DOJ Targets Regular Bitcoiners

DOJ Going After Regular Bitcoiners

The DOJ has sent another person to jail for the dangerous crime of transacting bitcoin p2p.

This week, well known crypto journalist and creator of TheCUBE, Mark Hopkins, said his farewells as he headed off to prison for anywhere between 6 - 15 months — for the crime of selling bitcoin a few years ago.

The DOJ started going after bitcoin-related businesses a few years ago using 18 U.S.C. § 1960, which is a Federal prohibition against operating an “unlicensed money transmitting business”. At first it was used to target people involved with money laundering or other crimes, and since then has been used increasingly liberally to target your average bitcoin user.

Hopkins said:

“Did you know that transacting Bitcoin p2p is a federal crime punishable with up to five years imprisonment? I didn't either. 18 USC 1960, as interpreted by FinCEN back in the middle of 2019, says you must register federally to do so.

I've always been just one of hundreds of thousands of OTC traders on websites like @paxfuland @LocalBitcoins. One of the hundred or so site users I regularly dealt with at the time, as it turns out, was being used as a mule in a lottery scam.

On October 23rd, I was raided by 15 armed agents, who waved guns and search warrants in the faces of my family, and proceeded to question us for five or six hours, and walked out with about $60,000 worth of my property (mostly electronics, laptops and phones).”

Although not involved in any fraud himself, Hopkins was charged with the fraud committed by one of the people he had transacted with in the past, and his wife was also target by the DOJ as they had a joint bank account. They were each threatened with 35 years imprisonment. Hopkins ended up having to take a plea deal in order to take his wife off the table.

Hopkins sent out a warning to other crypto users via Twitter:

“I'd like my case to highlight … two things: the encroaching state war on privacy, and the general brokenness of the criminal justice system.

As I write these words, Texas and other states are pushing BTC adoption, literally manufacturing felons.

Here's the thing that makes this important to pay attention to and resolve:

I'm a nobody. I'm not Ross. I wasn't on the dark web.

I'm not Edward. I didn't work for the NSA.

I'm not Julian. I didn't break national secrets.

I'm just a regular bitcoiner caught in the crosshairs.

According to research conducted by the Blockchain Law Center, the frequency at which nobodies like me are being persecuted under this law is increasing year over year, each year. The DoJ even holds clinics on how to apply this law more liberally.

Those of us who dwell in CT forget that it's a bubble, and what we do is very foreign to the rest of the world. When the state turns on us, we find little sympathy from the general public.”

The unlicensed money transmitting business statute says that the government can charge anyone who “(a) transferred on behalf of the public, (b) funds (c) in violation of State or Federal licensing and registration requirements, or with knowledge that the funds were derived from a criminal offense.”

Section 1960 of 18 U.S.C. is particularly insidious because it allows criminal liability to be attached merely from a failure to register.

The thing is, Hopkins did register as a money transmitter.

“The feds, at several points along the way, advised me that even though I was fully registered as a bitcoin seller with FinCEN paying a lawyer to get compliant in November, they did not consider my OTC operations to be legal.

Why? Because the federal guidelines advise to get state-level licensing as a Money Services Business. If you check with most state level guidelines, simply engaging in p2p activities does not rise to requiring a license, and thus one won't be granted.”

State rules around obtaining a license are very complicated and vary with each state, but even if your state just considers being unlicensed to be a “misdemeanor”, you can still be imprisoned under Federal law for being classified as “unlicensed”.

There should be major pushback against Section 1960 of 18 U.S.C., around the question of whether criminal liability is fair and necessary for failing to properly register.

Hopkins continued:

“That's why I'm publishing this thread before I go in. We need to keep in mind that the state is constructing felonies for us, and the blockchain has a long memory. We need to advocate for sensible government as well as our fellow fallen cypherpunks.”

There are major issues with how cryptocurrency is currently regulated.

The IRS insists that Bitcoin is “property” and not “currency” for Federal taxation purposes.

The CFTC has decided that Bitcoin is a commodity.

FinCEN says that Bitcoin is not considered “funds” with regard to prepaid access.

And the DOJ is putting people in prison under the premise that bitcoin constitutes “money” or “funds” under Section 1960.

As attorney Joseph B. Evans summarized well:

“The truth of the matter is that the regulators, the Courts and the legislature remain collectively uncertain as to how Bitcoin is best characterized. Practitioners should be aware that the characterization of Bitcoin may ultimately result in a determination based merely on whatever gives the government authority power over the action.”

Coinbase announced this week that they are funding the legal expenses of 6 people currently challenging Tornado Cash sanctions. We reported last month that the US Department of Treasury has added the crypto-mixing service, Tornado Cash, to its OFAC sanctions list. 6 people have stepped up to fight against this decision, and Coinbase has their back.

“The sanctions exceed Treasury’s authority, harm innocent people, remove privacy and security options for crypto users, and stifle innovation.”

