May 5, 2017

Florida Lawmakers Seek to Bring Virtual Currency into the Fold

Ballard Spahr LLP

On Monday, the state of Florida moved a step closer towards amending its money laundering statute to include the nefarious use of bitcoin and other virtual currencies. The bill, H.B. 1379, has sailed through a committee vote and will now be presented to the floor. If the bill passes, it will serve, in pertinent part, to define bitcoin and “virtual currency” (“VC”) as “monetary instruments” within the meaning of the state’s money laundering statute; in the same vein, bitcoin will be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.”

The proposed amendments serve as a direct response to the dismissal last year of criminal charges against Miami-resident, Mitchell Espinoza. In that case, Espinoza had been under indictment for illegally transmitting and laundering $1,500 worth of bitcoin in order to acquire stolen credit-card numbers via the bitcoin exchange, In a widely-reported eight-page order, Judge Pooler reasoned that while bitcoin “may have some attributes in common with what we commonly refer to as money,” the currency’s limited acceptance and use of exchange, high volatility and lack of a central authority indicate that it does not represent “tangible wealth,” or money. In regard to the state’s money laundering and unlicensed money services statutes, “Bitcoin has a long way to go before it is the equivalent of money.”

Interestingly, H.B. 1379 reflects a growing trend in the U.S. to define VC’s legal status – that is, whether it should be treated as the functional equivalent of traditional fiat currency, or money. The issue is a particularly thorny one, in part because of the lack of existing general consensus. The IRS, for example, defines bitcoin as property; yet Judge Alison Nathan of the Southern District of New York recently held that bitcoin qualifies as “funds” for the purposes of 18 U.S.C. § 1960, which prohibits the operation of an unlicensed money transmitting business. The irony of potentially conflicting interpretations is not lost in regard to the Espinoza matter – as we recently noted, the owners and operators of were convicted in an unrelated matter for, inter alia, operating an unlicensed money service business in violation of Section 1960. However, in Espinoza, Judge Pooler noted that “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole.”

Given VC’s unsettled status to this point, it stands to reason that H.B. 1379 will be a welcome development in determining the extent to which traditional AML laws, regulations and definitions apply to the relativity nascent, yet increasingly popular technology.