Is trading on LocalBitcoins Illegal? What is Legal trading?
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:
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."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
In my view, it no longer makes sense to attempt to think in terms of "legal or illegal". Trying to think in these terms can only work if there is some meaningful, objective difference between the two; yet there is no clear evidence this is the case. In fact, if one actually attempts to get some idea of what activities are legal or illegal on the books, she will quickly realize that almost all of our mundane, daily activities are illegal on the books, sometimes highly so, but neither average joes nor political enforcers generally realize this. Legal vs illegal seems to be completely arbitrary, and quite often, ambiguous, based on a variety of influences I will reference simply with the umbrella term 'political expedience,' so what value is there in asking the question at all? It is a question for which the answer has little value, if an answer can be consistently derived at all.
Legal vs illegal is a crapshoot, so what are the questions worth asking? Certainly ethical/moral questions, as you may see fit to apply them. Does buying and selling crypto help to, in your view, make the world a better or worse place? In my opinion, the answer here must almost certainly be "better," but to someone else the answer might be different for some reason, and that reason could be perfectly legitimate. This is a question worth pondering long and hard for all of our activities.
And another question worth asking is "Are political enforcers going to attack or hurt me for this?" and of course the answer to this question may inform whether/how you engage in buying and selling crypto. But even the answer to this question has little to do with legal vs illegal. Legal versus illegal is so irrelevant to real life at this point, most people do highly illegal things all the time, and not only is no one bothered by this, they would be extremely bothered (if they could survive at all) if everyone did make an honest and informed effort to only behave in legal ways.
That state of ambiguity is one of the primary hallmarks of totalitarianism, and is not an accident. Some individual get a little too loud or disruptive? Simply open up the enormous index of potential crimes and search until one fits and now you have an excuse for locking people away who are inconvenient.
This is pretty much right on. Had wanted to include a blurb about this in my "EOS Highlights and Favorites from Ethereal and Consensus 2017" post, though it seems @crypt0 had deleted the video for some reason. Perhaps they asked him to take it down, but one event was "Chasing Privacy in Blockchains" with Anne Wallwork, a "Policy Director" for the US Treasury Department.
The way she described it was that basically the Treasury Department regulates all forms of wire transfers. By extension, coin exchange is also then a form of "wire transfer", and technically anyone moving money electronically for any purpose, and certainly "privately" and/or "anonymously", could be considered as running afoul of KYC (know-your-customer) regulations...
You start to get the idea. As @modprobe wrote, potentially everyone's guilty of something, if "the powers that be" choose to come after you. That's sort of how Ms. Wallwork ended it, (paraphrased) "We're just watching and observing for now, but that could change at any time, as we see fit..."
Sort of like when the IRS retroactively changes the rules and goes after people 10 years later, except here they would see it as finally deciding to "enforce" laws (for certain players, at least, to "make an example" of them), that they already believe they have jurisdiction to pursue, as they see fit. Or say, just like they did to @charlieshrem. Another story that really started "waking me up" to how bad it had all become was Martin Armstrong's story: When There is no Justice – It is Time To Turnout the Lights
And of course, there's still the IRS probe into Coinbase, which is ironic since I think many coinbase users are likely also small businesses using coinbase to accept bitcoin and immediately convert it back to cash for sales (as opposed to people trading bitcoin and raking in "huge" profits): Congress Seeks Answers From IRS About Its Bitcoin Tax Investigation.
I tend to agree, everything we do is confusing when it comes to legal or otherwise. It's painful and worrisome to find out that an act is illegal when you read that someone was charged and convicted. It's as if we have to collect all these cases and read them and deduct what is legal and what is not. I did not find it weird when people who were involved in drug trafficking were convicted, but it's not the same when it comes to trading. The government needs to present laws that clearly define this, not use laws written in 1960 to prosecute cases involving Bitcoin. Until then we try in good faith to practice what we think is legal based on outdated laws.
It's as if we have to collect all these cases and read them and deduct what is legal and what is not.
I think that to most people in western culture today, this has become how they determine legal vs illegal. In other words, illegal vs legal, in their minds, is not a function of law, but rather a function of the behavior of political enforcers.
In the words of Confucius though, The beginning of wisdom is calling things by their proper names. My first hand experience has shown me that this is completely true. Words are our minds' handles on reality. Once we clarify the meaning of our words and how we use them, our thinking becomes clearer. When our thinking becomes clearer, we understand our world better. When we understand our world better, our plans to make our world better become more effective.
Thus it is counterproductive (unless you're going into public manipulation/politics, but if you do that you must not be wanting to make the world a better place anyways, lol) to think in terms of legal or illegal; it is more beneficial to think in terms of "What's going to make the world better, at least to me?" and "What's going to get me beat up by political enforcers?" since that's what we really care about, rather than "What does some incomprehensible legal document, which no one, least of all political enforcers, has ever read, say?".
Of course it can be a bit scary to think that clearly. Many of us don't want to admit our world is that messed up. It feels much more comfortable, much more safe, to think in terms of legal and illegal. But, at some level, I think we all know that doing so is living in a fantasy. At some point I gave up on that fantasy, and although the world looks a bit darker than the fantasy, the future started looking brighter because I realized that by choosing to see the world as it is rather than as I wish it were, I gain the power to change it for the better because I plan my actions based on reality rather than fantasy. Of course, I, like everyone, still make mistakes a plenty. I have a long way to go, no doubt, but I remain convinced that this is the right path.
Your argument is based on the assumption that people do highly illegal things routinely, but you don't provide any example. What are examples of highly illegal things people are doing routinely?
This is a well documented phenomenon known as overcriminalization. I will not attempt to summarize it here, but there are abundant examples readily available by searching online, or even just randomly opening a major state's code books (the United States Code being a fairly canonical example) and thinking about whether the contents are a sane way to run a society or not. You might also find the book Three Felonies a Day instructive, which was written by a lawyer who became concerned at the 'crimes' and convictions he began to see in his daily work. I have not personally read this book, though, and know it only by reputation.
I am aware of the concept. I'm actually quite in agreement with Ayn Rand's view that law is intentionnally designed to criminalize an always higher number of people so that they may be controlled through their own guilt, fear and shame, and increasingly through direct blackmail and legal bullying thanks to all the dirt that the all watching eye of the NSA is capturing and storing forever in their data vault.
What I was pointing to is the fact that not everyone is convinced of that, and that without clear, real-life examples, the argument isn't very convincing.
I'll give one example based on my own circumstances. Where I'm living, the tax code states that long term capital gains are gains from profits made on a "long enough" period of time, "depending on specific circumstances" and "the nature of the activity". None of what I put in quotes is defined at all anywhere in the tax code. And calling the IRS doesn't help because they just explain that it is determined case by case, and there is no precise guideline. In other words, if you are actively managing a financial portfolio, you are routinely misreporting some of your gains because no matter what you do, an IRS agent can always arbitrarily decide that your definition of "long term" is too short to his liking, or that your circumstances are the type of circumstances where you can't claim long term capital gains, and find you guilty of misreporting your income. The only way to be safe is to volunteer to declare all your trading as short term trading income and pay more taxes. And even then, you'd still be potentially doing something illegal: reporting more income than you actually made is a false declaration. As soon as your inflated tax statements start being used to increase your credit card limit or get a loan, you could be found guilty of fraud.
I'd be interested to hear a better everyday life example that more people can relate to though. Speeding perhaps?
Brilliant example! I agree, real world stories of the harm of the state are indeed important. Pathos is a technique of persuasion I have not mastered yet.
As for me, I think I've always felt at some level that if I chose to become savvy at that system, I'd be embracing my slavery to an extent I simply wasn't comfortable with. At that point I would be choosing to develop myself within and through that system because it is the 'safe' choice. I instead chose to pay the higher extortion rates on ignorance of that system and that pain motivated me to end my enslavement sooner rather than later. I now have detached myself from it and consent to it no longer.
So I have few stories of mishaps with the state. I have, for the most part, left it behind me now.
Part of the reason is that these local traders are stepping on the toes of an established and licensed industry. Those who have jumped through the hoops and paid the toll are not going to look kindly upon every man and his dog starting to take a cut of their regulated trade. Vested interests are always going to be an antagonist towards change. A negotiation and dialogue will need to take place to facilitate that process in the best scenario. Otherwise I guess it is just a knock down and beat em up fight to see who is still standing when the dust settles.
Bitcoin is money or digital asset?
Crazy. I work for an AV company here in Springfield Missouri. We sponsor a group called AITP (association of IT professionals,) meaning we take in a pa and projector and screen every month for the meetings. Imagine our surprise last meeting when the president of the group Jason Klein resigned due to pleading guilty to illegal Bitcoin trading! I never got a chance to ask him what happened, but he sure ain't the criminal type. Wild.
anything which is not mandatory is prohibited comrade...Shirley you knew that?
Truer words were never spoke. Dunno why I hadn't followed you yet. Fixed now.
welcome a bored.
Being a carpenter by trade, I generally welcome a board by cutting, beating, and otherwise abusing it to the extent necessary to achieve it's compliance.
Thanks!
(blink)
why..
why...
what a nice thing to say..
Don't call him Shirley.
caught it did you? good man!
I guess it's that time where bitcoin finally finds it's place in the world. Must say that i preferred the old rogue-ish reputation of bitcoin but now law enforcement is starting to meddle that's a thing of the past.
You have it backwards. They're fighting now out of desperation. It was easy to dismiss bitcoin when it was only a few dollars, but now they're starting to understand that it's not stopping. These cases are completely without merit because bitcoin doesn't even fit their definition of money. The US government is like a dying dragon - its gonna die, but its death flailing is going to take some people out along the way.
It's also a good time for people to start paying attention to what approach they take to trading crypto currencies.
Definitely. Though in my country (the netherlands) even if you want to "play it straight" you cannot. On your taxes you can only list bitcoin's like an asset (gold, silver, etc). It doesn't even register as a fiat currency, which it kinda is nowadays.
