DHS Vs. Mt. Gox, The Tango Begins

DHS Vs. Mt. Gox, The Tango BeginsSuspected of violating US’ existing laws on money transfers and money exchange, the world’s largest Bitcoin interchange link started to weaken as their funds are seized during a Homeland Security investigation.

Trying to obtain DHS’ insight on the ongoing investigation, the media was served with a “no comment” and the copy of a warrant that justified seizing Mt. Gox’s funds in Dwolla (we shall refer to Mt. Gox as Bitcoin’s powerhouse or “the powerhouse”, as it handles nearly 63% of all Bitcoin transactions starting with April this year), an ArsTechnica report informs.

The warrant justifies a special agent’s statement (working for the Homeland Security Investigations) that Bitcoin’s powerhouse is engaging “money transmitting” outside the law (due to its nature … that of being immune to Governmental [capital G] control), which is probable cause for doing up to five years in prison or a “nominal fee”.

“The warrant goes on to demand that Dwolla hand over the keys to account number 812-649-1010, which is owned by Mt. Gox subsidiary Mutum Sigillum LLC,” ArsTechnica notes.

Apparently, Home Security used a mole (the governmental agencies call it “confidential informant”) to build up a case. The blind but cunning informant created two accounts, one for Dwolla and one for Mt. Gox, purchased Bitcoins, and then transferred them into good ol’ American dollars. Just like Hansel & Gretel used bread crumbs to find their way back, the confidential informant tracked the exchange as it passed through a Wells Fargo account (no. 7657841313). The account was created by president and CEO of Mt. Gox Mark Karpeles.

“As part of the account opening process, Wells Fargo required Karpeles and Mutum Sigillum LLC to complete a “Money Services Business (MSB) Accounts, Identification of an MSB Customer” form. That document was completed on May 20, 2011 and identified Mutum Sigillum LLC as a business not engaged in money services. The application asks several questions; to include, “Do you deal in or exchange currency for your customer?” and “Does your business accept funds from customers and send the funds based on customers’ instructions (Money Transmitter)?” Karpeles answered these questions “no,” indicating that Mutum Sigillum LLC does not deal in or exchange money, and that it does not send funds based on customer instructions.

Money transmitting businesses are required by 31 USC section 5330 to register as such with FinCEN. According to FinCEN records on May 6, 2013, neither Mt. Gox nor the subsidiary, Mutum Sigillum LLC, is registered as a Money Service Business,” the warrant reads.

The informant goes on to explain that:

“Mt. Gox acts as a digital currency exchange where customers open accounts and fund the respective accounts with fiat currency, which is then exchanged into crypto-currency by Mt. Gox; the crypto-currency is known as bitcoin. Fiat currency simply refers to any money that a government has declared to be legal tender. The exchange is bidirectional and allows customers to also exchange bitcoins back into fiat currency, and then withdraw those funds. The exchange of fiat currency and bitcoins incurs a floating rate fee charged by Mt. Gox and is determined by the customer’s aggregate amount of funds exchanged on a monthly basis.”

The untouchable Bitcoin currency had quickly become very tangible. Is this a case of “no one escapes the long arm of the law” or freedom from governmental control is a taboo subject that must be swept under the rug?