
Feds reveal the search warrant used to seize Mt. Gox account - evo_9
http://arstechnica.com/tech-policy/2013/05/feds-reveal-the-search-warrant-that-seized-mt-gox-account/
======
ig1
It's important to note that regardless of whether bitcoin is a currency or
not, the specific question on money transmission was "Does your business
accept funds from customers and send the funds based on customers'
instructions".

This means it doesn't matter if bitcoin is a currency or not. If your taking
money from one fiat currency account and moving it to another fiat currency
account on customer instructions you can fall into the money transmitter
classification.

It's also one of the (many) reasons that if you're running a marketplace
startup you don't want to run an intermediately account that does pass-through
for the transactions but instead use a service like Paypal X or Balanced which
complies with relevant money transmission laws.

~~~
joshuak
MtGox took the position, and legal argument that they where not trading a
monetary instrument of any kind, and at least early on that was a plausible
argument (although probably not a winning one) because they characterized
bitcons as a product or commodity. I do not have to qualify as a money
transmitter if I buy and sell bags of rice even though one could possibly use
that as a mechanism to "send funds based on customers' instructions". In fact
other then the merchant services I _cannot_ send money to another Mt Gox user,
but the bitcoin client provides that functionality and Mt. Gox does not
control the client.

They shot themselves in the foot a bit when they started adding merchant
services. Nevertheless I think they technically answered the questions
correctly given the legal position they where taking that bitcoins are not a
monetary device but a commodity. IANAL but I play one on TV, and they may
still have some traction on that argument since bitcoin is only recognized as
a currency by popular opinion not by legal decision.

~~~
ig1
Google the law around "liquid assets" (assets which are easily convertible to
money without loss of value).

Money laundering laws have been around a long time and tend to be written to
encompass a wide range of work arounds that criminals have used historically.
Using near money or liquid assets for money laundering has been commonplace
for decades, hence laws tend to be designed to handle it.

(that said I'm much more familiar with EU anti-money laundering laws than US
ones as I used to work in currency trading in London)

~~~
chasb
Even moreso: After 9/11, the DC Circuit and the 4th Circuit (where Maryland
is) broadened the intent requirements for 18 USC 1960 to general intent,
meaning a defendant doesn't have to know they're breaking the law, just that
they're transferring funds.

As a result, the statute is basically a sledgehammer for anything related to
value transfer, broadly defined.

[http://blj.ucdavis.edu/archives/vol-8-no-1/One-hour-Money-
La...](http://blj.ucdavis.edu/archives/vol-8-no-1/One-hour-Money-
Laundering.html)

------
nikcub
Funny, in the profile of Mt Gox in The Verge[1] they said:

> Mt. Gox estimates it costs $25 million in the first year to become fully
> compliant in the US. But considering a regulator could potentially swoop in
> and seize funds if a violation were found, it’s worth it.

I called bull[2] on that figure when that post was published.

The other reason i've stayed away from Mt Gox is despite their claims of
compliance, they aren't listed on the Californian DFI website as a registered
money agent[3]

When that article was posted I also emailed Mt Gox, since I couldn't find them
in any registry as an authorized money transmitter, to ask them where that
$25M was spent. The response I got was:

> Unfortunately, our financial statement is yet to be available. Once it is
> available and we have the permission to publish it from management, we will
> release this.

[1] [http://www.theverge.com/2013/4/1/4154500/mt-gox-barons-of-
bi...](http://www.theverge.com/2013/4/1/4154500/mt-gox-barons-of-bitcoin)

[2] <https://twitter.com/nikcub/status/321418917803327488>

[3] <http://www.dfi.ca.gov/Directory/money_transmitters.html>

~~~
MacsHeadroom
Money Transmitters have to post a $25 Million security bond in order to be
licensed across the entire U.S. That is were the $25 Million would go. But
MtGox never spent that money nor claimed to spend that money as of yet.

To my knowledge, they have never made any claims of compliance. They have only
said that they plan to become compliant some time this year.

~~~
jzila
They don't need to have that full money, however. They pay another company a
typical interest rate between 3 and 5% to post that bond on their behalf. So
you probably need less than $1M per year to fund those bonds.

The bigger issue is that it takes lots of time and effort for back-and-forth
with each state to get authorized. One person has maybe the bandwidth to
obtain compliance with up to 3 states at a time, and this is for someone who
knows the legal background very well. So you need to staff a pretty large
compliance department off the bat to become compliant _before_ engaging in
money transmission (and thus before earning revenue). That's hugely expensive.

source: I work for a money transmitter.

~~~
yebyen
Oh. So, you don't have to part with $25mil for as long as you want to stay in
business, you just need to pay $1mil in non-refundable interest every year
until you want to go out of business. Sounds perfectly cromulent.

------
jack_trades
Yeah, but those are just questions on paper! They after me lucky charms!

When you sign a legal form, especially tied to a business, you might want to
consider the ramifications of how you complete the form. You probably should
legal up prospectively if it deals with money and currencies.

This is not surprising for MtGox. Their platform, communications, and, now,
essential business acumen all perform at the same unprofessional level. I
guess it's back to trading cards then, eh?

~~~
illuminate
"Yeah, but those are just questions on paper! They after me lucky charms!"

Don't Libertarians preach contract supremacy?

------
pyre
It's worth noting that at least a couple of exchanges have gone through the
appropriate hoops with the US Federal government. I think the Mt. Gox thought
that they were immune because they are based in Japan.

~~~
ChuckMcM
Perhaps, except the questions they answered 'no' to are pretty much exactly
what they do. I'm not sure what Mark was thinking they actually did when he
answered those questions.

Its interesting to me that typically this would be a simple "hey you filled
out the forms wrong" kind of thing and the officers would go down and change
their paperwork and correct any missing licenses, pay whatever penalties etc.
This however is blown up as a 'big deal' which suggests that at least some
folks would rather have you believe that the concept of bitcoin is illegal.

~~~
PeterisP
Why do you think that 'typically this would be a simple "hey you filled out
the forms wrong" kind of thing' ?

I'd guess that every single such violation is prosecuted if detected - money
laundering is not that rare, and in accounting/financial/company tax matters
pretty much all mistakes (unless detected in pre-signing validation) are
treated as punishable/fineable violations, not "correct your paperwork"
matters. And as a company officer, there quite a few papers that you are
required to sign where you may face jail if they're not true.

Also, seizing/freezing any money-laundering or tax-evasion related funds is
common practice - first ensure that the money isn't going away, and then
release it when/if all the violations are cleared.

~~~
oijaf888
HSBC wasn't really prosecuted nor were the hundreds of billions of cash that
they laundered seized, I think its very selective enforcement in many cases.

------
scott_karana
Somehow I'm not surprised that Mt. Gox was completely unlicensed as a "money
transmitter", and that they denied involvement in such on their bank account
questionnaire.

For once this at least _seems_ like a legitimate takedown.

~~~
ctdonath
_“Did you really think we want those laws observed?" said Dr. Ferris. "We want
them to be broken. You'd better get it straight that it's not a bunch of boy
scouts you're up against... We're after power and we mean it... There's no way
to rule innocent men. The only power any government has is the power to crack
down on criminals. Well, when there aren't enough criminals one makes them.
One declares so many things to be a crime that it becomes impossible for men
to live without breaking laws. Who wants a nation of law-abiding citizens?
What's there in that for anyone? But just pass the kind of laws that can
neither be observed nor enforced or objectively interpreted – and you create a
nation of law-breakers – and then you cash in on guilt. Now that's the system,
Mr. Reardon, that's the game, and once you understand it, you'll be much
easier to deal with.”_ ― Ayn Rand, Atlas Shrugged

And when the evidence is presented in a stark, context-free, spin-managed
manner, casual observers tend to agree with the charges. There was no question
the feds would take an interest in Bitcoin with desire to take it down, and
duly analyzed all paperwork from that perspective until they found an excuse
to. Require enough paperwork, and somewhere a sufficient transgression will be
found.

~~~
ubernostrum
Yes, the government is the most evil thing in the history of evil, there is no
such thing as a justified law, and this is just the parasites trying to leech
off of and get power over the brilliant Galt-like geniuses whose intelligence
was so inestimably massive that they apparently consciously filed a legal form
that said "oh, that thing that we do and advertise that we do? Of course we
don't do that".

~~~
mindcrime
_Yes, the government is the most evil thing in the history of evil_

Governments, in practice, do tend to be sources of substantial amounts of
"evil" behavior. Probably the largest source, outside of religious
institutions. So while your attempt at sarcasm is appreciated, it's pretty off
base.

 _there is no such thing as a justified law_

Nah, limit "law" to nothing more than a collective extension to our innate,
individual right to self-defense[1], and you'd find very few arguments against
it, even from radical libertarians.

[1]: <http://bastiat.org/en/the_law.html>

~~~
sdoowpilihp
Do you care to back up your claim about religious institutions. I am not
saying that you are wrong, but you have made a very serious claim sans any
quantifiable evidence.

~~~
mindcrime
_Do you care to back up your claim about religious institutions._

No, I do not. Anybody who has even a passing familiarity with history should
be able to recognize the truth in my comment. Beyond that, this discussion
isn't important enough to me to justify going out and treating it like a
research project and providing citations and sources in meticulous detail.

OTOH, perhaps I am wrong. So be it.