Unfortunately, I have a feeling that more people are going to break this law in the future, especially as the demand for cryptocurrencies increases worldwide. Thanks for creating this post, it's incredibly fascinating
Why is that unfortunate? Trading bitcoins for dollars is NOT against the law anyway - the government's case is completely without merit. This is purely an act of desperation by the Feds. They see that they are losing control of currency itself and are terrified. Make no mistake, the criminals in this case are the ones with badges and costumes.
I think that the problem here in the post is that the people who are benefiting from the money transmitting are not the people actually conducting the transactions. When a money transmitter is unlicenced, they might accidentally launder money, forget to pay taxes, or break other laws unknowingly. These have larger implications of course.
People should educate themselves and stay above the law while conducting business, especially when it's other people's money that's valued in the millions...
A permit doesn't establish or maintain someone is apt or not at whatever the license or permit is for. A person or business doesn't magically become less prone to accidentally laundering money, forgetting to pay taxers, or breaking other laws, simply because a permit says their name.
That false sense of security is how scams happen, confidence is high.
I feel compelled to address the money laundering issue here, but suddenly realize that, while your statements regarding licensing are canon per license issuers, they are utterly vacuous.
Please do not mistake my dismissal of the canon as in any way reflective on you personally, but as an indictment of a system that is dependent on exactly the things you have stated as reasons for licensing.
Not so long ago (okay, probably a long time ago) Warren Buffet remarked that he, and his wealthy ilk, paid less taxes than the average wage earner, because he could afford competent tax preparation services.
Anyone that does not know that all the proceeds of black markets are laundered by banks simply doesn't grasp the concept.
As to other laws, I will leave that to independent researchers, like George Webb Sweigert, who seems to have considerable evidence of most of them being violated routinely, by the most trusted organizations extant.
Trusted, at least, by the financial system itself.
I, at last, must be left with only one reason to support licensing, and that is to limit the size of the market, to protect margins.
I absolutely agree with you that people should take care when conducting business, and particularly when doing so with other people's assets. It's just the right thing to do, after all.
However, when it comes to my money, I reckon the only hand on it besides mine I will trust, is God's.
Thanks!
costumes! lol
Breaking the law is not a good idea. If someone is smart enough to get into bitcoin, then he should be smart enough to do it within the legal boundaries.
Absolutely, I agree. You would think people taking millions of dollars of currency would stop and think about the federal requirements... I wonder how many people who get arrested for this will even know they're breaking a law...
You are new to crypto and probably don't know this, but bitcoin was designed to make government obsolete. This is EXACTLY why government is so scared of it being traded and used as currency.
That's true and also one of the reasons I'm interested in learning more about it, however that doesn't mean that people should try to avoid their government's laws for financial gain. But obviously it's going to happen with more frequency in the future
Why not, why should we avoid taxes and bullshit permits every chance we have?
Why should we bow to every obsolete law and mandate, which is arbitrary at best and because of that can be interpreted a million ways from Sunday. Why is it ok to tell your neighbor how to run his business? You wouldn't tell him how to eat and shit but you'll tell him how he can and cannot make a profit.
You tell me, why should you avoid taxes and bull**** permits every chance you have? I'm not telling you to murder, I'm telling you to pay your taxes.
Follow the laws you believe in and suffer the consequences. It's that simple.
You tell me why should we pay taxes and get bullshit permits, because as it stands taxation is theft and permits aren't necessary, period.
Better yet, don't offer advice like "pay your taxes, get your permit" without backing it with a WHY and a HOW, and least of all don't recoil from answering those questions and flip it on the questioner to establish why you shouldn't, because it won't make your advice any more sound, it's still nonsense that crumbles at the touch of inquiry.
You simply make your own decision. If you choose to break the law then you choose to suffer the consequences if found out. That's my whole position. Why? Because taxes show thankfulness to our fellow-countrymen and to mankind. How? By paying your taxes and contributing to your society. You can keep arguing about this position, but at the end of the day, I'm not arguing back. I'm simply sharing what I believe.
Government's will try hard to restrict people from dealing with bitcoins, as they know once it is accepted by masses.. government will go bankrupt.
you mean they will run out of money they print up out of thin air after we have deposited our hard earned labour into our bank accounts to be taxed on which they then take off us to fund their wars and send us off to fight them onto to come back with one arm and one leg and end up homeless on the street....... yep perhaps they do need to go bankrupt......
This is not about what the government is trying to do, this is about keeping yourself protected from violating any laws.
This is about what the government is trying to do and about keeping yourself protected from what the government is trying to do.
yep. government crackdown on cryptocurrency was predicted and planned for in the design from the very beginning of bitcoin.
The more they try to shut us down is the more we will find a way to win.
I will just copy and paste the main sentence : " 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." :)
This is why I never post a listing of my own to buy or sell on localbitcoins, because as soon as you do that yes you are engaging in a business of it.
Reading about all the financial and tax regulations of the US makes me glad that I am not a citizen there.
Living in a country that's pretty much center of the world has its downsides. When it comes to finance, a little unregulated, irrelevant country is preferable.