Previously we reported of the entrapment case of Michell Espinoza who was accused of operating an unlicensed MSB and money laundering for having sold bitcoin to undercover agents with fake criminal pretexts. The Circuit Court Judge Teresa Pooler decided on the case and rejected both counts. (Read Case here). The main implication of the case is the impact it will have on MSB state level licensing of bitcoin buyers/sellers in the State of Florida. Below we look at the two main accusations brought against the defendant and how they were dealt with by the Court.
‘Promoting illicit activity’ by selling bitcoin to someone who has a nefarious purpose?
It was claimed that Espinoza was aware the bitcoins purchased by the undercover agents would be purportedly used to buy stolen credit cards. Espinoza still went ahead with the transactions. However the offence in question was whether he had intent to “promote illicit activity” by selling bitcoin to someone with a nefarious purpose. The Court found that the statute was too vague to apply in this instance. The Judge considered that it is “unwilling to punish a man for selling his property to another, when his actions fall under a statute that is vaguely written that even legal professionals have difficulty finding a singular meaning”.
Selling bitcoins in Florida is not money transmission activities?
The Court decided that Espinoza was not engaged in money transmission as the “defendant’s actions do not meet the definition of “transmit””. Nor did the Court find that the defendant was selling a ‘payment instrument’ (another MSB licensable activity) as “Bitcoin does not fall under the statutory definition of “payment instrument””.
Also, for someone to be a money transmitter, according to the Court, they need to charge a “fee”. For the Court Espinoza didn’t charge a fee on the transaction, rather he earned a ‘profit’ on the trade (being the difference between how much he bought his bitcoins for and how much he sold them for).
Further, the Court thought if you are going to accuse someone of unlicensed money remittance services then, under the statute, ‘money’ must be involved: “a person may not engage in the business of a money services business” (section 560.125(1)). In this case the Court thought bitcoin wasn’t money.
In more detail, as the starting point, the Court stated that “Nothing in [its] frame of references allows [it] to accurately define or describe Bitcoin”. When it juxtaposed the concept of bitcoin with money it found that “Bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects”. Mainly the Court found that it was not commonly used as a medium of exchange; was exposed to high volatility so could not perform as a store of value and was a decentralised system.
It is not clear whether this Court case can be relied upon as a precedent in the State of Florida to exclude buyers and sellers on, for example, Local bitcoins from the remit of state MSB licensing in Florida, however, it should provide some support to the argument that the sale of bitcoin does not involve money transmission in the State of Florida. That said, all buyers/sellers should consider their federal obligations for registration with FinCEN.