Bitcoin and Money Laundering: Mining for an Effective Solution

Indiana Law Journal

Volumn 89, Issue 1, 2014, Pages 441-472

  Bryans, Danton ^a  

^a INDIANA UNIVERSITY   (United States)

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EID: 84893947596     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (133)

1. See Cyrus Farivar, Man Accused of Placing GPS Device on Victim's Car Before Burglarizing Her Home, ARS TECHNICA (Apr. 28, 2013, 11:22 AM), http://arstechnica.com/tech-policy/2013/04/man-accused-of-placing-gps-device-on- victims-car-before-burglarizing-her-home.
2. History of Anti-Money Laundering Laws, FIN. CRIMES ENFORCEMENT NETWORK, http://www.fincen.gov/news-room/aml-history.html [hereinafter AML History].
3. See Anti-Money Laundering, FIN. INDUS. REG. AUTHORITY, https://www.finra.org/Industry/Issues/AML.
4. Money Laundering, FIN. ACTION TASK FORCE, http://www.fatf-gafi.org/pages/ faq/moneylaundering.
5. Yury Fedotov, Preface to UNITED NATIONS OFFICE ON DRUGS AND CRIME, ESTIMATING ILLICIT FINANCIAL FLOWS RESULTING FROM DRUG TRAFFICKING AND OTHER TRANSNATIONAL ORGANIZED CRIMES 5, 5 (2011), available at https://www.unodc.org/ documents/data-and-analysis/Studies/Illicit-financial-flows-2011-web.pdf
6. see also Michel Camdessus, Managing Dir., Int'l Monetary Fund, Address at the Plenary Meeting of the Financial Action Task Force on Money Laundering, Money Laundering: The Importance of International Countermeasures (Feb. 10, 1998), available at https://www.imf.org/external/np/speeches/1998/021098.htm (estimating in 1998 that the aggregate amount of money laundered was between 2% and 5% of global GDP, or roughly $590 billion and $1.5 trillion).
7. The Financial Crimes Enforcement Network (FinCEN) defines real currency as coin or paper money that circulates, is designated as legal tender, and is customarily used and accepted as a medium of exchange in the issuing country. Conversely, virtual currency "operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction." FIN. CRIMES ENFORCEMENT NETWORK, FIN-2013-G001, APPLICATION OF FINCEN'S REGULATIONS TO PERSONS ADMINISTERING, EXCHANGING, OR USING VIRTUAL CURRENCIES 1 (2013) [hereinafter GUIDANCE], available at http://www.fincen.gov/ statutes-regs/guidance/pdf/FIN-2013-G001.pdf.
8. A fiat currency is a "[c]ommon type of currency issued by official order, and whose value is based on the issuing authority's guarantee to pay the stated (face) amount on demand, and not on any intrinsic worth or extrinsic backing. All national currencies in circulation, issued and managed by the respective central banks, are fiat currencies." Fiat Currency Definition, BUSINESSDICTIONARY.COM, http://www.businessdictionary.com/definition/fiat- currency.html.
9. It is also known as fiat money. Fiat Money Definition, INVESTOPEDIA, http://www.investopedia.com/terms/f/fiatmoney.asp. Examples are USD, EUR, etc. See Id.
10. Digital Currency, BITCOIN WIKI, https://en.bitcoin.it/wiki/Digital- currency (last modified Mar. 1, 2012).
11. One example of a physical virtual currency is the now defunct DigiCash. See Steven Levy, E-Money (That's What I Want), WIRED, Dec. 1994, at 174.
12. An example of a centralized virtual currency is WebMoney. See About, WEBMONEY, http://www.wmtransfer.com/eng/about/.
13. BITCOIN PROJECT, http://bitcoin.org.
14. Introduction, BITCOIN WIKI, https://en.bitcoin.it/wiki/Introduction (last modified July 14, 2013).
15. See, e.g., Morgen E. Peck, The Crytoanarchists' Answer to Cash, IEEE SPECTRUM, June 2012, at 50, 56 ("Bitcoin is often described as providing pseudoanonymity, by creating enough obfuscation to provide users with plausible deniability.")
16. Thomas Lowenthal, Bitcoin: Inside the Encrypted, Peer-to-Peer Digital Currency, ARS TECHNICA (June 8, 2011, 9:00 AM), http://arstechnica.com/tech- policy/2011/06/bitcoin-inside-the-encrypted-peer-to-peer-currency ("Bitcoin-a pseudonymous cryptographic currency...").
