Two South Florida men were arrested last week on what a local prosecutor said may be the first state law charges over the use of Bitcoin digital currency as part of an alleged money laundering scheme.
Pascal Reid, 29, and Michel Abner Espinoza, 30, face two counts of money laundering and one count of engaging in an unlicensed money servicing business, according to court filings in Miami state court. Both men were arrested Feb. 6 and are being held in Miami-Dade County jails.
“The use of Bitcoins in the transactions is a new technological flourish to this very old crime,” Miami-Dade State Attorney Katherine Fernandez Rundle said in a statement. The “arrests may be the first state prosecutions involving the use of Bitcoins in money laundering operations.”
Federal prosecutors in New York have filed a series of charges tied to Bitcoin since October. Ross William Ulbricht, known as the “Dread Pirate Roberts,” was arrested for allegedly operating the billion-dollar Silk Road website, where customers used Bitcoins to buy and sell drugs. He has pleaded not guilty and faces trial Nov. 3 in Manhattan.
Bitcoin, introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto, has no central issuing authority and uses a public ledger to verify encrypted transactions. It has gained traction with merchants selling legitimate products but also has been used to facilitate illegal transactions.
In the Miami case, undercover police officers sought out “individuals engaged in high volume Bitcoin activity,” Fernandez Rundle said.
In December and January, a Miami Beach police officer and a Secret Service agent allegedly bought $1,500 in Bitcoins from Espinoza and another $1,500 from Reid in separate transactions, according to arrest affidavits filed in the case.
The officers found Espinoza and Reid on the Bitcoin exchange site LocalBitcoins, where Espinosa went by MichellHack and Reid used the name proy33, according to the filings. The undercover officers told both men they were using the digital currency to buy stolen credit card numbers.
In February, Reid sold the Secret Service agent $25,000 worth of Bitcoins, police said. The Miami Beach officer tried to purchase $30,000 from Espinoza, but the deal didn't go through because Espinoza was concerned the cash might be counterfeit, according to the affidavits.
“Bitcoins are neither good nor bad,” the prosecutor’s office said in a statement. “Buying Bitcoins allows money to be anonymously moved around the world with a click of a computer mouse. Improperly used, Bitcoins are often seen as a perfect means of laundering dirty money or for buying and selling illegal goods, such as drugs or stolen credit card information.”
Both defendants have been appointed defense counsel, according to court records. They are awaiting bond hearings.
Lyda Torres, attorney for Espinoza, didn’t return an e-mail seeking comment. Reid’s attorney couldn’t be immediately reached for comment.
U.S. prosecutors in New York said last week that the government had amassed “voluminous” amounts of evidence against Silk Road’s Ulbricht, including a number of computer servers. Ulbricht, 29, was indicted on four counts — operating a narcotics trafficking scheme, money laundering conspiracy, computer hacking and operating a continuing criminal enterprise.
Charlie Shrem, a prominent proponent of the currency, was charged last month with conspiring to launder more than $1 million in the currency in a case linked to Silk Road.
Shrem, 24, is the former vice chairman of the Bitcoin Foundation, an industry representative to regulators formed to oversee the currency’s software protocol. He was also chief executive officer of BitInstant, a Bitcoin exchange company.
Shrem is free on bail, restricted to his parents’ home. He faces as long as 20 years in prison if convicted on the most serious counts. Ulbricht is being held without bail after a federal magistrate said he had allegedly commissioned at least six murders-for-hire in an effort to protect his business. He faces a maximum of life in prison if convicted.
—With assistance from Carter Dougherty in Washington and Patricia Hurtado in federal court in Manhattan.