In February 2014, a federal Grand Jury indicted Ross Ulbricht, also known as Dread Pirate Roberts (Ulbricht), for, among other things, conspiracy to launder money obtained from illegal activities. Prosecutors alleged that Ulbricht was engaged in narcotics trafficking, computer hacking, and money laundering conspiracies by designing, launching, and administering a website called Silk Road as an online marketplace for illicit goods and services. Silk Road was designed to operate like eBay: (1) a seller would electronically post a good or service for sale; (2) a buyer would electronically purchase the item; (3) the seller would then ship or otherwise provide to the buyer the purchased item; (4) the buyer would provide feedback; and (5) the site operator (i.e., Ulbricht) would receive a portion of the seller’s revenue as a commission. Ulbricht, as the alleged site designer, made the site available only to those using Tor, a software and network system that allows for anonymous, untraceable Internet browsing. He allowed payment only via bitcoin, an anonymous and untraceable form of digital currency. Thousands of transactions allegedly occurred over the course of nearly three years—sellers posted goods when available, and buyers purchased goods when desired.

Ulbricht filed a motion to dismiss the indictments based on a number of theories. Ulbricht argued that he could not be guilty of money laundering because the use of bitcoins did not fit into the statute’s requirement that money laundered be a result of a “financial transaction.” Since bitcoins are not monetary instruments, transactions involving bitcoins cannot form the basis for a money-laundering conspiracy. He supported his argument by noting that the IRS has announced that it treats virtual currency as property and not as currency.

The U.S. District Court ruled against Ulbricht. The court rejected Ulbricht’s theory that use of bitcoins is not a financial transaction. The court noted that because bitcoins carry value and act as a medium of exchange, they fall into the meaning of financial transaction in the money laundering statute. Since bitcoins may be exchanged for legal tender, be it U.S. dollars, Euros, or some other currency, they can be an instrument in money laundering.

“Put simply, ‘funds’ can be used to pay for things in the colloquial sense. Bitcoins can be either used directly to pay for certain things or can act as a medium of exchange and be converted into a currency which can pay for things. Indeed, the only value for Bitcoin lies in its ability to pay for things—it is digital and has no earthly form; it cannot be put on a shelf and looked at or collected in a nice display case. Its form is digital—bits and bytes that together constitute something of value. And they may be bought and sold using legal tender . . . The money laundering statute is broad enough to encompass use of Bitcoins in financial transactions. . . . Congress intended to prevent criminals from finding ways to wash the proceeds of criminal activity by transferring proceeds to other similar or different items that store significant value. . . . There is no doubt that if a narcotics transaction was paid for in cash, which was later exchanged for gold, and then converted back to cash, that would constitute a money laundering transaction. . . . One can money launder using Bitcoin.”

Is the court interpreting the statute or filling in a gap that exists in a statute? 

If Congress had wanted to include digital currency in its definition of financial transactions, why didn’t it do so by naming it specifically in the statute or in an amendment to the law? 

Did the court overreach in this case by trying to decipher the intent of Congress?

After a four-week trial, a jury found Ulbricht guilty on all counts, including money laundering. On May 29, 2015, Ulbricht was sentenced to life in prison and ordered to forfeit nearly $184 million.

Answer rating: 100% (QA)

Yes the court interpreting the statute or filling in a ... View the full answer