17. Pseudonymity is the use of a fictitious name or identity. BLACK'S LAW DICTIONARY 1347 (9th ed. 2009).
18. In Bitcoin's case, this refers to the use of an alphanumeric string that represents the source or destination in a Bitcoin transfer. Address, BITCOIN WIKI, https://en.bitcoin.it/wiki/Address (last modified Jan. 16, 2013). Thus, a pseudonym identifies the user instead of any personally identifiable information and is virtually anonymous to an onlooker to the transaction.
19. This does not mean Bitcoin currency exchanges cannot be hacked; it means that the Bitcoin protocol infrastructure is relatively safe. See, e.g., Press Release, Mark Karpeles, Chief Exec. Officer, Tibanne Co. Ltd., Clarification of Mt. Gox Compromised Accounts and Major Bitcoin Sell-Off (June 30, 2011), https://mtgox.com/press-release-20110630.html.
20. E.g., Mike Masnick, Senator Schumer Says Bitcoin Is Money Laundering, TECHDIRT (June 6, 2011, 9:26 AM), https://www.techdirt.com/articles/20110605/ 22322814558/senator-schumer-says-bitcoin-is-money-laundering.shtml
21. see also Letter from Charles E. Schumer & Joe Manchin, U.S. Senators, to Eric Holder, Att'y Gen. of the United States (June 6, 2011), available at http://manchin.senate.gov/public/index.cfm/press-releases?ID= 284ae54a-acf1-4258-belc-7acee1f7e8b3. Senators Schumer and Manchin urged the U.S. Attorney General and Drug Enforcement Agency to shut down Silk Road, an anonymous online marketplace used for selling illicit substances, which used Bitcoin as a currency. Id. The Senators referred to Bitcoin in the letter as "untraceable." Id.
22. Some view Bitcoin as a possible solution to the issues that fiat currencies face, such as government intervention and currency inflation. See, e.g., Jon Matonis, Bitcoin Prevents Monetary Tyranny, FORBES (Oct. 4, 2012, 11:58 AM), http://www.forbes.com/sites/jonmatonis/2012/10/04/bitcoin-prevents- monetary-tyranny.
23. See generally Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, BITCOIN PROJECT, http://bitcoin.org/bitcoin.pdf.
24. Satoshi Nakamoto is most likely a pseudonym of the actual inventor or inventors of Bitcoin. Satoshi Nakamoto, BITCOIN WIKI, https://en.bitcoin.it/ wiki/Satoshi-Nakamoto (last modified June 13, 2013).
25. See Jon Matonis, ECB: "Roots of Bitcoin Can Be Found in the Austrian School of Economics," FORBES (NoV. 3, 2012, 11:04 AM), http://www.forbes.com/sites/jonmatonis/2012/11/03/ecb-roots-of-bitcoin-can-be- found-in-the-austrian-school-of-economics (describing theoretical economical roots of Bitcoin).
26. See, e.g., David C, What Is the Significance of the Fiat Currency?, INFLATIONDATA.COM (Sept. 20, 2012), http://inflationdata.com/articles/2012/09/ 20/significance-fiat-currency.
27. Colin Dean, Comment to Why Are Fiat Currencies Inflationary and Bitcoin Deflationary?, STACK EXCHANGE (Dec. 28, 2012, 5:30 PM), http://bitcoin. stackexchange.com/questions/5931/why-are-fiat-currencies-inflationary-and- bitcoin-deflationary ("Bitcoin's deflationary quality is based on the assertion that a currency must have scarcity in order to be valuable. By limiting what amount can enter the system, it ensures that no individual can increase the supply and inflate the value relative to physical goods.").
28. Bitcoin's value rose from $34 on March 6, 2013 to $266 by April 10, 2013, only to crash to approximately $104 (a 61% decline) in less than a day. Timothy B. Lee, An Illustrated History of Bitcoin Crashes, FORBES (Apr. 11, 2013, 12:45 AM), http://www.forbes.com/sites/timothylee/2013/ 04/11/an-illustrated-history-of-bitcoin-crashes.
29. See Security Recommendations, E-GOLD, http://www.e-gold.com/security.html
30. Security, PAYPAL, https://www.paypal.com/webapps/mpp/paypal-safety-and- security.
31. See Alison Gendar & John Marzulli, Cops Bust Hackers Who Shut Down PayPal After Online Payment Service Cut Ties with WikiLeaks, N.Y. DAILY NEWS (July 20, 2011, 4:00 AM), http://www.nydailynews.com/news/crime/cops-bust- hackers-shut-paypal-online-payment-service-cut-ties-wikileaks-article-1.159867.
