Lawyers for the man alleged to have run an online black market called “Silk Road” are vigorously defending their client today with an innovative new tactic. Because the IRS recently ruled that bitcoins will be taxed as property rather than currency, they are claiming their client cannot be guilty of money laundering. Adi Robertson reports at The Verge:
Ulbricht’s defense against the first three charges largely amounts to an abdication of responsibility over what users did on the site: any actual drug trafficking would have been done by users of Silk Road, not the site’s operator. Using the comparison of a landlord whose tenants operate a crack den, or a search engine that allows users to find illegal content, they argue that only civil penalties should apply, not the criminal ones federal prosecutors are seeking. “At worst, Mr. Ulbricht allegedly acted as a conduit or facilitator for those engaging in illegal activity,” not as a drug “kingpin.” And a hacking conspiracy charge, they say, is based only on the sale of malicious software through the site, not anything Ulbricht himself did.
The fourth charge, however, is based on interpreting what bitcoin itself is. Or, more precisely, it’s based on the most recent legal interpretation of what bitcoin is: property, not currency. In late March, the IRS finally issued rules on virtual currency, saying that it should be taxed as an investment rather than money. “In some environments, virtual currency operates like ‘real’ currency,” said a notice, “but it does not have legal tender status in any jurisdiction.” Picking this up, Ulbricht’s lawyers say it’s the latest in a series of government statements that treat bitcoin as something other than a currency. It doesn’t, therefore, fit the exact definition of “funds” or “monetary instruments” used in laws against money laundering.
Of course, this defense will probably not get very far. A “brick and mortar” drug market that accepted sheep in trade could still be held in violation of the law, with the owner’s sheep confiscated and then regarded by the court as having material value in an illegal transaction. The same holds true for bitcoins, which may not be real money but definitely still have value. This defense strikes us as desperate, though it will surely enthuse the conspiracy-addled world of bitcoin enthusiasts.