At least two men in Florida have been charged for moving large volumes of bitcoins via the popular person-to-person exchange LocalBitcoins.com. They were charged under state anti-money-laundering laws following an investigation by the US Secret Service, said reports.
Security blogger Brian Krebs reported that Michell Abner Espinoza of Miami Beach was arrested after a sting in which an undercover agent engaged him in a fake transaction to convert $30,000 worth of cash into bitcoins.
In addition, 29-year-old Pascal Reid was also arrested after meeting with an undercover agent to exchange $30,000 for bitcoins.
Both of the men are being charged under two laws. The first is Florida's anti-money laundering law, which targets money exchanges above $10,000.
The second is running an unlicensed money transmission business. Statute 560.125 forbids people from exgaging in frequent unlicensed money transmission-type transactions of more than $300 but less than $20,000 in any 12-month period in the state.
Depending on the amount involved, it is considered a felony of the third, second, or first-degree. Exchanging more than $100,000 in funds during any 12-month period is considered a first-degree felony. Fines of twice the currency value, up to a value of $250,000, are possible.
Espinoza, said to go under the name MichaelHack on LocalBitcoins.com, had trades involving more than 150 bitcoins in the last six months, say reports.
Headquartered in Finland, LocalBitcoins.com is a person-to-person trading website, which facilitates trades both online and in person. Unlike exchanges that automatically reconcile trades using an online order book, exchanges like LocalBitcoins.com let users find each other, and handle the trades themselves. The site has been gaining popularity rapidly in recent months, adding roughly 1,000 users each day.
Jeremias Kangas, the owner of LocalBitcoins.com, wasn't aware of the charges when contacted by CoinDesk. He explained that the site relied on users to follow the laws in their own countries when conducting trades. "That’s our guideline. But it’s quite difficult for us to look after everyone," he said.
Currently, users are expected to verify each other themselves when handling in-person trades, Kangas noted. The company has been working on a central verification system, although that has not yet been implemented.
"This is inevitable of course," said Kangas of the Florida incident. "We have to have more scrutiny and tools to watch that everything on our website is legal, and our users can follow their local laws. We are spending a lot of resources on that, but we are a startup."
Localbitcoins.com does not limit the size of trades, admitted Kangas. "That might be possible, actually. We haven’t thought about that," he said.
Espinoza had his bond hearing today, and faces three charges; two related to money laundering amounts under $20,000 and between $20,000 and $100,000. The third charge relates to money transmission services for amounts between $20,000 and $100,000.
Reid's case details were not yet on file at the time of writing, but he is being tried for unlicensed money transmission services on a third degree felony.