~~~
jtc331
Yeah, actually the evidence demonstrates that an order of magnitude (or more)
of people have been killed by governments than by religion. And most of those
governments were (officially) atheistic.

~~~
mindcrime
Yeah, but who cares who is "1" and "2" on the list, or "1a" and "1b" even.
Both have been responsible for an awful lot of killing and mayhem.

------
rdl
Interesting that the MTB/MSB laws where what they used to go after e-gold a
decade or so ago.

E-Gold got used by customers even sketchier than anything I've seen BTC used
for -- I used to think of it as the carder currency, but it was also heavily
used in the CP world, I think. They really hated e-gold, but chose to use the
MSB laws against it.

I know the e-gold guys tried to go out of their way to be as compliant as
possible, too. They were fundamentally pro-liberty/pro-gold people, not
involved in the "sketchy" business, and had been fully cooperating with
authorities as much as they could (e-gold was not really about anonymity as
much as "honest money"; they had bank-level KYC requirements for accounts at
some point, although initially they had none.).

The interesting question is whether fully KYC/etc. compliant Bitcoin
businesses will be allowed to register as MSBs, or if there will be artificial
roadblocks put up. One issue is the global pseudonymous network that is
Bitcoin once it leaves a KYC-compliant site, but that isn't too different from
either a KYC-compliant bank that pays out physical cash or one which sends
SWIFT wires to overseas banks with more lax KYC requirements (or issues
prepaid debit cards).

~~~
il
Some carders used e-gold, but because most of the major fraud gangs operated
out of Eastern Europe/Russia, the dominant carder currency was generally
WebMoney.

e-gold was actually incredibly popular for online gambling and participating
in HYIP(short term Ponzi schemes). Not exactly the most squeaky clean
activities, but not exactly terrorism or whatever else the feds used to shut
down e-gold.

~~~
rdl
Webmoney got big after e-gold, iirc. (I was a consultant to e gold and was
working on a digital blinded token currency backed in egold at the time in
Anguilla). My memory that far back is kind of hazy, though.

The HYIP stuff was amazing. I don't remember it being so popular for gambling.
The other gold currencies which turned out to be scams (osgold, etc) were
super lulzy too.

------
Groxx
> _As part of the account opening process, Wells Fargo required Karpeles and
> Mutum Sigillum LLC to complete a "Money Services Business (MSB) Accounts,
> Identification of an MSB Customer" form. That document was completed on May
> 20, 2011 and identified Mutum Sigillum LLC as a business not engaged in
> money services._

Were the FinCEN rules in effect on May 20, 2011? I see this on the
"Guidance"[0] released in March (starting the "background" section):

> _On July 21, 2011, FinCEN published a Final Rule amending definitions and
> other regulations relating to money services businesses ("MSBs").4 Among
> other things, the MSB Rule amends the definitions of dealers in foreign
> exchange (formerly referred to as "currency dealers and exchangers") and
> money transmitters._

Separately, since the guidance was issued, there seems to have been wide-
spread confusion / misinterpretation. If they ignored it _after_ this was
issued, then they obviously were in violation, but before? How do ambiguous-
interpretation cases get handled?

[0]:
[http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....](http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html)

~~~
dragonwriter
> Were the FinCEN rules in effect on May 20, 2011?

It doesn't really matter, because while the form is referenced, the alleged
crime supporting the warrant isn't incorrectly filling out a form on May 20,
2011, it is conducting unlicensed money transmission business.

------
lawnchair_larry
I wonder if HN user thinkcomp had anything to do with this. It says that it
was done based on information from an informant, and he's been harassing
everyone touching money without a license. This has to be the first thread
about money transmission that he _hasn't_ posted in.

<https://news.ycombinator.com/threads?id=thinkcomp>

<https://news.ycombinator.com/item?id=5398074>

Edit: He also just filed his lawsuit against virtually every VC and payment
startup, including Dwolla.

[http://www.daniellemorrill.com/2013/05/lawsuit-names-slew-
of...](http://www.daniellemorrill.com/2013/05/lawsuit-names-slew-of-venture-
capitalists-payments-startups/)

<http://www.scribd.com/doc/139975904/Aaron-Greenspan-lawsuit>

The timing, and the previous comments made by him directly referencing this
issue and Mt. Gox is very suspicious.

~~~
ChuckMcM
Aaron (aka thinkcomp) certainly has a issue with this stuff given his FaceCash
experience. As to whether he was involved or not is sort of irrelevant though
isn't it?

------
iblaine
Why tell Mt Gox what they are doing wrong when you can fine them instead?
Seems like the American way.

~~~
qdog
Currency trading laws and regulations seem to pretty clearly state what they
were doing wrong. This seems to be a shortcoming of MTGOX itself, not a direct
attack on bitcoin. MTGOX's claims of compliance in the US seem to be hogwash
at this point.

------
iguana
Does anyone have a list of current bitcoin exchanges, and the licenses they
hold?

Is Coinbase safe? Is BTC-E?

~~~
rossmiller
Here is the link to the website to check if a company is registered as an MSB.
Yes, Coinbase is registered as an MSB
[http://www.fincen.gov/financial_institutions/msb/msbstatesel...](http://www.fincen.gov/financial_institutions/msb/msbstateselector.html)

------
krupan
Does anyone know how, say, coinbase answered those questions when they opened
their bank account? (half joking here)