32. See, e.g., Lowenthal, supra note 15; Nicolas Mendoza, Understanding Bitcoin, AL JAZEERA, http://www.aljazeera.com/indepth/opinion/2012/05/ 20125309437931677.html (last modified June 9, 2012).
33. Note that the units of currency are lowercased (bitcoins), whereas the currency system and network are capitalized (Bitcoin). Introduction, supra note 14. Units of bitcoins are commonly represented as BTC. Vocabulary, BITCOIN PROJECT, http://bitcoin.org/en/vocabulary.
34. See FAQ, BITCOIN WIKI, https://en.bitcoin.it/wiki/FAQ (last modified July 24, 2013).
35. Getting Started with Bitcoin, WEUSECOINS, http://www.weusecoins.com/ getting-started.php (discussing how to get bitcoins by completing bonus programs, trading with local Bitcoin users, purchasing through currency exchanges, and trading directly with other Bitcoin users online).
36. A Bitcoin wallet is a digital container where a Bitcoin user can store data referring to the user's addresses, transactions, preferences, etc. Wallet, BITCOIN WIKI, https://en.bitcoin.it/wiki/Wallet (last modified Mar. 31, 2013).
37. A user may choose from several forms of digital wallets. Vitalik Buterin, Bitcoin Wallet Reviews-Ease of Use and Security, BITCOIN MAG. (Mar. 5, 2012), http://bitcoinmagazine.com/bitcoin-wallet-options.
38. This is called a block chain. Peck, supra note 15, at 55-56; see also Block Chain, BITCOIN WIKI, https://en.bitcoin.it/wiki/Block-chain (last modified May 18, 2013) (providing more background and technical data of block chain design).
39. Peck, supra note 15, at 56. This block completion reward halves once half of all remaining bitcoins have been produced, which will occur approximately once every four years. The reward halved from 50 BTC to 25 BTC on November 28, 2012. See Adrianne Jeffries, Total Number of Bitcoins Hits 10.5 Million, Production Halves to Stop Inflation, VERGE (NoV. 28, 2012, 10:44 AM), http://www.theverge.com/2012/ll/28/3701434/total-number-of-bitcoins-hits-10-5- million-production-halves-to-stop.
40. This system is intended to simulate the scarcity of a limited resource commodity, such as gold, and prevent inflation. Vitalik Buterin, Block Reward Halving: A Guide, BITCOIN MAG. (NoV. 27, 2012), http://bitcoinmagazine.com/ block-reward-halving-a-guide.
41. U.S. CONST, art. I, § 8, cl. 5 ("To coin Money").
42. See Reuben Grinberg, Bitcoin: An Innovative Alternative Digital Currency, 4 HASTINGS Sei. & TECH. L.J. 159, 182 (2012) ("However, organizations have been issuing a certain type of private currency-community currencies meant to circulate only within a particular community-in the U.S. for decades. Government officials have known about these currencies and have commented that they seem to pose no threat.").
43. One such example is the Ithaca Hours local alternative currency. ITHACA HOURS, http://www.ithacahours.com.
44. See Grinberg, supra note 48, at 191-94; Alan Feuer, Prison May Be the Next Stop on a Gold Currency Journey, N.Y. TIMES, Oct. 25, 2012, at A18
45. see also Private Tender: Anti-Government Group Mints Its Own Coins, FED. BUREAU INVESTIGATION (Apr. 5, 2011), http://www.fbi.gov/news/stories/2011/april/ dollar-040511/dollar-040511.
46. See, e.g., evoorhees, Comment to How Do You Feel About Market Regulation?, BITCOIN F. (July 4, 2011, 3:41 AM), https://bitcointalk.org/index. php?topic=25653.msg321165#msg321165.
47. Josh Levs, Group Claiming to Have Romney Tax Records Threatens to Leak Them, CNN.COM (Sept. 6, 2012, 4:45 PM), http://www.cnn.com/2012/09/06/politics/ romney-tax-threat/index.html
48. see also Jay Hathaway, Blackmailers Make $50 on Romney's Tax Returns, DAILY DOT (Sept. 28, 2012), http://www.dailydot.com/news/blackmailers- 50-dollars-bitcoin-romney-taxes (stating the ransom was not paid and the blackmailers only made about $50).
49. FBI DIRECTORATE OF INTELLIGENCE, CYBER INTELLIGENCE SECTION & CRIMINAL INTELLIGENCE SECTION, BITCOIN VIRTUAL CURRENCY: UNIQUE FEATURES PRESENT DISTINCT CHALLENGES FOR DETERRING ILLICIT ACTIVITY (2012) [hereinafter FBI REPORT], available at http://www.wired.com/images-blogs/threatlevel/2012/05/ Bitcoin-FBI.pdf.
50. See, e.g., evoorhees, Comment to Let's End One Debate: Commodity vs Money, BITCOIN F. (Oct. 7, 2011, 1:13 AM), https://bitcointalk.org/index.php? topic=47111.msg560958#msg560958
51. New Liberty Standard, Comment to Definition of a Commodity & Are Bitcoins a Commodity?, BITCOIN F. (Aug. 14, 2010, 8:40 PM), https://bitcointalk. org/index.php?topic=815.msg9258#msg9258.
52. See Richard Satran, How Did Bitcoin Become a Real Currency?, U.S. NEWS & WORLD REP. (May 15, 2013), http://money.usnews.com/money/personal-finance/ articles/2013/05/15/how-did-bitcoin-become-a-real-currency.
53. See Steve Forbes, Bitcoin: Whatever It Is, It's Not Money!, FORBES (Apr. 16, 2013, 10:50 AM), http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin- whatever-it-is-its-not-money.
54. Bitcoin users probably will also need to lawfully disclose any earnings for tax purposes. The IRS has not issued guidance specifically on this issue, although some believe it will. See Robert W. Wood, IRS Takes a Bite Out of Bitcoin, FORBES (May 2, 2013, 3:40 AM), http://www.forbes.com/sites/robertwood/ 2013/05/02/irs-takes-a-bite-out-of-bitcoin. However, taxation of Bitcoin or other virtual currencies is beyond the scope of this Note.
55. Bit Pay, Accepting Bitcoin for Political Campaign Donations, How TO ACCEPT BITCOIN (Sept. 1, 2012, 5:03 PM), http://www.howtoacceptbitcoin.com/2012/ 09/accepting-bitcoin-for-political.html.
56. Jahvt, Vermont State Senate Candidate Accepts Bitcoin Contributions, VT. ELECTION WORKING GROUP (Sept. 24, 2012), http://vermontelection.org/2012/09/24/ bitcoin (candidate verified Bitcoin's appropriateness as campaign contribution with both the Vermont Secretary of State's office and the Vermont Attorney General's office, finding "that Bitcoin-denominated contributions can be legally accepted and documented as 'in-kind' donations, so long as the donations [meet campaign contribution requirements]").
57. E.g., Michael Carney, Bitcoin Is Legal, but Mainstream Adoption Will Mandate Playing by the Rules, PANDODAILY (May 17, 2013), http://pandodaily.com/ 2013/05/17/bitcoin-is-legal-but-mainstream-adoption-will-mandate-playing-by-the- rules.
58. E.g., WiW, Comment to Bitcoins Are Not "Legalized" in the US-Understanding FinCEN's Announcement, BITCOIN F. (Mar. 19, 2013, 2:51 PM), https://bitcointalk.org/index.php?topic=154905.msg1642139#msg1642139.
59. Patrick Murck, Today, We Are All Money Transmitters... (No, Really!), BITCOIN FOUND. BLOG (Mar. 19, 2013), https://bitcoinfoundation.org/blog/?p=152.
60. TehMatoking, Ajankohtainen Kakkonen: Bitcoin [English Subtitles], YOUTUBE (Sept. 12, 2012), http://www.youtube.com/watch?v=7vYHUH73pw (spokesperson for Bank of Finland replies to a question on a news report for Finnish TV about whether Bitcoin was illegal in Finland, roughly stating that people are free to invest in and use whatever forms of money that they prefer, at 3:30-4:20)
61. see also BitPay Exceeds 1,000 Merchants Accepting Bitcoin, BITPAY (Sept. 11, 2012, 8:52 AM), http://blog.bitpay.com/2012/09/bitpay-exceeds-1000- merchants-accepting.html.
62. EUROPEAN CENT. BANK, VIRTUAL CURRENCY SCHEMES (2012) [hereinafter EU REPORT], http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en. pdf.
63. This means that Bitcoin is not regulated by a key European Union regulation initiative that "creat[ed] single, cross-border deposit accounts and harmoniz[ed] payment obligations and laws for credit transfers, direct debits, and payment cards across borders and payment instruments." Amelia H. Boss, Convergence in Electronic Banking: Technological Convergence, Systems Convergence, Legal Convergence, 2 DREXEL L. REV. 63, 64 (2009).