Coinbase CEO, Brian Armstrong, continued on Twitter:

“The issue is that Treasury has the authority from Congress only to sanction a person or their property, not an entire technology as they've done in this case.

… the Treasury's actions in this case hurt many law-abiding citizens in addition to a few bad actors, and we believe exceeds their authority.”

Coinbase laid out the background of the plaintiffs they’re supporting:

“One person used Tornado Cash to anonymously donate money to Ukraine. Afterwards, his wallet received potentially malicious air drops. But because he anonymized his crypto before donating, he avoided attacks against his personal accounts. He has funds trapped in Tornado Cash.
Another person is an early crypto adopter with a large online presence and a public ENS name linked to his Twitter profile. He used Tornado Cash to protect his personal security while transacting. Now he also has funds trapped in Tornado Cash.
A third person operates an Ethereum staking business. At one point, a stranger working near where he engages in staking asked how much money he was earning. He started using Tornado Cash to protect his assets and his personal safety.”

Armstrong continued:

“Law abiding citizens deserve access to privacy, and financial privacy deals with some of our most sensitive data. The six plaintiffs in this case used Tornado Cash for legitimate and important purposes, as did many others.”

He also made a great point about the direction in which privacy in crypto is moving in general:

“Blockchains are not going to be open ledgers forever. Just like the internet moved from HTTP to HTTPS as the default, blockchains are going to move to more private transactions over time, and this is a good thing for consumer protection. We should encourage it, not hinder it.”

When it comes down to it, Treasury doesn't have the authority to sanction open source privacy software.

“The crypto industry as a whole and economic freedom would be weakened. That is why, even though we’re not the ones facing the brunt of these damages, we couldn't stand by.”

Awesome work, Coinbase. We appreciate you.

Honesty is the Best Policy

An Australian woman is being ordered to pay back more than $10.4 million to Crypto.com. The woman, Thevamanogari Manivel, of Melbourne was sued by Crypto.com for using funds that were mistakenly transferred to her account in May 2020 — she was supposed to receive a refund of $100, but crypto.com mistakenly sent her over $10 million instead. Manivel used and gifted it to family members; the largest purchase was a home in Craigieburn, Australia, worth $1.34 million dollars (which she gave to her sister). In his official ruling, Judge James Elliot of the Victorian Supreme Court ordered that all of the money must be paid back, plus 10% interest and legal costs to Crypto.com. Additionally, the mansion, which was deemed as paid for via wrongful payment, must be sold.

Crypto.com, initiated its legal proceedings against Manivel in February and successfully froze her accounts, however the funds had been mostly dispersed by then to 7 other close friends and family members (now defendants as well). The Australian court is also pursuing damages against these individuals also.

Privacy Corner:

Ring, Ring, Ring Goes Surveillance

Ring, owned by Amazon, is one of the most popular home surveillance companies in the world. They offer indoor cameras, outdoor cameras, motion sensors, carbon monoxide detectors, and everything else you can imagine. These are consumer-grade surveillance tools that can record activities in and around your property — but should you put them in your home?

3 Concerns:

1. Hacking

Ring has a long history of privacy scandals where hackers have gained access to users’ devices. A family in Tennessee actually sued Amazon after a hacker started talking to their eight-year-old daughter through a Ring camera in her room, claiming to be Santa Claus. They have improved their security in recent years, but you’re still trusting a company to safeguard sensitive footage from your home, and they have a bad track record in doing so. Ring itself also has access to all your footage.

2. 3rd Party Analytics

Ring shares a huge amount of data with 3rd parties — Information about your home network, unique identifiers like your full name and email address, real-time data showing how you interact with the apps on your phone.

3. Relationship with Law Enforcement

Ring also has close ties with Law Enforcement and, according to Vice.com, coached police officers on how to coax Ring users to share their surveillance footage without a warrant (via the Ring Neighbors App):

“The company provides cops with templates for requesting footage, which they do not need a court warrant to do. Ring suggests cops post often on Neighbors, Ring’s free “neighborhood watch” app, where Ring camera owners have the option of sharing their camera footage”.

Ring does offer end-to-end encryption for their cameras, but it isn’t turned on by default. Ring argues that protecting everyone’s footage automatically in this way would be inconvenient for users, because it would disable certain features.

If you are a Ring user and do not intent to stop using your devices, here are 5 tips to enhance your privacy:

Create a super strong unique password to protect your account.
Secure your account with the most secure 2FA option that Ring has available.
Turn on end to end encryption. It will decrease some functionality on your device, but if you’re putting personal footage from your household online, you should take the utmost care to protect it.
Turn off recording audio by default on your doorbell so that conversations within 30 ft are not able to be captured.
Opt out of 3rd party analytics

Home cameras are increasingly popular. If you’re going to use them, you should do so in the most secure and private way possible.

Watch our deep dive into Ring cameras: