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Bitcoin is not money but property and therefore the crimes of unlawful transfer of money and money laundering did not arise according to the court of Miami. I have already discussed in several instances about the legal issues of bitcoin also in the gaming sector, but this decision raises interesting questions.
The decision of the Court of Miami: Bitcoin as property
In a criminal case relating to an individual who had sold bitcoins to an undercover police detective, the court of Miami (Florida) had to assess whether the crimes of money laundering and unlawful engaging in a money services business could arising.
The court reached the conclusion that the crime of unlawful engaging in money services business did not arise since the defendant
- was not a “money transmitter” since the defendant did not receive currency for transmitting it to third parties. He traded bitcoin as stocks on a market making a margin on the difference between the purchase and sale price. Also, unlike what required by the statutory definition of “money transmitter” there was no commission charged by the defendant for the transaction; and
- was not a “payment instrument seller” since Bitcoin does not fall under the scope of payment instruments and for instance is treated as property for US federal tax purposes.
As general remark, the court held that Bitcoin has some features in common with real money, but it is not a commonly used means of exchange, it is highly volatile and it is decentralised as it is not under the control of any central bank.
On the basis of the same reasoning, the court held that also the crime of money laundering had not occurred. Because of the lack of certain applicability to virtual currencies of statutes drafted for real currencies, the defendant was deemed to have merely sold his own property (i.e. the Bitcoin) which does not amount to any crime according to the court.
What would have been the position of European courts?
It is interesting that the most relevant decision on the matter in the European Union is the position taken by the European Court of Justice (ECJ) on the VAT treatment of Bitcoin. While the Court of Miami focused its attention on the literal wording of the existing statutes, the European Court of Justice looked at the functions accomplished by Bitcoin and legal currencies.
On this basis the ECJ held that there is no material difference between bitcoins and legal currencies as they both perform the same function of pure means of payment. Therefore, they should enjoy the same treatment and be both VAT exempt.
Interpretations of civil, criminal and tax courts are not always consistent. However, in a world where virtual currencies are being exponentially used, it can be at least arguable that a literal interpretation of statutes should prevail. Once virtual currencies are used as real money and are by nature reluctant from being regulated, a narrow literal interpretation of statutes risks to prevent their growth and, at the same time, grant a “free pass” to those that want to achieve fraudulent purposes?
This is a very tricky subject, what is your view?
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