Bitcoin case in Florida court could lead to legislative action?

Rage Comment : The United States is a country that follows case law, but the Florida court dropped the charges against Bitcoin exchanges for suspected money laundering and illegal remittances. Because of its particularity, it cannot become a precedent for similar cases in the future. However, during the trial, the parties involved had great differences in the identification of the key elements of the case, which made the trial difficult and may push the state government to improve relevant legal provisions. And it is likely to consider the balance between supervision, consumer interests and technological development, and formulate more reasonable laws and regulations.

Translation: Annie_Xu

Michell Espinoza had a great Monday.

Michell Espinoza, the owner of a South Florida bitcoin exchange, was cleared of criminal money transmission and money laundering charges last Monday. He was convicted in 2014 for selling bitcoin to undercover law enforcement officers, and the potential applications of the case have put him in the spotlight again.

Michell Espinoza

The court used an eight-page draft opinion to discuss the applicability of money transmission and money laundering regulations to Bitcoin transactions, a first, and indicated it would review the legal definition of Bitcoin transactions.

All in all, Espinoza’s opinion may just kick off a policy debate on redefining cryptocurrencies within the Florida government, as his opinion provides a potentially controversial interpretation of the state’s money transmission regulations.

For example, the court held that the exchange of Bitcoin between private individuals for US dollars was not a three-party transaction, while remittances required a three-party transaction. However, it seemed that the conclusion had been determined, and the facts did not support the government's allegations; at this time, the court pointed out that Bitcoin is not "currency, value transfer or payment instrument."

Surprisingly, the court not only discussed the relevant issues but also reviewed the conclusions.

Case Studies

Although the court is not required to study the issue, many people support it making a definitive ruling.

The court could have looked to the SEC’s Shavers Rule, which defines Bitcoin as “a currency or form of money,” or it could have chosen to follow other federal precedents, such as the U.S. Ulbricht Rule, which states that cryptocurrency is equivalent to money.

Therefore, the court can easily determine that Bitcoin is "monetary value" and complies with Florida's money transmitter regulations.

However, the court chose to cite the IRS and classify cryptocurrencies as property. According to the final public statement of the Florida Office of Financial Regulation, the network of vending machines that sell Bitcoin does not involve money transmission.

The petitioners explained that bitcoin is "a unit of digital asset" and that their bitcoin vending machines do not engage in the remittance business described in this week's law.

The court therefore reached the same conclusion in Espinoza's case as the IRS and the above statement. Although there was evidence for both conclusions, the court chose to take the more liberal approach.

Impact Assessment

To be sure, this finding was based on an analysis of that state’s specific money transmission statutes.

The court’s analysis of the money laundering allegations in the case had nothing to do with the inherent properties of Bitcoin.

Instead, the court presumed that the exchange of bitcoins for legal tender without the use of U.S. dollars was a "financial transaction" under state law, which requires the party selling bitcoins to show that it concealed or disguised the nature, address, source, ownership, or control of the transaction, or had circumvented the transaction reporting requirements.

Therefore, the government must prove that Espinoza intended to participate in illegal activities with the buyers. Therefore, the court regarded Espinoza as a bank that dispensed cash from ATM machines, so how the users used the money had nothing to do with the bank, and the bank was not responsible because it could not prove that the bank had the intention to support illegal activities.

Therefore, this case mainly applies to a specific fact, that is, facts that can demonstrate the intention of the transaction parties, which may not have a high precedent value.

As Stephen Palley has said, although the legal conclusions in the Espinoza case have little precedential value, they can be reconsidered.

Even without citing Espinoza's conclusion, another Florida court might reach a different conclusion on the same facts, requiring the appellate court to intervene to resolve the conflict.

Pooler called directly on the state legislature to revisit the anti-money laundering law in the Espinoza case. Given the attention this case has received, the state legislature may decide to enact its own statewide cryptocurrency policy. One lawmaker has even indicated that he intends to do so.

The Espinoza case may lead to some changes in the state legislature’s review of Bitcoin legislation.

The Florida Legislature will likely consider the impact of cryptocurrencies, allowing the legislature to balance their innovative potential with their pitfalls, create jobs and wealth, and protect consumers without hindering experimentation and innovative exploration.