The lawyer representing Silk Road founder Ross Ulbricht, Joshua Dratel, has filed a 64-page motion requesting all charges against his client be dropped.
These charges include drug trafficking, continuing criminal enterprise, facilitating computer hacking, and money laundering. For the first three, Dratel argues that application of the “enumerated statutes” to charge Ulbricht would be “unconstitutionally vague”.
In all cases, by hosting a platform which only facilitated the said criminal activities dealing without Ulbricht directly engaging in them himself, Dratel argues that his client cannot be charged under the noted statutes.
Most noteworthy though is the treatment of Bitcoin when it comes to money laundering. Recently, the IRS clarified its stance on virtual currencies when it comes to taxes, saying they are not currency but rather property. Thus Dratel argues:
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“COUNT FOUR SHOULD BE DISMISSED BECAUSE IT FAILS TO ALLEGE SUFFICIENTLY THE ESSENTIAL ELEMENT OF A “FINANCIAL TRANSACTION,”WHICH MUST INVOLVE EITHER “FUNDS” OR A“MONETARY INSTRUMENT,” NEITHER OF WHICH INCLUDES BITCOIN WITHIN §1956’S DEFINITIONS”
He then describes why Bitcoin does not fit the bill:
“As noted by the Congressional Research Service (hereinafter “CRS”) in its cogent history and explanation of Bitcoin, Bitcoin is a decentralized, pseudonymous, digital crypto-currency – it is not backed by any nation or central bank, it can be used without the user revealing to the other party his or her identity, it exists in the virtual and not corporeal world, and is based on a cryptographic formula that is designed to facilitate a public record of all Bitcoin transactions and thereby thwart duplication and fraud.”
He goes on to describe that while the IRS classified Bitcoin as property, they did not describe exactly what kind of property it is. He also evokes FINCEN guidance on virtual currency, which states: “FinCEN’s regulations define current (also referred to as ‘real’ currency) as ‘the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.”
The continued absence of official regulation and legislation on virtual currency will complicate cases like these and MtGox, and will provide lawyers on both sides of the coin with ample room to argue their interpretation of the law.