On the surface, the case looks relatively innocuous: Two Miami residents were arrested this week for trying to sell Bitcoin to undercover cops who said they wanted to use the digital currency to buy fake credit cards.
Pascal Reid, 28, and Abner Espinoza, 31, have been charged with money laundering after being approached on LocalBitcoins.com, an online exchange based in Finland, by Florida detectives working in conjunction with the Secret Service.
Digital security guru Brian Krebs was the first to spot the case.
It’s not the first time people have been busted for allegedly trying to use Bitcoin to make illicit purchases.
But Krebs talked to researchers who say it looks like the opening salvo in an attempt to put a lid on LocalBitcoins.com, one of the last remaining venues for purchasing Bitcoin anonymously. The head of BitInstant, another anonymous exchange, was also just charged with money laundering.
LocalBitcoins.com allows users to trade Bitcoin in person by finding the address of buyers and sellers closest to your physical address. That might seem like no anonymity is involved, but in practice actual addresses are never revealed, many transactions occur online, and if the two parties do meet in person, they usually don’t ask each other’s names. As of December, the site was seeing up to 3,000 Bitcoins traded a day.
The criminal complaints [embedded below] in the two cases shows U.S. law enforcement continues to view the Bitcoin market in somewhat adversarial terms. They also show how large now-shuttered illicit marketplace Silk Road looms in their approach to the digital currency:
“Owing to its high degree of anonymity, Bitcoin is also ideally suited for illegal purchases,” the complaint says. “An online illicit website called Silk Road offered the ability to buy narcotics exclusively using Bitcoin. The high degree of anonymity makes Bitcoin a useful medium for laundering money because it is virtually impossible to trace bitcoin transactions to the owner of the bitcoin addresses.”
“I’d expect many more state cases like this one because it will act to strangle the lifeblood of the online dark markets,” such as Silk Road, Nicholas Weaver of the International Computer Science Institute (ICSI) and the University of California, Berkeley told Krebs. “If you want a significant amount of anonymous Bitcoins, right now this community is about the only mechanism still available.”
Reid and Espinoza are also being charged with operating an unlicensed money transmission business. Here are the complaints: