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Alleged Silk Road Creator's Lawyer Denies Bitcoin Is 'Monetary Instrument,' Moves To Drop All Charges

This article is more than 9 years old.

The trial of Ross Ulbricht, the alleged creator of the Silk Road Bitcoin-based black market for drugs, hasn't yet begun, but it's already raising hairy legal questions. First on the docket: Is Bitcoin even money?

In a motion filed over the past weekend, Ulbricht's lawyer Joshua Dratel argued that all charges against his client should be dropped, including accusations of conspiracy to traffic in narcotics, launder money, hack computers, and run a "continuing criminal enterprise," a charge often called the "kingpin" statute and used to prosecute mafia and cartel leaders. After being arrested in San Francisco last October, Ulbricht pleaded not guilty to all those charges in February.

The 64-page document calls into question everything from the legal liability of running a website where users of the site rather than its owners are engaging in illegal activity, to the definition of "unauthorized access" under the controversial Computer Fraud and Abuse Act. But the most unique argument in the motion, perhaps, focuses specifically on the money laundering charge against Ulbricht, who is accused of creating and managing the Silk Road's billion-dollar-plus business in anonymous sales of contraband using the cryptocurrency Bitcoin.

Dratel argues that his client can't have used Bitcoin for money laundering, because it doesn't fit the current law's definition of "money."

"Count Four, which charges Mr. Ulbricht with participating in a money laundering conspiracy...must be dismissed because the allegation lacks an essential element: that the 'financial transactions' alleged involved 'monetary instruments,'" the motion reads. "Bitcoins, the exclusive means of payment on Silk Road, do not qualify as 'monetary instruments,' and therefore cannot serve as the basis for a money laundering violation."

Dratel goes on to cite both Internal Revenue Service and U.S. Treasury's Financial Crimes Enforcement Network's statements about Bitcoin to argue that neither has defined Bitcoin as either "funds" or monetary instruments." In fact, the IRS issued a decision just last week stating that bitcoins should be treated as property rather than money.

Dratel goes on to cite a New York Law Journal article from earlier this year, which argued that current money laundering regulations don't in fact cover bitcoins:

[Bitcoin] reveals a potential gap in international enforcement regimes. While even the Southern District U.S. Attorney concedes that bitcoins are not inherently illegal, and the U.S. central bank and merchants worldwide have begun to conclude that they are an acceptable form of payment, the United States and other countries may well need to enact new laws against bitcoin laundering. Indeed, the U.S. money laundering statutes contain terms such as "monetary instrument" and "monetary transaction" that are defined as coin or currency of the U.S. or any other country. Thus, these terms arguably do not apply to bitcoins.

As bold as it seems, Dratel's argument against Bitcoin's inclusion in money-laundering laws isn't necessarily the most important for his client's fate. He also argues that the majority of the charges against Ulbricht should be dropped because he didn't actively participate in any of the narcotics trafficking, computer fraud, or money laundering prosecutors accuse the Silk Road of enabling. Instead, Dratel says, he's merely accused of hosting the platform on which those illegal activities were carried out by the Silk Road's users--After all, the site served as a third-party e-commerce marketplace, with a business model closer to e-Bay's hosted sales rather than Amazon's actual stocking and shipping of goods.

That means even if illegal activity occurred on the Silk Road, Dratel argues that it should be covered by Section 230 of the Communications Decency Act, which protects site owners and Internet Service Providers from liability against what users do or say on the sites and services they provide. If users of the Silk Road engaged in crimes like buying drugs or computer hacking software, Ulbricht shouldn't be held responsible for merely providing the Silk Road as a platform for their actions, according to Dratel. Google , Dratel notes, is the most common defendant in Section 230 cases.

"In 47 U.S.C. §230, Congress manifested an unmistakable support for a free-wheeling internet, including one in which providers or users of interactive computer services can operate without fear of civil liability for the content posted by others," Dratel writes, adding in another portion of the motion that "under the government’s theory a whole array of web hosts, internet service providers, and web sites could be liable for the criminal conduct (and not just narcotics trafficking) of those who avail themselves of the particular services offered or enabled by those internet entities."

Dratel also cites another law in defending Ulbricht's role in the Silk Road's drug sales: Section 856 of a 1986 drug law known as the "Crack House Statute." That statute makes it illegal to knowingly own a house or building where drugs are manufactured or used--a crime that Dratel argues is analogous to the Silk Road's hosting of a website for buying and selling drugs. The mere existence of that "crack house" law, Dratel argues, means that the other narcotics statutes being used to charge Ulbricht don't apply.

"Plainly, §856 was intended to cover a gap in the criminal code: conduct that was not covered by pre-existing law," Dratel writes. "If [the drug law statutes under which Ulbricht is charged] were available to punish such conduct, §856 would have been unnecessary and superfluous."

Finally, Dratel takes on the Computer Fraud and Abuse Act, (CFAA) under which Ulbricht is charged with computer hacking conspiracy. As with the other charges, Dratel argues that merely hosting a website that allows users to buy and sell computer hacking software doesn't prove Ulbricht's own intent to gain unauthorized access to a computer. But like others who have criticized the CFAA's overbroad language, he goes further, calling the CFAA's  definition of "unauthorized access" into question.

"The breadth of the CFAA, as it stands today, places special importance on the meaning of “authorization,” such that a broad construction of “authorization” potentially criminalizes an enormous amount of routine Internet activity and would, render the CFAA unconstitutionally vague," Dratel writes. "Indeed, in the context of an Internet user’s access to information on a public website, judicial efforts to construe “authorization” under § 1030(a)(2)(C) have failed to date to provide clear guidance to courts or ordinary citizens within the CFAA’s reach."

I've contacted Dratel for more information, and I'll update this post if I hear back from him.

Of all the arguments Ulbricht's defense lays out in the motion, Dratel's claims about the gap in money-laundering laws' application to Bitcoin are the most likely to raise controversy. In addition to Ulbricht's case, former Bitcoin Foundation vice chairman Charlie Shrem was accused of Bitcoin-based money laundering in January, and is currently being held under house arrest. Meanwhile, the budding Bitcoin industry is awaiting the expected introduction of new rules from New York financial regulators requiring a "bitlicense" for Bitcoin-related businesses, intended to limit Bitcoin's use for untraceable transactions.

Read Dratel's full motion for dismissal of the charges against Ulbricht below.

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