Overview
The US Court of Appeals for the Second Circuit recently held that in‑person exchanges of bitcoin for U.S. currency may constitute "money transmitting" under federal law, significantly expanding potential exposure under federal anti‑money‑laundering statutes for cryptocurrency exchange activities.
Mustafa Goklu operated a bitcoin‑for‑cash exchange business in the New York area, advertising the business on LocalBitcoins and charging commissions for converting cryptocurrency to US currency. Over several months, he completed multiple in‑person exchanges with an undercover DEA agent, totaling roughly $130,000, and continued doing so even after being told the bitcoin originated from drug trafficking. The DEA subsequently arrested Goklu, and he was convicted of money laundering under 18 U.S.C. § 1956 and operating an unlicensed money transmitting business under 18 U.S.C. § 1960.
On appeal, the Second Circuit considered the scope of 18 U.S.C. § 1960, which criminalizes persons engaged in "money transmitting" through an unlicensed money transmitting business, and 31 U.S.C. § 5330(a), which defines "money transmitting business" to include a business that provides check cashing, currency exchange, or money transmitting or remittance services.
The Court first affirmed that Goklu operated an unlicensed money transmitting business under § 5330, because a business exchanging virtual currency for real currency through the purchase or sale of bitcoin provides money transmission services and is thus a money transmitting business subject to FinCEN's registration requirements. The court then emphasized a few points in outlining the scope of § 1960, the federal money transmitting statute:
- Bitcoin qualifies as "funds" under § 1960 because bitcoin can be and is used as a currency to make sales and purchases.
- The court found that where there was a transfer of bitcoin in exchange for cash, money transmission services occurred, even when the entire transaction took place inside of Goklu’s car, because funds moved from the cryptocurrency wallet to "another location": the physical world, in the form of cash.
- Money transmission does not require banks or wires, and it does not have to be entirely digital in the context of bitcoin exchanges. Federal statutes confirm that a physical transfer of cash is a “means” by which funds may be transmitted.
- Under FinCEN regulations, an exchanger who buys or sells convertible virtual currency for any reason is a money transmitter, unless a limitation to or exemption from the definition applies to the person.
The Goklu court's decision signals that small, informal, or in‑person exchange operations can trigger federal money‑transmitter requirements, and serves as a reminder that any person or business partaking in such exchange activities may need to register with FinCEN.
Read the opinion here.
