28 May

Feds in NY charge 7 in $6B digital currency money-laundering case; Costa Rica, Spain arrests – The Washington Post

After the seizure of Mt. Gox’s Dwolla account, the federal government continues to pressure those who exchange and use virtual currencies, especially when the anonymity allows for money laundering.  Today, the government announced arrests and seizures of Liberty Reserve, a company that provided transfer and exchange service of virtual currencies, including Bitcoin.  News agencies describe Liberty Reserve as a favorite of cybercriminals due to lax anti-money laundering recordkeeping for customers.

Feds in NY charge 7 in $6B digital currency money-laundering case; Costa Rica, Spain arrests – The Washington Post.

Liberty Reserve Operators Accused of Money Laundering – NYTimes.com.

 

Update:  The sealed indictment can be found here.  The charges include Conspiracy to Commit Money Laundering and Conspiracy to Operate Unlicensed Money Transmitting Business.  The latter charge is the same that successfully brought down e-gold (referenced in the Liberty Reserve indictment), and which is being used as a basis for seizure of Mt. Gox accounts.

Liberty-Reserve-et-al.-Indictment

21 May

EFF to Accept Bitcoin Donations

Citing legal clarification from the recent FinCEN guidance, the Electronic Frontier Foundation has decided to accept Bitcoin donations, after a two-year hiatus from accepting donations in the digital currency.   According to the EFF “Both our internal research and the recent report by FinCEN have confirmed that, as a user of Bitcoin or any virtual currency, EFF itself is likely not subject to regulation.”

EFF has suggested that it will immediately convert Bitcoins to U.S. dollars to fund its ongoing projects.  The immediate conversion to dollars for EFF mirrors the concern that businesses would have that extreme volatility in the BTC-USD exchange rate could have impacts on budgeting and ability to carry on business.

EFF Will Accept Bitcoins to Support Digital Liberty | Electronic Frontier Foundation.

15 May

Developing: U.S. Government Seizes Mt. Gox’s Dwolla Account

Multiple sites are reporting that Dwolla has been served with legal process by the Department of Homeland Security (specifically Immigration and Customs Enforcement) to freeze transactions with Mt. Gox.

According to Ars Technica

“The Department of Homeland Security and US District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillum’s Dwolla account (a.k.a. Mt. Gox),” a Dwolla spokesperson told NYO’s BetaBeat. “Dwolla has ceased all account activities… for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillum’s balance, per the warrant.”

Homeland Security cuts off Dwolla bitcoin transfers | Politics and Law – CNET News.

A copy of the warrant was posted by Ars Technica:

It appears the accounts were seized because Mt. Gox did not register as a “money transmitter” — the same charge that brought down e-gold.   By coincidence, one of Bode & Grenier LLP’s attorneys was the lead prosecutor of the e-gold case.  It appears that some U.S.-based Bitcoin exchanges have, in fact, registered as money-transmitters, which would obviate seizure based on the money-transmitter registration requirement.  Whether the government attempts to attack Bitcoin with any other legal theories is an open question.

18 U.S.C. Section 1960 provides that “Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.”  While state requirements are incorporated into the federal requirement, the minimum registration requirements are in 31 USC Section 5330.  This requires registration of the name and location of the business, and each person who owns, controls, directs, or participates in the affairs of the business, the name and address of banks where they have accounts, an estimate of the volume of business, and other information.

09 May

WSJ on Bitcoin: Real Cash Means Regulation

The Wall Street Journal has a write-up of the recent spate of investments in Bitcoin-related startups, including recent ventures by Andreessen Horowitz.  The article also points to the looming regulation that is expected should Bitcoin continue to grow.  Already, one federal agency has weighed in on virtual currencies.  While end-users are not regulated by FinCEN, Bitcoin exchanges operating in the U.S. must be registered as money transmitters.  This registration is precisely what got those involved in e-gold into trouble in the mid-2000s.

Bitcoin Virtual Currency Start Up Gain New Venture Backers – WSJ.com.

03 May

CoinLab sues Mt. Gox

Mt. Gox has been sued by its U.S.-based partner, Seattle startup CoinLab, in federal court in Washington state.  The lawsuit seeks $75 million in damages for alleged breaches of contract relating to an agreement that CoinLab would provide digital currency exchange services within the United States to Mt. Gox.

Reuters article

Geekwire article

The Complaint (scribd)

As the value of Bitcoins continues to fluctuate (and at times remain very high), more lawsuits will certainly be filed.  Bitcoins are not only a big deal technologically, but the large dollar-value sums at stake mean litigation will certainly ensue.  If you believe you have a case involving Bitcoin, do not hesitate to contact us to discuss.