Recently I reported on Internet cause célèbre Ross Ulbricht, allegedly Dread Pirate Robers, founder and leader of online black market The Silk Road. Hailed by Libertarians far and wide as a hero fighting The Man, Ulbricht has been accused of building a website whose express purpose was to sell illegal items, including but not limited to, drugs. Ross’s mother Lyn Ulbricht recently appeared at Libertarian celebration Porcfest where she gave a speech about her son, then an interview where she spoke about the horrors that would be visited upon the citizenry of America should her son be convicted.
The narrator (presumably the person who interviewed Mrs. Ulbricht) says “This case is the birth of law for the digital future. Watch it as a spectator at your peril. How will the results affect everyone’s future regarding the Internet, liability, privacy, and Bitcoin?” and the response is, as you would expect, highly hyperbolic.
Mrs. Ulbricht believes that this case will set some sort of precedent whereby the Government will now begin to intrude on people’s freedom on the Internet, which would be an incredible leap from their existing behaviour of respecting people’s privacy online. And we don’t want that, now do we?
She goes on to argue that her son should not be held responsible for what people used the Silk Road for since he only hosted the web site, he didn’t sell any contraband himself. That means her little boy is protected under the Communications Decency Act which prevents website operators (like Facebook, for instance) from being held liable if a user posts something illegal on the site (like a death threat against the President, for example.) Further, Mrs. Ulbricht believes (likely as a result of attorney Joshua Dratel’s advice) that money laundering charges don’t apply here because bitcoin isn’t money! Check-and-MATE motherfucker!
Now, I am not a lawyer myself, so Mr. Dratel definitely has a leg up on me there. I have watched a shit ton of cop shows on TV, however. Not so much the courtroom dramas, but I still like to think that I have a fairly firm grasp on the fundamentals of the US legal system. So after I found this video posted up on Reddit, I decided to post my views on it.
- The TOR scare isn’t very valid. The government developed TOR and they know who uses it (lawyers, journalists, corporations) and why they use it (to protect State Secrets, corporate Intellectual Property, to protect journalistic sources, etc) so saying “And if you use TOR the gubment is going to call you a criminal!” is spurious. That will just be added as evidence along with other behaviors you engage in to build a case. Using TOR by itself means nothing.
- If I exchange a kilo of cocaine for a Cadillac El Dorado I cannot say in my defense “No money changed hands!” because that is a ridiculous argument. I am still trafficking in contraband and it doesn’t matter what I exchanged it for. If, however, I make the exchange for a precious commodity like gold or bitcoin, then money laundering charges may apply, especially if the commodity in question is sold for fiat currency. NOTE: That does not mean I agree that cocaine should be illegal, but I don’t have the power to change that law.
- Ross Ulbricht cannot say he cannot be held responsible for people selling drugs on his website since his website was designed to facilitate the sale of drugs. Further, since he held money in escrow for both parties, that makes him an accessory before and after the fact.
A few hours later, after interviewing one of the founders of 21st Century car service Beepi, I decided to swing by Wired.com to see what was happening. Turns out, there was an update on the Ross Ulbricht case: Judge Katherine Forrest issued a 51 page ruling declining to dismiss all charges against Mr. Ulbricht, presumably while trying to keep a straight face in light of the ridiculous reasons offered by Mr. Dratel.
Among the charges she refused to dismiss were: narcotics trafficking conspiracy, money laundering, and hacking conspiracy charges, as well being charged with “continuing a criminal enterprise” better known as the “kingpin” statute used to prosecute criminal gang and cartel leaders.
Filed in April, the motion to dismiss raised interesting questions: Can Ulbricht be accused of running a drug-selling conspiracy when he merely ran a website that made the narcotics sales possible? And can he be charged with money laundering when bitcoin doesn’t necessarily meet the requisite definition of money?’
Judge Forrest apparently watched the same TV shows I did (not sure if she watched them while at law school or home) because her answer was yes and yes . Every argument was rejected (probably with “DUH” interjected every so often) starting with the idea that Ulbricht had merely provided a platform for hosting the Silk Road’s e-commerce, just like eBay or Craigslist.
“Silk Road was specifically and intentionally designed for the purpose of facilitating unlawful transactions, Ulbricht is alleged to have knowingly and intentionally constructed and operated an expansive black market for selling and purchasing narcotics and malicious software and for laundering money. This separates Ulbricht’s alleged conduct from the mass of others whose websites may—without their planning or expectation—be used for unlawful purposes.”
Dratel, had attempted to make the case that if anything, the Silk Road should be covered by a law known as the “Crack House Statute.” Passed in 1986, the law was created to hold landlords accountable for knowingly owning a property where drug deals were taking place. Dratel reasoning went along the lines that this law would be unnecessary if the more serious narcotics charges in his client’s case applied.
Forrest, however, countered that Ulbricht is accused of being much more than a negligent landlord. By allegedly designing the Silk Road to maximize user anonymity via Tor and bitcoin, she argues that he had invited drug dealers onto the property.
“Ulbricht’s alleged conduct is more akin to a builder who designs a house complete with secret entrances and exits and specially designed traps to stash drugs and money, This is not an ordinary dwelling, but a drug dealer’s ‘dream house.’”
She also noted that Ulbricht is accused of working to organize, control, and take a commission from all sales on the Silk Road—the kind of behavior that would make him an active participant.
“The allegations amount to Ulbricht acting as a sort of ‘godfather’—determining the territory, the actions which may be undertaken, and the commissions he will retain; disciplining others to stay in line; and generally casting himself as a leader – and not a service provider.”
So far, I’m doing okay here, right? The Judge and I agree that you cannot create a platform for the express purpose of creating criminal activity, then say “Holy shit, I didn’t believe anyone was actually going to DO it! Although I made sure they understood they had to pay me a cut of the action if they DID decide to do it!”
What about the bitcoin isn’t money, argument, though? Both FINCEN and the IRS say it isn’t, but I have argued that barter still counts since the IRS will tax you regardless. Well, according to Judge Forrest, barter still counts when you are conducting drug deals.
“Sellers using Silk Road are not alleged to have given their narcotics and malicious software away for free – they are alleged to have sold them. The money laundering statute is broad enough to encompass use of Bitcoins in financial transactions. Any other reading would—in light of Bitcoins’ sole raison d’etre—be nonsensical.”
This ruling is going to have a tremendous impact for a few other people, starting with Charlie Shrem, the former Bitcoin Foundation vice chairman who was arrested last January and charged money laundering for helping a Silk Road client exchange his bitcoins for cash. And of course, Cody Wilson who told a reporter for Wired magazine that DarkWallet is “money laundering software” because there’s no possible way for statements like that to come back and bite him in the ass.
And to ensure that no one took him out of context, Wilson went on to say “I want a private means for black market transactions, whether they’re for non-prescribed medical inhalers, MDMA for drug enthusiasts, or weapons.”
That’s a bold attitude, and one that I have no trouble admitting that I can admire. The question, however, is can he keep it up when the police are knocking on his door?