64. Merkblatt - Hinweise zu dem Gesetz über die Beaufsichtigung von Zahlungsdiensten (Zahlungsdiensteaufsichtsgesetz - ZAG) [Data Sheet - Notes to the Act on the Supervision of Payment Services (Payment Services Oversight Act - ZAG)], BUNDESANSTALT FÜR FINANZDIENSTLEISTUNGSAUFSICHT (Dec. 22, 2011) (Ger.), http://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb- 111222-zag.html [hereinafter BAFIN]. The definition of E-Geld in section (4)(b) roughly states that bitcoins fall outside the definition of e-money, even though they are functionally the same as e-money, and are more similar to units of value like barter or private payment systems.
65. Akka, Comment to An English Analysis on BAFIN?, BITCOIN F. (Oct. 20, 2012, 12:48 PM), https://bitcointalk.org/index.php?topic=119425. msg1285574#msg1285574.
66. AUSTRALIAN TRANSACTION REPORTS & ANALYSIS CTR., TYPOLOGIES AND CASE STUDIES REPORT 2012, at 16-19 (2012) [hereinafter AUSTRAC REPORT], http://www.austrac.goV.au/files/typ-rprt12-full.pdf.
67. Complaint for Damages Resulting from: 1) Violation of 18 U.S.C. § 1964(c); 2) False Advertising; 3) Breach of Contract; 4) Intentional Misrepresentation; 5) Negligent Misrepresentation; 6) Concealment; 7) Restitution After Rescission; 8) Conversion; & 9) Defamation, TradeHill, Inc. V. Dwolla, Inc., No. CV 12 1082 JSC (CD. Cal. Mar. 5, 2012), 2012 WL 1601094.
68. Order Granting Defendant's Motion to Compel Arbitration; Denying as Moot Defendants' Alternative Motion to Dismiss; Vacating Hearing, TradeHill, Inc. V. Dwolla, Inc., No. C-12-1082 MMC (N.D. Cal. May 9, 2012), 2012 WL 1622668.
69. Complaint for: (1) Breach of Contract; (2) Open Book Account; (3) Account Stated; (4) Negligence; & (5) Conversion, Cartmell V. Bitcoinica LP, No. CGC-12-522983 (Cal. Super. Ct. Aug. 6, 2012) [hereinafter Bitcoinica Complaint].
70. See Class Action Litigation vs. Bitcoinica Consultancy LTD & Jntersango LTD, BITCOIN F. (July 13, 2012, 3:11 PM), https://bitcointalk.org/ index.php?topic=93109.0;all (former Bitcoinica users discussing legal action with no eventual consensus).
71. Adrianne Jeffries, Bitcoin Woes: Users File Lawsuit over $460k in Missing Funds, VERGE (Aug. 10, 2012, 4:20 PM), http://www.theverge.com/2012/8/ 10/3233711/second-bitcoin-lawsuit-is-filed-in-california.
72. Cartmell V. Bitcoinica, No. CGC-12-522983 (Cal. Super. Ct. Jan. 28, 2013) (order denying motion to dismiss or stay action).
73. See Todd Mokos, SEC Files Charges Against Bitcoin Ponzi Mastermind Trendon Shavers, BITCOIN MAG. (July 24, 2013), http://bitcoinmagazine.com/5889/ sec-files-charges-against-bitcoin-ponzi-mastermind-trendon-shavers/.
74. Some believe that the Bitcoin Savings & Trust was a Ponzi scheme. Id.; see also Adrianne Jeffries, The Bernie Madoff's of Bitcoin? As Market Heats Back Up, Virtual Hedge Funds Claim Fantastical Profits, VERGE (Aug. 15, 2012, 2:27 PM), http://www.theverge.com/2012/8/15/3243200/bitcoin-ponzi-schemes- savings-and-trust.
75. Complaint, SEC V. Shavers, No. 4:13CV-00416 (E.D. Tex. July 7, 2013).
76. SEC V. Shavers, No. 4:13-CV-416, at 1 (E.D. Tex. Aug. 6, 2013) (opinion regarding the court's subject matter jurisdiction).
77. Cyrus Farivar, Bitfloor, Number Four Bitcoin-Based Exchange, Shuts Down for Good, ARS TECHNICA (Apr. 18, 2013, 10:36 AM), http://arstechnica.com/ business/2013/04/bitfloor-number-four-bitcoin-based-exchange-shuts-down-for- good.
