U.S. District Judge Alison Nathan of the Southern District of New York issued a decision yesterday finding that bitcoins are money under the plain meaning of Section 1960, the federal money transmission statute. In July 2015, Anthony Murgio and two others defendants were arrested and charged with operating an illegal bitcoin exchange – Coin.mx. Murgio sought to dismiss two counts – operating, and conspiracy to operate, an unlicensed money transmitting business. He argued that virtual currency falls outside the definitional scope of the applicable statute. The court disagreed.
Section 1960 makes it a crime to knowingly conduct, control, manage, supervise, direct, or own all or part of an unlicensed money transmitting business. The statute defines money transmitting to include transferring funds, and lists three ways in which a “money transmitting business” can be deemed “unlicensed.” First, a money transmitting business is unlicensed if it is operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony. Second, such a business is unlicensed if it fails to comply with federal money transmitting business registration requirements. And third, a money transmitting business is unlicensed if it involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.
Section 1960 does not specify what constitutes “transferring funds.” This raises the question of whether bitcoins are deemed to be “funds” or money under the statute. The court concluded that they are. Relying on two prior decisions – Judge Rakoff’s decision in United States v. Faiella, 39 F. Supp. 3d 544, 545 (S.D.N.Y. 2014) and Judge Forrest’s decision in United States v. Ulbricht, 31 F. Supp. 3d 540, 570 (S.D.N.Y. 2014) – and applying the “ordinary meaning” of the term “funds,” the court stated that:
bitcoins can be accepted as a payment for goods or services or bought directly from an
exchange with a bank account. They therefore functions as pecuniary resources and are
used as a medium of exchange and a means of payment.
Hence, the court held that bitcoins are “funds” under the statute.
While the publicity surrounding this decision may seem noteworthy, in reality the court’s decision is consistent with several other federal cases and will unlikely have a dramatic impact.