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Warning: LocalBitcoins Sellers are Being Arrested for Money Laundering

Last Updated April 10, 2023 7:04 AM
Guest Writer
Last Updated April 10, 2023 7:04 AM

This just in from Krebs on Security , on Thursday the 6th of February, two Floridians have been arrested for breaking state level anti-money laundering laws in place in Florida.

Michael Espinoza, whom went by Michaelhack on Localbitcoins , and Pascal Reid, whom went by proy33 on Localbitcoins , were both arrested yesterday on anti-money laundering and unlicensed money transmitter charges.

Both individuals were arrested at meetings with undercover police officers whom had arranged to buy $30,000 worth of Bitcoins.  Notably, both instances involved $1,000 “trust establishing” buys by investigators before the “Bitcoin dealers” were brought down.

a screen shot of a web page with the words buy and sell bitcoins
If someone offers to buy $30,000 of Bitcoins… Be suspicious.

What laws were broken?

Chapter 560 Section 125  from Florida’s state statutes on regulation of trade, commerce, investment, and solicitations specifically prohibits non-licensed individuals or businesses to provide currency or payment instruments exceeding $300 but less than $20,000 in any 12-month period.


Chapter 896 Section 101, Florida’s Money Laundering Act , prohibits the trade or business in currency of more than $10,000.

Arguably, Florida has significantly more developed and nuanced anti-money laundering laws than found in other states.  In fact, a few states don’t even have MSB requirements or licenses beyond that required by the federal level.  For a more in-depth look at MSB regulations check out Adam Atlas Attorney at Law’s blog  detailing Bitcoin and Money Transmission Services’ relations.

It is worth noting that neither Michael Espinoza nor Pascal Reid are being brought up on drug related charges, only the two state level anti-money laundering laws.

As a continuation of the Vincente Loyola case

Long before the crackdown on Silk Road, another Floridian man by the name of Vincente Loyala was arrested for shipping over 1,000 grams of pure MDMA  from Canada to Florida.  He is currently serving a 12-month sentence for his drug related charges and is also being charged with anti-money laundering charges along with Reid and Espinoza.

I think it’s fairly obvious that Loyola had used Reid and Espinoza as a way to buy Bitcoins in the past.  However, specific mention of Silk Road is devoid in both the Loyola case and the current case.

Could all this have been avoided with proper encrypted communication techniques?

Future for Localbitcoin.com users in Florida and the rest of America

It is unclear if this is the end of Florida’s investigation into high volume Bitcoin dealers.  It is possible, especially given that the government now has control over Espinoza’s laptop, that they are targetting previous high volume Bitcoin buyers in Florida as well, as these individuals are likely to have been using Localbitcoins.com as a way to get Bitcoin in or out of Silk Road or a Silk Road inspired marketplace.

Nicholas Weaver, a researcher from UC Berkeley, believes that other states will soon follow Florida’s example.

If you are a high volume Bitcoin dealer, watch out!

Maybe you should consider selling to SecondMarket.