78. Timothy B. Lee, Major Bitcoin Exchange Shuts Down, Blaming Regulation and Loss of Funds, ARS TECHNICA (Feb. 15, 2012, 10:15 AM), http://arstechnica.com/ tech-policy/2012/02/major-bitcoin-exchange-shuts-down-blaming-regulation-and- loss-of-funds.
79. Adrianne Jeffries, Search for Owners of MyBitcoin Loses Steam, BETABEAT (Aug. 19, 2011, 10:15 AM), http://betabeat.com/2011/08/search-for-owners-of- mybitcoin-loses-steam.
80. See, e.g., Andy Skelton, Pay Another Way: Bitcoin, JUST ANOTHER WORDPRESS WEBLOG (NOV. 15, 2012, 10:21 PM), http://en.blog.wordpress.com/2012/ll/15/pay- another-way-bitcoin (announcing official WordPress acceptance of Bitcoin transactions).
81. See Trade, BITCOIN WIKI, https://en.bitcoin.it/wiki/Trade (last modified Oct. 22, 2013) (listing services and organizations that accept Bitcoin payments).
82. See, e.g., BITPAY, https://bitpay.com
83. PAYSIUS, http://paysius.com.
84. Cf. Meredith Bennett-Smith, DEA Raids Legal Medical Marijuana Dispensaries in Washington, 'Humiliating' Shop Owners, HUFFINGTON POST (July 25, 2013, 2:55 PM), http://www.huffingtonpost.com/2013/07/25/dea-raid-marijuana- dispensaries-washington-state-n-3653071.html. The federal government has made no statement to date explicitly rejecting Vermont's position on accepting Bitcoin for campaign donations.
85. Cindy Cohn, EFF and Bitcoin, ELECTRONIC FRONTIER FOUND. (June 20, 2011), https://www.eff.org/deeplinks/2011/06/eff-and-bitcoin.
86. Cindy Cohn, Peter Eckersley, Rainey Reitman & Seth Schoen, EFF Will Accept Bitcoins to Support Digital Liberty, ELECTRONIC FRONTIER FOUND. (May 17, 2013), https://www.eff.org/deeplinks/2013/05/eff-will-accept-bitcoins-support- digital-liberty. However, the EFF does not accept bitcoins directly, instead using BitPay to convert the bitcoins. Id.
87. Maggie Dennis, Answers Archive/November 2011, WIKIMEDIA FOUND. (NOV. 3, 2011, 8:33 PM), https://wikimediafoundation.org/wiki/Answers-archive/November- 2011#Finance:-Why-does-the-Wikimedia-Foundation-not-currently-accept-Bitcoin.3F.
88. Interestingly, BitPay, a Bitcoin payment processor that converts bitcoins to fiat currencies, announced that it would allow Bitcoin users to donate their bitcoins to Wikipedia by processing the transactions to USD and then donating the result to Wikipedia at no charge. Donate to Wikipedia with Bitcoin, BITPAY (NOV. 29, 2012, 11:13 AM), http://blog.bitpay.com/2012/11/donate-to-wikipedia- with-bitcoin.html.
89. See Genesis Block, Brrcom WIKI, https://en.bitcoin.it/wiki/Genesis-block (last modified June 1, 2013) (the first block in the Bitcoin block chain).
90. Timothy B. Lee, Bitcoin Implodes, Falls More than 90 Percent from June Peak, ARS TECHNICA (Oct. 18, 2011, 12:45 PM), http://arstechnica.com/tech- policy/2011/10/bitcoin-implodes-down-more-than-90-percent-frorn-june-peak.
91. See Shawn Turner, Note, U.S. Anti-Money Laundering Regulations: An Economic Approach to Cyberlaundering, 54 CASE W. RES. L. REV. 1389, 1402-06 (2004); see also Grinberg, supra note 48, at 204-06 (discussing regulation and sanction means in relation to virtual currencies).
92. See CHARLES DOYLE, CONG. RESEARCH SERV., RL33315, MONEY LAUNDERING: AN OVERVIEW OF 18 U.S.C. 1956 AND RELATED FEDERAL CRIMINAL LAW 36-39 (2012), available at http://www.fas.org/sgp/crs/misc/RL33315.pdf.
93. See Amendment to the Bank Secrecy Act Regulations Relating to Recordkeeping for Funds Transfers and Transmittals of Funds by Financial Institutions, 60 Fed. Reg. 220 (Jan. 3, 1995) (to be codified at 31 C.F.R. pt. 103) (establishing reporting requirements for transfers of U.S. $3000 or more); see also Turner, supra note 115, at 1403 (describing amendment proposal and effects).
