Bitcoin, Money and Funds: the Application of the Unlicensed Money Transmitting Services Statute to Virtual Currency

A popular tool used to prosecute Bitcoin business operators is 18 U.S.C. § 1960, the Federal prohibition against operating an unlicensed money transmitting business. Bitcoin is at the forefront of the electronic currency market.

With over 10 billion USD in market cap, there is now a significant amount of “real” money invested into this virtual currency. Though Bitcoin has survived its early stages in the investment market, the legal framework in which Bitcoin lives has been slow to solidify. Along with the nascent and complicated regulatory framework on both the Federal and State level, Bitcoin business operators are now being prosecuted under 18 U.S.C. § 1960, which criminalizes the operation of an unlicensed money transmitting business. This article addresses the initial question as to whether Bitcoin is covered by 18 U.S.C. § 1960, and, more specifically, whether it has been characterized as “money” or “funds” under that statute. Despite conflicting classifications by Federal regulators as to what Bitcoin actually is, the few Courts that have addressed this issue have held that 18 U.S.C. § 1960 covers Bitcoin because “[d]ictionaries, courts, and the statute’s legislative history all point to the same conclusion: Bitcoins are funds.” See United States v. Murgio, No. 15-cr-769, 2016 WL 5107128, at *4 (S.D.N.Y. Sep. 19, 2016); United States v. Budovsky, No. 15-cr-368, 2015 WL 5602853 (S.D.N.Y. Sep. 23, 2015); United States v. Faiella, 39 F. Supp. 3d 544 (S.D.N.Y. 2014).

The Department of Justice Has Decided to Prosecute Individuals for Failures to Comply With the Virtual Currency Registration Requirements

In 2013, the Department of Justice (“DOJ”) stated its policy position to prosecute individuals for failing to register their Bitcoin-related business. Specifically, the DOJ presented its determination that Bitcoins and other virtual currencies are covered by 18 U.S.C. § 1960, as well as the money laundering and spending statutes 18 U.S.C. §§ 1956, 1957:

Any money transmitter that fails to register with FinCEN or to obtain the requisite state licensing may be subject to criminal prosecution under 18 U.S.C. § 1960. Additionally, the general money laundering and spending statutes, 18 U.S.C. §§ 1956 and 1957, cover financial transactions involving virtual currencies. Finally, where virtual currencies are used in furtherance of underlying criminal activity, the Department can rely on traditional criminal statutes proscribing that activity, such as narcotics, cybercrime, child exploitation, and firearms laws.

Statement of Mythili Raman Acting Assistant Attorney General U.S. Justice Department Criminal Division Before the Committee on Homeland Security and Governmental Affairs United States Senate For a Hearing Entitled “Beyond The Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” DOJ 13-1230, 2013 WL 6056457, News Release (Nov. 18, 2013).

This article principally addresses the applicability of the unlicensed money transmitting business statute to certain Bitcoin-business operators and whether the DOJ can and should prosecute individuals under that statute.


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