The United States (“US”) has had an insightful biannual 2020 session for the cryptocurrency economy. From securities token fraud to the licensing regime, the US courts have been prosecuting various businesses dealing in cryptocurrencies at a rapid scale. Recently, the District Court for the District of Columbia (“District Court”) in the case of the United States of America v. Larry Dean Harmon, in a memorandum opinion dated July 24, 2020 (“opinion”) stated that ‘money’ should be given a common meaning, such as a medium of exchange, under the District of Columbia’s Money Transmitters Act (“MTA”) and ‘bitcoin’ cryptocurrency falls under such things. Hence, the District of Columbia provided that bitcoin can be legally held to be a ‘currency’. This opinion of the District Court is a result of the indictment of Larry Dean Harmon (“Harmon”) in which he was charged under:
a) 18 U.S.C § 1956 (h): Conspiracy to Launder Monetary Instruments;
b) 18 U.S.C § 1960 (a): Operating an Unlicensed Money Transmitting Business;
c) D.C Code § 26-1023 (c) (MTA): Money Transmission Without a License; and
d) 18 U.S.C § 983 (a) (1); 21 U.S.C § 853 (p): Forfeiture.
The District Court denied the motion placed by Harmon to dismiss such charges, holding that bitcoin is money under MTA, and Harmon’s business ‘Helix’ was operating as an unlicensed money transmitting business.
I. Harmon Indictment
On December 3, 2019, Harmon was indicted for criminal conspiracies under the above violations. Harmon moved the District Court to dismiss the charges on account of ‘failure to state an offence’ under MTA and operating as an unlicensed money transmitting business. This raised 2 (two) important questions in from of Judge Beryl A. Howell of the District Court. Firstly, is bitcoin money for the purpose of MTA and secondly, was Helix an unlicensed money transmitting business. In the motion to dismiss, Harmon portrayed that Helix had no links to illegal darknet transactions and no bitcoin transactions were made illegally. However, during the course of the investigation conducted by the Federal Bureau of Investigation (FBI) it was found that in around the time of 2014, Helix owned and operated a ‘Grams’ which was located on the darknet. The two services were at times referred to as Grams-Helix, conducting illegal bitcoin transactions. The kind of services that Grams-Helix provided is referred to as ‘mixer’ or ‘tumbler’. These services work by literally mixing up a user’s payment with lots of other payments from other users, hence, creating a web of transactions. This helped in the concealment of bitcoin transactions from law enforcement and public authorities. Helix exchanged app. 354,486 bitcoins amounting to app. USD 311 million on behalf of its customers in the District of Columbia. The largest part of such transactions arose from darknet markets. Around 2017, Harmon began to shut down Helix and Grams operations.
Harmon submitted to dismiss charges as according to the defendant, the District Court had failed to state an offence under MTA and for a violation under 18 U.S.C. § 1960(b)(1)(B), unlicensed money transmitting business, the business must transmit funds from one person to another or one location to another. However, as per the defendant, Helix did not transmit such funds and merely provided the bitcoin back to the user from whom it was sent.
II. District Court’s opinion
The challenge that the District Court faced was that the MTA does not define the term ‘money’. Hence, the District Court had to analyse technical literature for the transmission of bitcoin. For this purpose, the District Court took precedence from Mohamad v. Palestinian Auth., 566 U.S. 449, 454 (2012), to state that when a statute does not define a particular term, the court has to take a look into its ordinary meaning and hence, the District Court analysed the terms of use of bitcoin and how they are transacted.
The IRS Virtual currency guidance states that “virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value”. Bitcoins are also used as a payment function for various goods and services. Moreover, as of 2015, major companies such as Microsoft and Dell accept bitcoins for transactions. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. Further, in United States v. Murgio, 209 F. Supp. 3d 698, 707 (S.D.N.Y. 2016), the federal court stated that “bitcoins clearly qualifies as money or funds . . . because they can be easily purchased in exchange for ordinary currency, act as a denominator of value, and are used to conduct financial transactions. United States v. Murgio is just one of the federal cases where bitcoin has been defined as money, with the existence of more in the US. The District Court examining such context held that bitcoin is money under the MTA which is a statute of the state and not federal law. Moreover, it also stated that the term should not be given any specialised meaning, and bitcoin is used for the purpose of a medium of exchange, method of payment, or store of value.
The District Court further rejected the argument of the defendant in the matter that there was no violation under 18 U.S.C. § 1960(b)(1)(B). In this regard, the District Court stated that according to it, Helix was receiving bitcoins to send it to another location or person to mask the source from which it was received. This qualified as money transmission and violated 18 U.S.C. § 1960(b)(1)(B).
This article is authored by Samaksh Khanna, Co-founder, BlockSuits.
Comments