94. See Bank Secrecy Act Regulations-Definitions and Other Regulations Relating to Prepaid Access, 76 Fed. Reg. 45404 (July 29, 2011) (codified as amended at 31 C.F.R. pts. 1010 and 1022).
95. See Jennifer Shasky Calvery, Dir., Fin. Crimes Enforcement Network, Remarks at United States Institute of Peace, The Virtual Economy: Potential, Perplexities and Promises 1 (June 13, 2013), available at http://www.fincen.gov/ news-room/speech/pdf20130613.pdf.
96. See Mike Flacy, Texas Family Sells Porsche - For 300 Bitcoins?, DIGITAL TRENDS (Apr. 3, 2013), http://www.digitaltrends.com/cars/texas-farnily-sells- porsche-for-300-bitcoins.
97. See United States V. Flores, 454 F.3d 149, 155 (3d Cir. 2006) ("[T]he defense's argument - that the Government needed to prove that Flores knew of, or was willfully blind to, the fact that the funds originated in drug trafficking to obtain a money laundering conviction - fails. See 18 U.S.C. § 1957(c)...").
98. 31 C.F.R. § 1010.312 (2012) ("[A] financial institution shall verify and record the name and address... identity, account number, and the social security or taxpayer identification number..."). Mt. Gox, the world's largest Bitcoin exchange, announced on May 30, 2013, that all users wishing to deposit or withdraw currencies other than Bitcoin would need to become verified. Press Release, Mt. Gox Co. Ltd. Team, Statement Regarding Account Verifications (May 30, 2013), https://mtgox.com/press-release-20130530. html.
99. Verification requires sending Mt. Gox multiple documents for authentication. Marion, AML Account Statuses, MT. GOX (May 31, 2013, 5:35 PM), https://support.mtgox.com/entries/21651045-AML-Account-Statuses.
100. E.g., United States V. Elfgeeh, 515 F.3d 100, 133 (2d Cir. 2008) ("We infer from the language of subsection (a) itself and from the absence from subsection (b)(1)(A) of a 'whether or not' clause mentioning knowledge of the possession of a license, that in order to convict under the amended § 1960(a), the government is required to prove that the defendant knew the money-transmitting business was unlicensed.")
101. United States V. Talebnejad, 460 F.3d 563, 568 (4th Cir. 2006) ("The parties agree that the Government must allege and prove the defendant's knowledge [(1) that he operated a money transmitting business, (2) that it affected interstate commerce, and (3) that it was unlicensed under state law]."), cert. denied, 549 U.S. 1234 (2007).
102. United States V. Uddin, 365 F. Supp. 2d 825, 828-30 (E.D. Mich. 2005).
103. Cf. United States V. Schnabel, 939 F.2d 197, 203 (4th Cir. 1991) ("The willful blindness instruction allows the jury to impute the element of knowledge to the defendant if the evidence indicates that he purposely closed his eyes to avoid knowing what was taking place around him.").
104. See UNIF. MONEY SERVS. ACT pref. n.A (amended 2013), 7A Pt. Ill U.L.A. 163 (2006).
105. Alaska, Arkansas, Iowa, Puerto Rico, Texas, U.S. Virgin Islands, Vermont, and Washington have adopted the UMSA. Legislative Fact Sheet-Money Services Act, UNIF. LAW COMMISSION, http://www.uniformlaws.org/LegislativeFactSheet.aspx? title=Money%20Services%20Act.
106. UNIF. MONEY SERVS. ACT pref. n.A.
107. A coupon is "[a]n interest or dividend certificate that is attached to another instrument, such as a bond, and that may be detached and separately presented for payment of a definite sum at a specified time." BLACK'S LAW DICTIONARY, supra note 15, at 404.
108. Bitcoins, however, are not attached to another instrument, as they may be traded on their own on an exchange or between two users. See, e.g., LOCAL BITCOINS.COM, https://localbitcoins.com.
109. Bitcoins also do not necessarily represent a definite sum due to constant fluctuation in value. See Lee, supra note 113. Bonus points are given by merchants to customers as patronage rewards, redeemable through the merchant for some other good or prepaid value card. See, e.g., MYPOINTS, https://www.mypoints.com. Conversely, bitcoins would instead be a reward offered on redemption of bonus points.
