U.S. citizen Thomas Costanzo has had a motion to suppress evidence denied in a bitcoin laundering case currently making its way through the United States District Court of Arizona. But the bigger-picture interest in this case lies in the court’s de facto acknowledgement that bitcoins are a currency — a direct rebuttal of a Miami judge’s state-level decision in 2016 that bitcoins weren’t technically money.
Feds: Yep, This Is Laundering
Thomas Costanzo is currently facing charges pertaining to an Internal Revenue Service (IRS) sting, in which he was allegedly caught facilitating the laundering of illicit funds through bitcoins using peer-to-peer cryptocurrency exchange LocalBitcoins.
In the latest update to Costanzo’s case, his motion to suppress evidence garnered during a search of his residence in April 2017 has been denied by the U.S. District Court of Arizona. The multi-judge federal court issued a 16-page explanation as to why the motion was denied.
Notably, one of the reasons listed out by the court was how Costanzo seemed to clearly know he was breaking the law during the course of his LocalBitcoins activities:
“COSTANZO explained […] that anytime someone withdrawals [sic] more than $3,000 at a time, the bank will complete a SAR for the government to document the transaction. These statements lead [the] Affiant to believe that Costanzo is aware of United States money laundering laws and currency reporting regulations and is knowingly using Bitcoin to circumvent the law and launder the proceeds from illegal activity.”
In reading between the lines of this passage, the subtext is hugely important. Here, a federal court is formally, albeit implicitly, acknowledging that bitcoin is a currency that can be used to launder other currencies, e.g. the U.S. dollar.
And while bitcoin being a currency is already taken as a given in the cryptocurrency ecosystem, the federal response to Constanzo’s case is a major development, if not an ambiguity, as a state-level judge in Florida came to a polar opposite opinion in a 2016 money laundering case.
Contradicts Miami Judge’s Ruling Last Year
When federal and state-level judges disagree, it’s a dynamic that just begs for a legal showdown, and it’s a dynamic that’s now in play in light of Constanzo’s case.
That’s because in 2016, a Florida man named Michell Espinoza was hit with money laundering charges in a case pertaining to facilitating credit card fraud through bitcoin transactions.
But Miami Judge Teresa Pooler ended up throwing Espinoza’s case out altogether. The Florida circuit-court judge ruled that Espinoza wasn’t guilty of money laundering because, as The Washington Post put it, she concluded “bitcoin is not money at all. And if you don’t have money, you can’t exactly launder it.”
Noting the legal ambiguity that reigns around cryptocurrencies in the United States, Judge Pooler remarked:
“Nothing in our frame of references allows us to accurately define or describe Bitcoin.”
But now Pooler’s estimation here seems superseded by the U.S. District Court of Arizona’s de facto description of bitcoin as a currency.
Is a Supreme Court case imminent? Probably not any time soon. But Supreme Court cases in the U.S. most commonly arise when ambiguity materializes between state and federal law, so the preconditions are apparently being met in comparing the Costanzo and Espinoza cases.
Where do you stand? Is this the wrong kind of attention, or is the U.S. government just coming to grips with the reality of cryptocurrencies? Let us know what you think in the comments below.
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