The government and legal community may still be arguing over whether bitcoin can be defined as "money." But the judge presiding over the landmark Silk Road drug case has declared that it's at least close enough to get you locked up for money laundering.
In a ruling released Wednesday, Judge Katherine Forrest denied a motion by Ross Ulbricht, the 30-year-old alleged creator of the Silk Road billion-dollar online drug bazaar, to dismiss all criminal charges against him. Those charges include narcotics trafficking conspiracy, money laundering, and hacking conspiracy charges, as well as a "continuing criminal enterprise" charge that's better known as the "kingpin" statute used to prosecute criminal gang and cartel leaders.
That earlier motion, filed in April, raised potentially trial-shifting questions: Can Ulbricht really be accused of running a drug-selling conspiracy when he merely ran a website that made the narcotics sales possible? And can he be charged with money laundering when bitcoin doesn't necessarily meet the requisite definition of money?'
According to Forrest's latest ruling, yes and yes. She rejected every argument made in the defense's motion, starting with the idea that Ulbricht had merely provided an innocent platform for hosting the Silk Road's illicit e-commerce, just as eBay might occasionally host illegal content without its knowledge.
"Silk Road was specifically and intentionally designed for the purpose of facilitating unlawful transactions," Forrest writes in her 51-page order, embedded below. "Ulbricht is alleged to have knowingly and intentionally constructed and operated an expansive black market for selling and purchasing narcotics and malicious software and for laundering money. This separates Ulbricht's alleged conduct from the mass of others whose websites may---without their planning or expectation---be used for unlawful purposes."
Ulbricht's lawyer, Joshua Dratel, had made the argument that if anything, the Silk Road should be covered instead by a law known as the "Crack House Statute." That 1986 law was created to hold landlords accountable for knowingly owning a property where drug deals were taking place. Dratel argued that if the more serious narcotics charges in Ulbricht's case applied, there would be no need for that landlord-focused law.
But Forrest countered in her opinion that Ulbricht is accused of being more than a disinterested landlord. By allegedly designing the Silk Road to use tools like the anonymity software Tor and the potentially tough-to-trace bitcoin, she argues that he had invited drug dealers onto the property. "Ulbricht's alleged conduct is more akin to a builder who designs a house complete with secret entrances and exits and specially designed traps to stash drugs and money," she writes. "This is not an ordinary dwelling, but a drug dealer's 'dream house.'"
She went on to note that Ulbricht is accused of working to organize and command control of the Silk Road’s operations, and also took a commission from its profits—all the kind of behavior that would make him an active participant. “The allegations amount to Ulbricht acting as a sort of ‘godfather’—determining the territory, the actions which may be undertaken, and the commissions he will retain; disciplining others to stay in line; and generally casting himself as a leader - and not a service
provider.”
By far the most closely followed argument in Ulbricht's April defense motion, however, had been its contention that bitcoin users can't be accused of money laundering because bitcoin isn’t “money.” The motion cited statements about bitcoin by the IRS and U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) that described it as neither “funds” nor a “monetary instrument,” the two terms used in money laundering statutes. In fact, the IRS has instead described bitcoin as “property” for tax purposes.
But Forrest tossed out that argument, too. She points out in her opinion that neither the IRS nor FinCEN have the power to define money laundering laws. And she said it was easily clear enough that bitcoin had function as money in the Silk Road’s dealings. “Sellers using Silk Road are not alleged to have given their narcotics and malicious software away for free - they are alleged to have sold them,” she writes. “The money laundering statute is broad enough to encompass use of Bitcoins in financial transactions. Any other reading would—in light of Bitcoins' sole raison d'etre—be nonsensical."
The rejection of Ulbricht's motion could have rippled effects beyond the Silk Road case. Former Bitcoin Foundation vice chairman Charlie Shrem was also arrested last January and charged with Bitcoin money laundering--his trial is still pending. Projects like Darkcoin and Dark Wallet that seek to enable the anonymous use of cryptocurrency could also find themselves on thinner ice as that the limits of bitcoin's legal anonymity have become clearer.
Bitcoin's appeal for many of its users, after all, has been the potential to spend the currency privately, without any ties to the user's identity. Wednesday's ruling serves as a reminder: Get caught using that anonymity for illegal purposes, and you could face just as much trouble as if you'd been dealing in old-fashioned dollars.