110. UNIF. MONEY SERVS. ACT § 102 cmt. 9 (discussing the definition of "money transmission").
111. Transaction Fees, BITCOIN WIKI, https://en.bitcoin.it/wiki/Transaction- fees (last modified Aug. 31, 2013).
112. See Id.; see also Free Transaction Relay Policy, BITCOIN WIKI, https://en.bitcoin.it/wiki/Free-transaction-relay-policy (last modified Oct. 18, 2012) (describing an alternative mode of accepting bitcoins that does not filter "unacceptable" transactions like the standard Bitcoin client).
113. See, e.g., Adam, Step 3-Buying or Selling Bitcoins, MT. GOX (July 21, 2011, 4:03 PM), http://support.mtgox.com/entries/20294238-step-3-buying-or- selling-bitcoins ("Please note that our ordering system currently subtracts the trade fee from the 'Total' when the order is processed.").
114. UNIF. MONEY SERVS. ACT § 102(6) (defining "currency exchange").
115. CAL. FIN. CODE § 2003(o)(1(-(3) (West 2013).
116. Owen Thomas, This Innovation-Killing California Law Could Get a Host of Startups in Money Trouble, BUS. INSIDER (July 11, 2012, 6:21 PM), http://www.businessinsider.com/california-money-transmitter-act-startups-2012-7.
117. See Id.; see also Aaron Greenspan, In Fifty Days, Payments Innovation Will Stop in Silicon Valley, QUORA (May 11, 2011), https://www.quora.com/Aaron- Greenspan/Posts/In-Fifty-Days-Payments-Innovation-Will-Stop-In-Silicon-Valley
118. James Mariani, The California Money Transmission Act: Boon to Consumers or Bane to Innovation?, U. ILL. J.L. TECH. & POL'Y TIMELY TECH, (Sept. 26, 2012), http://illinoisjltp.com/timelytech/hello-world/.
119. See, e.g., iTunes, APPLE, https://www.apple.com/itunes/what-is/#store
120. Google Play, GOOGLE, https://play.google.com/store
121. FAQ, KICKSTARTER, http://www.kickstarter.com/help/faq/ kickstarter%20basics.
122. See, e.g., BITLAUNDRY, http://app.bitlaundry.com.
123. See Johann Summers, FastCash4Bitcoins Suspends Sales, BITCOIN MAG. (June 3, 2013), http://bitcoinmagazine.com/fastcash4bitcoins-suspends-sales.
124. Thanks to Professor Sarah Jane Hughes for this comparison. Interview with Sarah Jane Hughes, UniV. Scholar & Fellow in Commercial Law, Maurer School of Law, in Bloomington, Ind. (Mar. 26, 2013).
125. This could occur through many established and emerging anonymization protocols. See, e.g., Tor: Overview, TOR PROJECT, https://www.torproject.org/ about/overview.html
126. I2P ANONYMOUS NETWORK, http://www.i2p2.de
127. see also Adrian Chen, 'Dark Net' Kiddie Porn Website Stymies FBI Investigation, GAWKER (June 11, 2012, 12:02 PM), http://gawker.com/5916994/dark- net-kiddie-porn-website-stymies-fbi-investigation
128. Sean Gallagher, Anonymous Takes Down Darbtet Child Porn Site on Tor Network, ARS TECHNICA (Oct. 23, 2011, 7:00 PM), http://arstechnica.com/business/ 2011/10/anonymous-takes-down-darknet-child-pom-site-on-tor-network.
129. Open-source software is "[s]oftware that is [usually] not sold for profit, includes both human-readable source code and machine-readable object code, and allows users to freely copy, modify, or distribute the software." BLACK'S LAW DICTIONARY, supra note 15, at 1200.
130. See Bitcoin, SOURCEFORGE, http://sourceforge.net/projectsftitcoin/files/ Bitcoin.
131. See People, BITCOIN WIKI, https://en.bitcoin.it/wiki/People (last modified June 13, 2013) (giving a more expansive list of individuals involved in the Bitcoin project).
132. See, e.g., Frequently Asked Questions, BITCOIN PROJECT, http://bitcoin.org/en/faq ("While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.").
133. See e.g., MSB Registrant Search Web Page, FINCEN, http://www.fincen.gov/ financial-institutions/msb/msbstateselector.html (Mt. Gox registered as MSB Registration Number/DCN: 31000029348132; Bitfloor registered as MSB Registration Number/DCN: 31000005224108; Bitlnstant registered as MSB Registration Number/DCN: 31000005031107).