Remember Ross Ulbricht? The alleged creator of the Silk Road has been facing numerous charges after his black market was taken down last year. After pleading not guilty to all charges in February, it seems he now received some help from a rather unexpected source.
In a motion filed over the past weekend, Ulbricht’s lawyer Joshua Dratel argued that all charges against his client should be dropped. Among these charges are conspiracy to traffic in narcotics, launder money, hacking and running a ‘continuing criminal enterprise’. The motion puts question marks behind every charge but what catches the eye is the answer to the money laundering charge.
As most people will know, the Silk Road operated solely through the use of Bitcoins. Several forbidden substances were for sale and payments were only accepted by using the virtual currency. As it happens, the IRS decided to take a stance on Bitcoin. We reported on its decision to view Bitcoin as a property, rather than a real currency. A ruling that caught Dratel’s ear. The lawyer argues that his client cannot have used Bitcoin for money laundering, because the IRS changed Bitcoin’s definition. It can no longer be treated as ‘money’, so how could Ulbricht have laundered it?
“Count Four, which charges Mr. Ulbricht with participating in a money laundering conspiracy must be dismissed because the allegation lacks an essential element: that the ‘financial transactions’ alleged involved ‘monetary instruments,’” the motion reads. “Bitcoins, the exclusive means of payment on Silk Road, do not qualify as ‘monetary instruments’ and, therefore, cannot serve as the basis for a money laundering violation.”
To illustrate his statement, Dratel cites both IRS and the U.S. Treasury’s Financial Crimes Enforcement Network’s statements about Bitcoin. He states that neither has defined Bitcoin as a monetary instrument. To clarify even further, he includes a New York Law Journal article from earlier this year. This article claims that current money laundering regulation can’t cover Bitcoins:
“Bitcoin reveals a potential gap in international enforcement regimes. While even the Southern District U.S. Attorney concedes that bitcoins are not inherently illegal, and the U.S. central bank and merchants worldwide have begun to conclude that they are an acceptable form of payment, the United States and other countries may well need to enact new laws against bitcoin laundering. Indeed, the U.S. money laundering statutes contain terms such as “monetary instrument” and “monetary transaction” that are defined as coin or currency of the U.S. or any other country. Thus, these terms arguably do not apply to bitcoins.”
Of course, Ulbricht is charged with more crimes than just money laundering. Dratel intends to fight those as well, seeking to have all charges against his client dropped. The lawyer says Ulbricht did not actively participate in any illegal activities that were conducted at the Silk Road. In fact, he can only be accused of hosting a platform where these things could take place. The criminal acts themselves were carried out by Silk Road’s users and Dratel claims his client can not be held responsible for that.
It’s unclear whether Dratel’s efforts will prove successful. The claim about money-laundering will probably gather the most attention. Bitcoin is in a difficult state right now, getting close to no support from most major countries. China cannot decide if it should ban cryptocurrencies or not and the U.S. thought it could restrain public interest by changing Bitcoin’s definition. It seems they forgot to think about all possible consequences. They are, unknowingly, helping someone they intended to use in order to shed a negative spotlight on virtual currencies. The court will, most likely, rule against Ulbricht. How they will make the money-laundering story stick, remains to be seen. Perhaps the IRS has a solution; they have been so creative lately…