Is trading on LocalBitcoins Illegal? What is Legal trading?

in #bitcoin7 years ago

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I have read an article on Coindesk this week that's very concerning:

http://www.coindesk.com/localbitcoins-trader-pleads-guilty-money-transmitter-charge/

Federal prosecutors alleged that Sal Mansy, a resident of Detroit, advertising a bitcoin buying and selling service through LocalBitcoins, conducting $2,400,000 worth of business between August 2013 and July 2015.
Mansy is the second user of LocalBitcoins to plead guilty to the unlicensed money service charge this month. Missouri resident Jason Klein plead guilty to selling bitcoin to undercover agents on five separate occasions, and a seller from Rochester, New York named Richard Petix plead guilty to the same charge a week prior.

The article does not specify what makes these specific trades illegal, is it the value of bitcoins sold and bought? is every user on localbitcoins committing a crime? or is it specific users exceeding a certain threshold?

I went to localbitcoins.com and surfed through the countless pages of FAQ / TOS / Forums and I see no mention of this at all. The website seems to be operating normally. So where did these charges come from? have those users who were charged with crimes done something different to be charged?

Even the wording in the article " Federal prosecutors alleged that Sal Mansy, a resident of Detroit, advertising a bitcoin buying and selling service through LocalBitcoins, conducting $2,400,000 worth of business between August 2013 and July 2015 "
seem to indicate that the charges may fit any localbitcoin user.

So why were they charged:

I went a little further and read the case files, it seems these users have went a little further than selling their bitcoins or simply trading. These users have started a business of buying and selling bitcoins on behalf of the public, and used localbitcoins as means of advertising their businesses. Their defense used the wrong assumption that the IRS definition of Bitcoin as property excludes it from money transmitting laws, which is totally wrong.

I found these footnotes from Mansy's case to shed some light on the issue:

FootNotes:

  1. Specifically, the Indictment alleges,
    Between about March 2014 and June 2015, in the Eastern District of Michigan, District of Maine and elsewhere [Defendants] knowingly conducted, controlled, managed, supervised, directed, and owned all and part of a money transmitting business affecting interstate commerce, which failed to comply with the money transmitting business registration requirements set forth in Title 31, United States Code, Section 5330, and the regulations prescribed thereunder, including Title 31, Code of Federal Regulations, Section 1010.100(ff)(5).
    (Indictment (ECF No. 3), Page ID # 3.) Title 18 U.S.C. § 1960 provides, "Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both." 18 U.S.C. § 1960(a). Relevant to this matter, "unlicensed money transmitting business" is defined in part as "a money transmitting business which affects interstate or foreign commerce in any manner or degree and . . . fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section." Id. § 1960(b)(1)(B). "`[M]oney transmitting' includes transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier. . . ." Id. § 1960(b)(2). The statute does not otherwise define "money" or "funds."

  2. For a primer on Bitcoin, see Jerry Brito and Andrea Castillo, Bitcoin: A Primer for Policymakers, Mercatus Center, George Mason University (2013), available at https://www.mercatus.org/system/files/Brito_BitcoinPrimer.pdf/.

What you need to know:

Selling or Buying bitcoins on an exchange where you provided KYC/AML is completely legal. Starting your own little business of doing the same on behalf of others is not. If you want to go further than selling and buying bitcoins or crypto currencies outside of the registered businesses (Exchanges) you need to obtain a money transmitting license. If you are all set with the IRS, it does not mean you are not committing a crime by selling/buying outside of the legally registered channels.

Case file: http://www.leagle.com/decision/In%20FDCO%2020170512D21/U.S.%20v.%20MANSY

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thanks for the information...