US Homeland Security Charges LocalBitcoins Seller With Money Laundering

Homeland Security and Drug Enforcement Administration officials charged a LocalBitcoins user with laundering more than $140,000 in bitcoin.

AccessTimeIconMar 11, 2020 at 9:04 p.m. UTC
Updated Sep 14, 2021 at 8:18 a.m. UTC
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Washington state resident Kenneth Warren Rhule has been charged with laundering over $140,000 in bitcoin (BTC) after agents with Homeland Security Investigations (HSI) made a series of undercover cash-for-crypto deals with the 26-year-old.

Rhule faces multiple counts of operating an unlicensed bitcoin money transmitter business and laundering monetary instruments after allegedly meeting with government agents “posing as criminals” interested in buying untraceable bitcoin for their human trafficking operation. Rhule was a seller on LocalBitcoins, a peer-to-peer trading platform used worldwide.

Rhule is said to have closed eight deals with the undercover agents – often in Seattle-area Starbucks cafes – for a sum total of $140,000 cash, according to the unsealed complaint. He faces an additional charge of conspiracy to produce and distribute marijuana.

The undercover agents also allegedly asked Rhule questions about monero (XMR), the privacy coin.

“Rhule explained to UCA-1 that monero operated under the same concept as any cryptocurrency and was verifiable on the blockchain with one important caveat: wallet addresses could not be tracked,” the complaint said. The defendant allegedly offered to convert bitcoin to monero for the agents and provided tips on using Tor and TAILS to further preserve anonymity.

Rhule appeared in Seattle before the U.S. District Court for the Western District of Washington on Tuesday, according to the Department of Justice Press release.

According to the complaint, the undercover agents recorded Rhule during the undercover operations. 

Rhule allegedly never asked the agents the required “know your customer” questions that FinCEN-licensed money transmitters must ask clients, from which, of course, he had no licensing. He was also allegedly indifferent to the agents' stated use of the funds.

“Rhule conducted these transactions even after the undercover agent explained that at least a portion of the cash involved represented proceeds of human trafficking,” the complaint said.

The agents had found him through LocalBitcoins username after searching for in-person cash dealmakers. Rhule is the latest LocalBitcoins user to be prosecuted on charges of running an unlicensed money transmission business. LocalBitcoins no longer offers the cash for crypto trading option.

HSI, a subset of the United State’s hulking Department of Homeland Security, has an interest in prosecuting unregistered money transmitters when it comes to crypto crime. 

The investigative unit’s National Bulk Cash Smuggling Center developed an intelligence program designed for sniffing out violators across internet forums and dark markets in the summer of 2018. Called the “Cryptocurrency Intelligence Program,” (CIP) it is now part of every HSI crypto investigation.

But Rhule’s case slightly predates CIP’s debut. Agents first reached out to him in April 2018, according to the complaint.


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