other states have done: amend” the MTA “to include not just ‘money’ but also ‘monetary value’ within its reach.” Def.’s Mem. at 4; see id. at 3 n. 1 (citing N.C. Gen. Stat. § 53-208.42(13) (including within anti-money laundering statute’s definition of “money transmission” not only “money” but also “monetary value”); S.C. Code § 35-11-105(9) (same)). Tracing the legislative history of the MTA, however, shows this assumption to be misguided.
The MTA, introduced in 1999 and enacted in 2000 in the District, “was adapted from a Model Legislative outline . . . prepared by the Money Transmitter Regulatory Association” in the early 1990s. Charlene Drew Jarvis, Chair, Committee on Economic Development, Bill 13-367: “Money Transmitters Act of 1999” , D.C. C OUNCIL at 3 (Jan. 20, 2000), https://lims.dccouncil.us/downloads/LIMS/7828/Committee_Report/B13-0367- COMMITTEEREPORT.pdf. [hereinafter, MTA Committee Report]. By contrast, the definitions of money transmission including the phrase “monetary value” cited by defendant come from an entirely different model law: the Uniform Money Services Act (UMSA). See Money Services Act , U NIFORM L AW C OMMISSION , https://www.uniformlaws.org/committees/community- home?communitykey=cf8b649a-114c-4bc9-8937-c4ee17148a1b&tab=groupdetails (listing North and South Carolina as states that have enacted this act); see also Nat’l Conf. of Commissioners on Uniform State Laws, Uniform Money Services Act at 15–16 (Last Revised or Amended in 2004) [hereinafter, UMSA (2004 draft)] (including those transmitting “monetary value” in the definition of money transmission and defining “monetary value” as “a medium of exchange, whether or not redeemable in money.”). That Uniform law, first drafted in 1998, drew on the earlier Model Legislative outline but also on other sources. See id. at 30, 31, 35 (relying on this outline); see also Committee Archive – Money Services Act , U NIFORM L AW C OMMISSION , https://www.uniformlaws.org/committees/community-
home/librarydocuments/viewdocument?DocumentKey=e5c71a1e-9208-4012-94d5- 2b8ba166e134 (containing a draft from 1998). Defendant is correct that the UMSA included the term “monetary value” in its definition of money transmission to ensure that businesses sending and receiving emerging forms of e-payment would be regulated as money transmitters. See UMSA (2004 draft) at 19–21. The D.C. Council’s choice not to enact the UMSA’s language, which was in its early stages of development in 1999 when the MTA was introduced, does not, however, evince an intent by the D.C. Council to do the opposite — that is, to exclude businesses sending and receiving emerging forms of e-payment from regulation as money transmitters. Rather, the District’s decision to adopt the Model Legislative outline rather than the UMSA could have been an accident of timing or even a considered decision to enact a simpler regime — one that does not adopt a specialized definition of either money or monetary value.
Indeed, defendant treads on dangerous ground in inferring anything about the scope of
one state’s law based on the omission of language included in another state’s law. Such negative
inferences about legislative intent are disfavored in evaluating acts of a single legislature, and
they must be even less reliable across legislative bodies.
See Lindh v. Murphy
,
Cross-state inferences might be particularly unreliable in areas like this one where state laws and regulations lack uniformity. See T HE V IRTUAL C URRENCY R EGULATORY R EVIEW (Michael S. Sackheim and Nathan A. Howell, eds., 2d ed. 2019) (noting the “existing patchwork of money service and money transmitter licensure laws, and other, sometimes ambiguous or duplicative, existing regulatory regimes that could be applied to [virtual currency business’] activities among the various states.”). Some states have enacted the UMSA. See Money Services Act , U NIFORM L AW C OMMISSION , https://www.uniformlaws.org/committees/community- home?communitykey=cf8b649a-114c-4bc9-8937-c4ee17148a1b&tab=groupdetails (displaying these states). Some states have unique language in their money transmitter laws identifying virtual currency transmitters as regulated businesses. See , e.g. , Ala. Code § 8-7A-2(8) (defining “monetary value” as “[a] medium of exchange, including virtual or fiat currencies, whether or not redeemable in money”). Still others like, Colorado, explicitly include certain virtual currency businesses through regulatory guidance. See Colo. Dep’t of Regulatory Agencies, Div. of Banking, ‘Interim Regulatory Guidance Cryptocurrency and the Colorado Money Transmitters Act’ (Sept. 20, 2018) (including virtual currency exchangers that exchange cryptocurrency for fiat currency). New York even has a virtual currency–specific licensing regime. See N.Y. Comp. Codes R. & Regs. tit. 23, § 200.3 (requiring what is colloquially called a “BitLicense” for virtual currency business activities). At first glance, these examples might seem to support defendant’s inference that the District’s silence on the inclusion of virtual currency is evidence of intent not to regulate virtual currency. These examples, however, are washed out by others. As defendant points out, several states have explicitly exempted virtual currency from money transmission laws by regulation or statute. See Def.’s Not. of Supp. Authority (“Def.’s Not.”) at 2, ECF No. 57; see also e.g. , Wyo. Stat. Ann. § 40-22-104(a) (“This act shall not apply to: (vi) Buying, selling, issuing, or taking custody of payment instruments or stored value in the form of virtual currency or receiving virtual currency for transmission to a location within or outside the United States by any means.”); N.H. Rev. Stat. Ann. § 399- G:3(VI-a) (“The provisions of this chapter shall not apply to: (vi-a) Persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or receive convertible virtual currency for transmission to another location.”); Penn. Dep’t of Banking, Money Transmitter Act Guidance for Virtual Currency Businesses (Jan. 23, 2019) (noting that the Pennsylvania “MTA defines ‘money’ as ‘currency or legal tender or any other product that is generally recognized as a medium of exchange’ and concluding that “[v]irtual currency, including Bitcoin, is not considered ‘money’ under the MTA”). In this patchwork landscape, a state legislature’s failure to specify that virtual currency is money cannot be, and has not been, interpreted as a choice not to regulate virtual currency. See T HE V IRTUAL C URRENCY R EGULATORY R EVIEW , supra , at 354 (“At present, not every state has taken a position, either through legislation or the actions of a regulator, regarding the application of MTL statutes to virtual currencies. Most notably, [California] has indicated that it is reserving judgement regarding the potential application of the California [money transmitters] statute to many virtual currency activities and the necessity of obtaining a licen[s]e.”). This is particularly true for the District, which in practice, has evidenced the choice of licensing under the MTA virtual currency businesses. See supra Part III.A.(2)(a).
3. The Rule of Lenity Does Not Apply
Finally, defendant invokes the principle that any “ambiguity concerning the ambit of
criminal statutes should be resolved in favor of lenity.” Def.’s Mem. at 4 (quoting
Skilling v.
United States
,
Available evidence about the MTA’s purposes provides further confirmation that the D.C. Council intended that the law reach a broad range of non-bank transmission services. The D.C. Council repealed a 1978 law that “applie[d] only to issuers of money orders” in favor of the MTA, which was billed as “a comprehensive licensing and regulatory system to oversee the non- bank money transmission industry.” MTA Committee Report at 7, 10. In requesting that the MTA be enacted, the District’s mayor expressed concern about the recent proliferation of novel and varied forms of non-bank money transmission services and observed that the MTA would “provide safety and soundness protection for the many District of Columbia residents who use” such services. Letter from Anthony A. Williams, Mayor, D.C., to Linda W. Cropp, Chairman, Council of the D.C. (Sept. 1, 1999), reprinted in B13-0367 Introduction 1, https://lims.dccouncil.us/downloads/LIMS/7828/Introduction/B13-0367-Introduction.pdf (discussing examples, including “foreign currency denominated checks; the issuance of travelers checks; and the domestic and foreign transfer of funds by wire and payment orders”). This evidence of concern with ensuring the safety and soundness of new and non-traditional non-bank money transmitters is consistent with the conclusion that the MTA regulates transmitters of bitcoin.
The text, structure, history, and purpose of the MTA show that the MTA adopts the
ordinary definition of money, which encompasses bitcoin. Defendant’s arguments do not render
the MTA ambiguous enough to trigger the rule of lenity.
United States v. Burwell
,
* * *
In sum, because bitcoin qualifies as money under the MTA, defendant’s motion to dismiss Count Three is denied.
B. Helix Was an “Unlicensed Money Transmitting Business” under 18 U.S.C. § 1960(b)(1)(B)
Defendant next argues that Count Two fails to state an offense. Recall that Count Two tracks the subparagraphs of § 1960(b)(1), charging that defendant violated § 1960 in three ways: (1) by failing to comply with the District’s money transmitter requirements, see 18 U.S.C. § 1960(b)(1)(A); (2) by “fail[ing] to comply with the money transmitting business registration requirements under” 31 U.S.C. § 5330 of the BSA, or “regulations prescribed under such section,” see id. § 1960(b)(1)(B); and (3) by otherwise transmitting illegal funds, see id. § 1960(b)(1)(C); see also Indictment ¶ 18. Defendant challenges the first and second parts of Count Two but not the third. See Gov’t’s Opp’n to Def.’s Mot. to Dismiss (“Gov’t’s Opp’n”), at 28, ECF No. 39 (noting this and arguing that this “undisputed portion of the Indictment charging violation of 18 U.S.C. § 1960(b)(1)(C) cannot be dismissed”). He insists that, if his challenges succeed, Count Two cannot stand on the third part alone. See Def.’s Reply at 4–5. The basis for defendant’s argument is that Count Two uses the conjunctive “and” to join the three parts, stating that defendant failed to comply with the District’s MTA and failed to comply with the BSA’s registration requirements and otherwise transmitted illegal funds. See Indictment ¶ 18. Defendant reasons that, given Count Two’s use of “and,” if the indictment fails to state an offense as to any one of Count Two’s three portions, then all three parts of Count Two must fall. See Def.’s Reply at 4–5.
