Wealth exchanged on the peer-to-peer Bitcoin network constitutes “funds” for the purposes of federal criminal law, a US District Court judge ruled Monday.
In a narrow sense, the decision means defendant Anthony Murgio can be tried on charges he violated federal law by operating an unlicensed money-transmitting business. More broadly, however, the designation could help normalize financial regulation of the cryptocurrency, perhaps bringing it out of the shadows and into the mainstream.
In a 36-page memorandum and order, Judge Alison Nathan in the Southern District of New York rejected Mr. Murgio’s argument that he dealt in bitcoins, not “funds” – a term the relevant criminal statute does not define.
“Dictionaries, courts, and the statute’s legislative history all point to the same conclusion: bitcoins are funds,” Judge Nathan wrote, deferring to the term’s “ordinary meaning” to deny Murgio’s request that two of his charges be dismissed.
Murgio is accused of operating Coin.mx, a company authorities say was owned by Gery Shalon. Along with two others, Mr. Shalon faces charges of running a computer hacking and fraud scheme that targeted JP Morgan Chase & Co. and other companies, exposing personal data of more than 100 million people.
Nathan’s decision cites recent case law to support its conclusion, but it comes at a time of uncertainty as financial regulators have sent mixed signals with regard to Bitcoin and similar decentralized currencies.
While the US Treasury Department’s Internal Revenue Service, for instance, treats bitcoins as property, the Treasury’s Financial Crimes Enforcement Network treats them as currency, attorney John Londot, a shareholder with Greenberg Traurig LLP wrote last month for Law360.
Ben Lloyd Pearson, an open-source technologist and a Bitcoin user himself, tells The Christian Science Monitor he hopes the latest decision will help to cut through the legal gray areas that can discourage wider cryptocurrency adoption.
“One of the biggest issues with business is that you don’t want to deal with a lot of uncertainties,” Mr. Pearson says.
Mr. Londot tells the Monitor that there seems to be a consensus building among federal judges who view Bitcoin and similar networks as currencies in their own right. But a patchwork of differing rulings is developing at the state level.
In July, for example, a Florida judge ruled that bitcoins are not money, noting among other things that they “cannot be hidden under a mattress like cash and gold bars.” Accordingly, money-laundering charges brought under Florida law were dismissed.
This tension between state and federal case law could implicate the commerce clause of the US Constitution, Londot notes.
“If there’s going to be a transaction using Bitcoin, odds are pretty good that it’s going to involve people across state lines, if not international lines,” Londot says, adding that such a regulatory environment might prove unfriendly to businesses.
“If they’re going to have to worry about each state’s layer of regulation,” he added, “that could certainly be a problem and complicate even further development of the robustness or potential of Bitcoin and other cryptocurrencies."
Material from Reuters was used in this report.