WASHINGTON, D.C.—Based on an affidavit sworn out May 14 by Special Agent Michael T. McFarland of the Homeland Security Investigations section of Immigrations and Custom Enforcement (ICE), U.S. Magistrate Judge Susan K. Gauvey signed a seizure warrant the same day authorizing the seizure of a Veridian Credit Union Account owned by mobile payment provider Dwolla. The seizure prevented the continuation of currency payments the government says were being made to and from the Dwolla account by bitcoin exchange Mt. Gox, via a Mt. Gox subsidiary named Mutum Sigillum LLC.
The gist of the government’s issue, according to the warrant, is that the operation was unlicensed and thus a violation of federal law, specifically 18 U.S.C. Section 1960, which sets out the penalties for parties that knowingly operate an “unlicensed money transmitting business.”
This warrant follows on the heels of a May 9 warrant authorizing the seizure of an account Mutum Sigillum had with Wells Fargo Bank. Most of the activity of that account, allege the feds, was wire transfers between the Mt. Gox Veridian account. Bank records also showed, according to the affidavit, “a number of deposits to the Mutum Sigillum account at Wells Fargo originating from international wires sent from Sumitomo Mitsui Bank in Japan,” transferred in the name of Mt. Gox.
McFarland’s conclusion as expressed in the affidavit was that “the Dwolla account was used exclusively to move funds between Mt. Gox and Mutum Sigillum and their customers.” The affidavit also alleges that the person who opened the Mutum Sigillum account at Wells Fargo was Mt. Gox owner Mark Karpeles, who, according to McFarland, replied “no” when answering question on required bank forms, “Do you deal in exchange currency for your customers?” and “Does your business accept funds from customers and send the funds based on customer’s instructions (Money Transmitter)?”
The warrant further states, “Money transmitting businesses are required by 31 USC section 5330 to register as such with FinCEN. According to FinCEN records on May 7, 2013, neither Mt. Gox nor the subsidiary, Mutum Sigillum LLC, is registered as a Money Service Business.”
The same alleged violation of 18 U.S.C. Section 1960 that justified the seizure of the Mutum Sigillum account at Wells Fargo was used to authorize the Dwolla seizure.
Mt Gox responded yesterday with Facebook and Google+ posts stating it has yet to receive a warrant in the matter. “Like many who have contacted us,” said the company, “MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox. We take this information seriously. However, as of this time we have not been provided with a copy of the court order and/or warrant, and do not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known.”
Speculation is now rampant that this action by the U.S. federal government is but the first step in an inevitable move by this government and others to bring the newly popular digital currency under control. The media, as well, has begun its pronouncement of doom.
“Given that Bitcoin first broke into mainstream attention when Gawker explained how to use it to buy drugs,” declared the Washington Post today, “perhaps the surprise is that it took federal regulators this long to take action against it.”
CNN Money was even more dire in its coverage, announcing apocalyptically in the headline, “Strategist predicts end of Bitcoin.”
According to The Register, “The implications of this action are not yet clear, but it could indicate the beginning of a long battle to bring Bitcoin under the rule of US law. Just last week, America's Commodity Futures Trading Commission confirmed it was looking into Bitcoin and deciding whether regulating the e-cash was possible—or necessary.”
It’s not just the U.S. that is taking a closer look at bitcoin, however. As the Financial Times noted Monday, bitcoin has “come on to the radar of the UK government, with officials gathering in London on Monday to discuss the security threats and tax concerns posed by the digital currency.”
But bitcoin may ultimately be harder to tame than governments think. Wired UK published an article today on its visit to London’s “Bitcoin Squad,” whose spokesperson is a hacker named Amir Taaki, who among other things organizes conferences “in London filled with hackers and anarchists.”
Writer Niki Gomez concludes her piece with a newfound, if somewhat skeptical, appreciation of the group’s intentions. “When I'd first got in touch with Amir it was to speak about how bitcoin will disrupt politics and governments,” she writes. “But this visit has made me discover a lot more. Certainly bitcoin, like hacker culture, is based on freedom. But these hackers' beliefs are bigger than that—they believe in really changing the system. This includes finding different ways of living (squatting and cooperatives) and creating a real culture of communal sharing. Will bitcoin allow them to change things?”
Stay tuned.