Defendant’s argument turns the notice requirements for indictments on their head.
Where, as here, Congress has provided alternative means of committing a crime,
see
18 U.S.C.
§ 1960(b)(1) (separating these aspects of the definition of “unlicensed money laundering
business” with an “or”), “[t]he correct method of pleading alternative means of committing” that
crime “is to allege the means in the conjunctive,”
United States v. Lemire
,
In short, although Count Two alleges the three means of violating § 1960(b)(1) in the conjunctive to give defendant full notice of the offenses charged, those three parts of Count Two need not rise and fall together, either in the indictment or at trial. The government is therefore correct that, “ regardless of the Court’s decision on the instant motion to dismiss,” and because “the undisputed portion of the Indictment charging violation of 18 U.S.C. § 1960(b)(1)(C) cannot be dismissed, . . . . Count Two (and its associated forfeiture authorities)” may “stand” on the third part of Count Two. Gov’t’s Opp’n at 28 (emphasis in original).
Nevertheless, for clarity as to what the government may seek to prove in this case, defendant’s challenges to the first and second parts of Count Two are considered, and rejected. Defendant’s challenge to the first, state law–related portion of the charge is identical to his attack on Count Three and is unsuccessful for the reasons already articulated. See supra Part II.A. As to the second part of Count Two, defendant argues that Helix, as described in the Indictment, was not an “unlicensed money transmitting business” under 18 U.S.C. § 1960(b)(1)(B) “because the Indictment fails to allege that Helix did anything other than provide bitcoin back to the user from whom it was sent.” Def.’s Reply at 2. For the reasons below, Helix, as described in the indictment, satisfies the definition of “unlicensed money transmitting business” at § 1960(b)(1)(B) because Helix’s core business was receiving customers’ bitcoin and transmitting that bitcoin to another location or person.
1. Relevant Meaning of “Unlicensed Money Transmitting Business” Section 1960 defines the terms “unlicensed money transmitting business,” 18 U.S.C.
§ 1960(b)(1), and “money transmitting,” id . § 1960(b)(2), but does not define “money transmitting business,” see, e.g. , United States v. Bah , No. 06-cr-0243 (LAK), 2007 WL 1032260, at *1 (S.D.N.Y. Mar. 30, 2007) (noting that § 1960 has “somewhat peculiar terms”). The term “unlicensed money transmitting business” is defined in § 1960(b)(1), in the three ways already discussed: (1) operation without complying with state law money transmitting requirements, id. § 1960(b)(1)(A); (2) “fail[ure] to comply with the money transmitting business registration requirements under” 31 U.S.C. § 5330 of the BSA, or “regulations prescribed under such section,” see id. § 1960(b)(1)(B); or (3) otherwise transmitting or transporting illegal funds, see id. § 1960(b)(1)(C). “[M]oney transmitting,” meanwhile, is broadly defined at § 1960(b)(2) as “includ[ing] transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier.” Id . § 1960(b)(2).
In interpreting the second prong of § 1960(b)(1)’s definition of “unlicensed money
transmitting business,” courts have held that “there is virtually no substantive difference, nor did
Congress intend there to be a substantive difference, between the terms ‘money transmitting’ in
Section 1960 and ‘money transmitting business’ in Section 5330.”
E-Gold
, 550 F. Supp. 3d at
92 n.10;
cf. United States v. Budovsky
, No. 13-cr-368 (DLC),
§ 1960(b)(1)(B).”). Thus, for purposes of resolving defendant’s second argument, the parties focus on the definition of “money transmitting business” in the BSA, along with the definition of “money transmitter” in the BSA’s regulations. See Def.’s Mem. at 5 (citing regulations promulgated under the BSA to define the term); Def.’s Reply at 5–8 (discussing that regulation, FinCEN guidance about the BSA, and § 5330); Gov’t’s Opp’n at 16–19 (arguing that Helix falls under § 1960(b)(1)(B) because it was a “money transmitting business” as that term is defined in § 5330 and its regulations). [14]
Section 5330 of the BSA requires “[a]ny person who owns or controls a money transmitting business” to register the business and to comply with other requirements. 31 U.S.C. § 5530(a)(1). That provision defines “money transmitting business” as any business that:
provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers’ checks, and other similar instruments or 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.
31 U.S.C. § 5530(d)(1). [15]
Regulations promulgated under § 5330 require “money services businesses” (MSBs) to register with FinCEN. 31 C.F.R. § 1022.380(a)(1). Those regulations identify a category of MSBs called “[m]oney transmitter[s],” and defines money transmitter as follows:
(5) Money transmitter—
(i) In general.
(A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means . “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or (B) Any other person engaged in the transfer of funds.
31 C.F.R. § 1010.100(ff)(5)(1)(A) (emphasis added).
Interpreting these definitions of “money transmitting,” 18 U.S.C. § 1960(b)(2), “money transmitting business,” 31 U.S.C. § 5330(d)(1), and “money transmitter,” 31 C.F.R.
§ 1010.100(ff)(5), courts in other criminal cases have held that § 1960(b)(1)(B) reaches
unlicensed operations reaping a commission from exchanging traditional for digital currency,
see
Stetkiw
,
Defendant argues, relying on the text of the regulation defining “money transmitter[s],” that § 1960 “require[s] a money transmitting business to involve the transmission of money to a third party or location .” Def.’s Mem. at 5 (emphasis in original). The government maintains that the statutory definition in § 5330 “is not limited to transmission to ‘another location or person,’” Gov’t’s Opp’n at 18, and that Helix satisfied the statutory definition because it “engage[d] as a business in the transmission of funds” and “facilitate[ed] the transfer of money domestically or internationally outside of the conventional financial institutions system,” id. at 17 (quoting 31 U.S.C. § 5330). Transmit and transfer, the verbs in the statutory phrases the government emphasizes, both mean to convey to another person or place. See Transfer , O XFORD E NGLISH D ICTIONARY (3d ed. 2002) (“The act of transferring or fact of being transferred; conveyance or removal from one place, person, etc. to another; transference; transmission.”); Transmit , O XFORD E NGLISH D ICTIONARY (3d ed. 2002) (“To cause (a thing) to pass, go, or be conveyed to another person, place, or thing; to send across an intervening space; to convey, transfer.”); Transmit , M ERRIAM -W EBSTER O NLINE , https://www.merriam- webster.com/dictionary/transmit (“[T]o send or convey from one person or place to another.”); Transfer , M ERRIAM -W EBSTER O NLINE , https://www.merriam-webster.com/dictionary/transfer (“[T]o convey from one person, place, or situation to another.”). Thus, both the statutory and regulatory language of § 5330 seemingly require a money transmitting business to move funds from one person or place to another. See Bank Secrecy Act Regulations; Definitions and Other Regulations Relating to Money Services Businesses , 76 Fed. Reg. 43585, 43592 (July 21, 2011) (observing that although the phrase “to another location or person” “is not in the statutory definition of money transmitting service, it is implicit in the statutory definition's use of the word ‘transmitting’”).
In any event, the parties agree that if the indictment properly alleges that Helix qualified as a “money transmitter” under the BSA’s regulations, then the indictment states a violation of § 1960(b)(1)(B). [16] As described in the indictment, Helix did qualify as a “money transmitter.”
2. Helix, as Described in the Indictment, Moved Money from One Person or Place to Another
The indictment alleges that “Helix enabled customers, for a fee, to send bitcoins to
designated recipients in a manner which was designed to conceal and obfuscate the source or
owner of the bitcoins.” Indictment ¶ 4. For example, the indictment continues, in November
2016, an FBI employee “transferred 0.16 bitcoin from an AlphaBay wallet to Helix. Helix then
exchanged the bitcoin for an equivalent amount of bitcoin, less a 2.5 percent fee, which was not
directly traceable to AlphaBay.”
Id.
¶ 7. All told, the indictment alleges, between 2014 and
2017, “Helix exchanged at least approximately 354,468 bitcoins — the equivalent of
approximately $311 million in U.S. dollars at the time of the transactions — on behalf of its
customers,” with “[t]he largest volume of funds . . . c[o]m[ing] from Darknet markets selling
illegal goods and services, including AlphaBay, Agora Market, Nucleus, and Dream Market, and
other Darknet markets.”
Id.
¶ 8. These allegations, combined with the language of Count Two
“set[ting] forth the offense in the words of the statute itself,” properly allege a violation of
§ 1960(b)(1)(B).
Hamling
,
Helix, according to the indictment, mixed or tumbled bitcoins by transferring bitcoins from one person or location to another. A Helix customer, like the FBI employee, would send bitcoin to addresses controlled by Helix. Helix would then remit cleaned bitcoin — that is, bitcoin that “have never been to the darknet before,” Indictment ¶ 5 — to an address or addresses designated by the customer. These transactions might also occur in the reverse — from a clean address to a Darknet address. Either way, one end of a Helix transaction, the indictment says, was often associated with a Darknet market, as in the FBI employee’s transaction, which sent bitcoin “from an AlphaBay wallet.” Id. ¶ 7. The other end, however, would typically be so associated. Considering that Helix’s alleged function, as advertised, was to clean bitcoin of links to such Darknet sites, common sense dictates that the typical customer did not use Helix to send bitcoin between Darknet markets. Instead, fairly read, the indictment indicates that the Helix usually sent bitcoin between an address associated with a Darknet market and a clean address, such as one associated with a mainstream exchange.
Transactions like these represent movement of bitcoin between two parties or locations.
The FBI employee’s transaction illustrates: The “administrator of AlphaBay,” referenced in the
indictment,
id.
¶ 15, had some control over “AlphaBay wallet[s],”
id.
¶ 7;
see also
Rough
Release Hr’g Tr. at 39:1–2 (testifying agent describing market wallets as “the custodial wallets
of those markets”);
Faiella
,
Defendant mounts two counterarguments to this reading of the indictment, but neither succeeds. First, defendant resists the conclusion that the indictment alleges transmission between parties. He dismisses the allegation that Helix “enabled” customers to send bitcoins to any “designated recipients,” id. ¶ 4, because “[w]hat Helix enabled is not the same as what it did,” Def.’s Reply at 6. He reads the indictment to allege that the “FBI agent sent bitcoin to himself,” id. , as if using “a billbreak machine, in which a user inserts, for instance, a $100 bill and in return gets back” bills in different denominations, id. at 7.
Fairly read, though, the indictment alleges both that Helix enabled transmission of — and
that it did transmit — bitcoin between parties. As already illustrated, the FBI employee’s
transaction started at an address controlled by or associated with a Darknet market and ended at a
clean address controlled by a mainstream exchange or by the FBI employee. In such a
transaction, and in its reverse — where bitcoin flows through Helix from a customer or
mainstream exchange to a Darknet market — the customer is not necessarily sending bitcoin to
himself. As noted, a customer’s account on a Darknet market is typically controlled in part by
the market’s administrator, “similar to an E-Bay account.” Rough Release Hr’g Tr. at 39:4–5.
Consequently, other courts, as early as 2014, have held that transmission between a customer and
that customer’s account on a Darknet market constitutes transmission from a customer to a
“third-party agent” — that is, the market.
Faiella
,
Moreover, here, the indictment alleges that Helix received bitcoin to be transmitted to
customers’ “designated recipients.” Indictment ¶ 4. This allegation fairly encompasses, for
example, transactions taking the form of a customer sending bitcoin from a mainstream exchange
through Helix to an address controlled by a Darknet market, with the aim of masking any links
between the customer’s mainstream exchange account and a Darknet purchase.
See
Gov’t’s
Opp’n at 25–27 (stating that “evidence at trial will show” that Helix was used to do this);
cf.
Rough Release Hr’g Tr. at 50:9–51:22 (defendant’s counsel questioning government agent using
a hypothetical transaction in which counsel purchases shoes on a Darknet market by transmitting
bitcoin from Coinbase through Helix to the Darknet market). To see once again why this
qualifies as transmission between parties, compare such a transaction to a common type of
transaction by a virtual currency exchanger: An “exchanger accepts currency or its equivalent
from a user and privately credits the” user’s virtual currency account hosted by the exchanger.
Dep’t of the Treasury FinCEN Guidance,
Application of FinCEN’s Regulations to Persons
Administering, Exchanging, or Using Virtual Currencies
, FIN-2013-G001 at 4 (Mar. 18, 2013)
[hereinafter, 2013 FinCEN Guidance], https://www.fincen.gov/resources/statutes-
regulations/guidance/application-fincens-regulations-persons-administering. The exchanger then
“transmits that internally credited value to third parties” when the user so requests.
Id.
The 2013
FinCEN Guidance concluded that this activity “constitutes transmission to another person,
namely each third party to which transmissions are made at the user’s discretion.”
Id.
at 4–5.
Thus, reading the indictment fairly, and in light of the legal interpretations available while
defendant was operating Helix, the indictment alleges that Helix was in the business of
transmitting funds from one person to another — i.e., the customer and a designated recipient .
Cf. Hamling
,
Defendant’s claim that the indictment needs more “proof,” or that it must “point to” more
transactions or to more details about the example transaction therefore either misreads the
indictment or misconstrues the standard to which indictments are held.
See
Def.’s Reply at 6.
As already explained, “[t]o be sufficient under the Constitution, an indictment ‘need only inform
the defendant of the precise offense of which he is accused so that he may prepare his defense
and plead double jeopardy in any further prosecution for the same offense.’”
United States v.
Williamson
,
Second, defendant insists that the indictment fails to state an offense on the theory that Helix transferred bitcoin from one location to another. Indeed, he maintains that “where bitcoin is involved,” such a theory will always fail “because all bitcoin transfers take place in the same ‘location’ — the Bitcoin blockchain.” Def.’s Reply at 8. [17] He stressed this argument after the motions hearing in supplemental briefing, insisting that “[w]hen a bitcoin transaction happens, nothing moves anywhere.” Def.’s Supp. Mem. Re: Op. of Bitcoin Protocol at 3, ECF No. 55; id . at 2 (“[W]hen a user creates a transaction, nothing is sent anywhere.”); id . at 3 (“Whether explained in legal or technical terms, bitcoin transactions do not involve the transfer of funds from one location to another.”). Defendant’s view of bitcoin transactions rests on an overly narrow understanding of “location.” FinCEN has long considered transfers of funds from one unique account to another for the benefit of the same person, when the two accounts are subject to control or hosted by separate entities, to amount to a change of the funds’ location. See Dep’t of the Treasury FinCEN Guidance, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies , FIN-2019-G001 at 13–14 (May 9, 2019) [hereinafter, 2019 FinCEN Guidance] https://www.fincen.gov/sites/default/files/2019- 05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf (stating that “FinCEN interprets the term ‘another location’ broadly” to include “transmission from [a] person’s account at one location (e.g., a user’s real currency account at a bank) to the person’s CVC account with the exchanger”). Such a transfer of funds can occur on the Bitcoin blockchain.
To see further how, compare a Helix transaction to one by a traditional money transmitter like Western Union, which undoubtedly qualifies as a money transmission business under the BSA and as a money transmitter under the BSA’s regulations. These days, traditional money transmitters offer services allowing customers to move money easily between bank accounts. Such a service transmits funds from one location (bank account 1) to another (bank account 2), not by effecting a physical move, but as altering the records in the bank’s ledger system. In other words, in effectuating a transfer between two bank accounts, a money transmitter does not transport objects from one physical place to another but enters into a computer network a series of numeric or alphanumeric identifiers, such as account numbers and routing numbers. This information is sent between or within banks through secure communication networks. When the transfer is complete, movement of funds from one account to another is reflected in changes to the ledger or ledgers of the bank or banks involved. Transferring funds from one bitcoin address to another is as much a transmission between locations. Bitcoins are virtual — they exist only as entries in the Bitcoin network’s ledger, the blockchain. Moving bitcoins from one address to another requires announcing to a computer network, in a standardized format, alphanumeric identifiers like the originating and terminating addresses and the public key. When the transfer is complete, all that has changed is what address the bitcoin is associated with, and this change is reflected as an entry on the blockchain summarizing the transaction. To complete the picture, then, when Helix accepted bitcoins from the address where they were stored ( e.g., a mainstream exchanger) and transmitted those bitcoins to a designated address or addresses on a Darknet marketplace, for the benefit of the same person, that was transmission to a new location on the blockchain hosted by a different entity, just as a traditional money transmitter’s acceptance of funds from one bank account to send to another bank account is transmission to a new location. Compare, e.g. , How to send and receive cryptocurrency , C OINBASE , https://help.coinbase.com/en/coinbase/trading-and-funding/cryptocurrency-trading-pairs/how-to- send-and-receive-cryptocurrency.html, with , e.g. , What Information Do I Need To Send Money: Transfer to a Bank Account , W ESTERN U NION , https://wucare.westernunion.com/s/article/What- do-I-need-to-send-money?language=en_US#bankacc.
Defendant claims, vaguely, that this analogy is “inapt” because Bitcoin is decentralized — that is, its peer-to-peer network allows transfers without the need for intermediaries like banks or Western Union. Def.’s Reply at 7. True enough, but defendant never explains why this feature means that the Bitcoin blockchain is a single location rather than a record of all the locations — that is, the unique addresses — at which bitcoins are stored. [18] In any event, although the Bitcoin network can operate entirely peer-to-peer, it does not in practice, as the allegations in this indictment demonstrate. On the Bitcoin network, businesses like tumblers or exchangers facilitate transactions between people and hosts that would be difficult for individual users to do on their own.
This understanding of the Bitcoin network, and of the nature of the blockchain, is
reflected in FinCEN guidance dating back to 2013 interpreting the relevant regulations. The
2013 FinCEN Guidance explained that transmission between accounts still qualifies as transfer
between locations when one of the accounts is a virtual currency address. As FinCEN explained,
one form of virtual currency exchanger “accepts real currency or its equivalent from a user . . .
and transmits the value of that real currency to fund the user’s . . . virtual currency account”
hosted by the exchange. 2013 FinCEN Guidance at 4. Over a decade ago,
E-Gold
held that
exchangers doing this qualify as money transmitting businesses under § 1960(b)(1)(B) because
they “transfer funds on behalf of the public.”
The 2019 Guidance went on to embrace this very comparison, concluding that certain “anonymizing services providers” like “mixers” or “tumblers” qualify as money transmitters for the same reasons. Id. at 19. “[A] person that” possesses “anonymity-enhanced” bitcoin and “uses [that] anonymity-enhanced” bitcoin “to pay for goods or services on his or her own behalf would not be a money transmitter under the BSA,” FinCEN stated. Id. at 21. “[T]he person will fall under the definition of money transmitter,” however, if he “uses” the anonymized bitcoin in his possession “to accept and transmit value from one person to another person or location.” Id. That is just what Helix did. Notably, the anonymizers FinCEN considered dealt only in virtual currencies, so, by accepting that an anonymizer could transmit value to another “location,” FinCEN’s analysis implicitly rejects defendant’s position that the Bitcoin blockchain is a single location such that transfer between addresses on the blockchain is not transmission between locations. FinCEN’s position is persuasive.
In sum, Helix, as described in the indictment, satisfies the definition of “unlicensed money transmitting business” at § 1960(b)(1)(B) because Helix’s core business was receiving bitcoin and transmitting that bitcoin to another location or person. As a result, defendant’s remaining challenge to Count Two is unsuccessful, and Count Two will not be dismissed.
IV. CONCLUSION
For the reasons given, the defendant’s motion to dismiss Counts Two and Three of the indictment is denied. In addition, his motion for release of 160 bitcoins seized by the government is denied.
An appropriate Order accompanies this Memorandum Opinion.
Date: July 24, 2020
__________________________ BERYL A. HOWELL Chief Judge
Notes
[1] Peer-to-peer “mean[s] that the computer servers, commonly called ‘nodes,’ that actively run” the Bitcoin network’s “open-source software are linked together.” Henry S. Zaytoun, Comment, Cyber Pickpockets: Blockchain, Cryptocurrency, and the Law of Theft , 97 N.C. L. R EV . 395, 403 (2019).
[2] Blockchain is a type of digital ledger. See Brittany Manchisi, What is Blockchain Technology? , B LOCKCHAIN P LUSE : IBM B LOCKCHAIN B LOG (July 31, 2018), https://www.ibm.com/blogs/blockchain/2018/07/what-is-blockchain-technology/; Bitcoin 101: What is Bitcoin? , C OIN D ESK (Jul. 6, 2020), http://coindesk.com/learn/bitcoin-101/what-is-bitcoin (calling the Bitcoin network “distributed ledger that maintains the balances of all token trading”).
[3] The indictment also includes a forfeiture allegation. See Indictment at 7–8.
[4] Federal courts do not have jurisdiction over local or state crimes, except in the District of Columbia. This
“troublesome anomaly among federal jurisdictional statutes” is a vestige of the time when the District lacked a
separate state court system.
United States v. Garnett
,
[5] Defendant has also moved for release of funds needed to secure counsel or for a hearing. He seeks the release of 160 bitcoins seized by the government or, in the alternative, a hearing to determine whether probable cause exists to believe that the requested bitcoins are subject to forfeiture. See Def.’s Mot. for Release of Funds Needed to Secure Counsel or Alternative Mot. for a Hr’g (“Mot. for Release”), ECF No. 32. That motion challenges the traceability of the seized bitcoins to the offense alleged in Count One but “makes no arguments related to the traceability of assets to” Count Two. See id. at 7 n.7. At the hearing on this motion, held on July 21, 2020,
[6] Black’s Law Dictionary includes similar definitions of money, although the first definition of money given
there is the UCC definition favored by defendant.
See Money
, B LACK ’ S L AW D ICTIONARY (11th ed. 2019) (“1. The
medium of exchange authorized or adopted by a government as part of its currency; esp., domestic currency <coins
and currency are money>. UCC § 1-201(24). 2. Assets that can be easily converted to cash <demand deposits are
money>. 3. Capital that is invested or traded as a commodity <the money market> 4. (pl.) Funds; sums of money
<investment moneys>.”). Given that money is an “ordinary English word[] and should be given [its] ordinary
meaning[],” the dictionaries cited in the text are more relevant than B LACK ’ S “which would only be relevant if [the
legislature] intended that” money “be given [a] special meaning[] as [a] legal ‘term[] of art.’”
United States v.
Faiella
,
[7] Some economists have questioned bitcoin’s effectiveness or efficiency as a medium of exchange, a method of payment, and a store of value. See, e.g. , Bennet T. McCallum, The Bitcoin Revolution , 35 C ATO J. 347, 349 (2015) (noting that bitcoin is not “generally acceptable” and that “there are very few . . . basic payments” that most participants in the U.S. population can make with bitcoin). The instant concern, however, is whether bitcoin possesses the attributes of money not “ how well . . . bitcoin [has] served the function of ‘money.’” Lo & Wong, supra , at 3 (emphasis added).
[8] A single-by-analogy citation in defendant’s memorandum in support of his motion to dismiss suggests that
he may view the UCC definition of money and the ordinary definition as equivalent.
See
Def.’s Mot. at 3 (“That
‘money’ within the meaning of the D.C. Code is limited to that which is authorized or adopted by a government
could not be more plain.
Cf. Wis. Cent. Ltd. v. United States
,
[9] The Supreme Court has used statutory definitions enacted in different legislative sessions to confirm
interpretations already supported by other evidence.
See Buckeye Check Cashing, Inc. v. Cardegna
,
[10] The treatise adds that courts may still “mak[e] reference to the UCC definition when a non-UCC statute,
which lacks a definition, and the UCC are
in pari materia
.”
Id.
“Statutory provisions
in pari materia
relate to the
same subject matter or have the same purpose or object.”
Holt v. United States
,
[11] Indeed, in arguing that “courts look to UCC definitions in other contexts, despite the Government’s
insistence to the contrary,” Def.’s Reply at 3, the defendant cites only to
Algemene Bank Nederland v. Soysen Tarim
Urunleri Dis Ticaret Ve Sanayi, A.S.
, which did not involve the definition of money and which merely applied the
principles discussed in the previous paragraph, allowing that “analogies to the []UCC may be drawn” in adjacent
contexts.
[12] For the webpage version of this PDF, see What you Should Know About Bitcoin and Other Virtual Currencies , D.C. D EP ’ T OF I NSURANCE , S ECURITIES , AND B ANKING , https://disb.dc.gov/page/what-you-should- know-about-bitcoin-and-other-virtual-currencies.
[13] These businesses offer a variety of bitcoin-related services, including exchanging bitcoin and government- backed currencies, see Leading U.S. Cryptocurrency Marketplace Steps Up Efforts to Expand Business , CNBC. COM (Apr. 9, 2019), https://www.cnbc.com/2018/04/09/leading-us-cryptocurrency-marketplace-coinbase-steps-up- efforts-to-expand-business.html; hosting wallets, see Crypto App , TZ ERO , https://www.tzero.com/crypto-app (offering “an easy and secure crypto wallet and exchange service”); and even facilitating tax payments in bitcoin, see The Implications of Accepting Cryptocurrency for Tax Payments , A M . E NTER . I NST . (July 3, 2019), https://www.aei.org/technology-and-innovation/innovation/the-implications-of-accepting-cryptocurrency-for-tax- payments/.
[14] The parties suggest that the state law definitions of “money transmitting business” govern for purposes of § 960(b)(1)(A). The parties do not take explicit positions on what definition of “money transmitting business” governs the final prong of the definition of “unlicensed money transmitting business.”
[15] Defendant concedes that bitcoin amounts to “funds,” at least under 31 U.S.C. § 5330. See Def.’s Reply at 7 (“Mr. Harmon’s argument does not depend on the argument that bitcoins are not “funds” under § 5330. We agree that argument is foreclosed, and we have never made it.”).
[16] To be clear, the government concedes that alleging that Helix qualified as a “money transmitter” as defined
in the BSA’s regulations is sufficient to state a violation of § 1960(b)(1)(B).
See
Gov’t’s Opp’n at 16–19. The
government does not suggest that proving a violation of those regulations is necessary, maintaining, as already
explained, that a violation of § 1960(b)(1)(B) also occurs where an entity “fails to register as required under the
statutory text
of the BSA, 31 U.S.C. § 5330.” Gov’t’s Opp’n at 17 (emphasis in original). The Second Circuit has
suggested that a conviction under § 1960(b)(1)(B) survives a sufficiency challenge even where the government does
not prove at trial that the business qualified as a “money transmitting business” under the BSA or a “money
transmitter” under the regulations, as long the relevant business was engaged in “money transmitting” under
§ 1960’s separate definition of that term.
United States v. Mazza-Alaluf
,
[17] To be clear, defendant never disputes that bitcoin can be transferred from person to person in the way just discussed. To the contrary, in pressing his view about location and the blockchain, including in his last supplemental filing, defendant embraces descriptions of Bitcoin that emphasize that bitcoin can move between two parties — such as AlphaBay and an FBI employee. See, e.g. , Def.’s Not. at 2 (“[T]he right to a particular unit of digital currency is transferred from party to party by the use of unique cryptographic keys.” (quoting Ex. A, Def.’s Not., Dep’t of the Treasury Office of the Comptroller of the Currency, Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers , Interpretive Letter 1170 at 5 (July 22, 2020)).
[18] Indeed, blocks and transactions on the blockchain share a salient attribute of physical locations: just as physical locations have unique geographic coordinates, blocks appended to the “blockchain (including all of the transactions that were bundled up into that block) are subject to a specific mathematical algorithm that results in a unique ‘hash.’” The Blockchain: A Guide for Legal & Business Professionals § 1:2. Defendant recognized as much at the hearing on the motion for release of funds, stating that “each bitcoin is unique” because “there is a unique value for every transaction” of bitcoin “that is confirmed by the network.” Rough Release Hr’g Tr. at 10:4–10. “[E]very bitcoin stays unique,” he added, so “you can trace it through its history.” Id. at 10:16–17.
[19] Although the 2019 Guidance was published after Helix shut down, the Guidance is nonetheless helpful in interpreting FinCEN’s regulatory language and indeed, more generally, the meaning of terms like transmission and transfer in § 5330 of the BSA. As the Guidance notes, it “does not establish any new regulatory expectations or requirements” but instead “consolidates current FinCEN interpretations to other common business models involving [convertible virtual currency] engaging in the same underlying patterns of activity.” 2019 Guidance at 1.