Los Angeles Crypto Currency Trader Convicted For Money Laundering And Sentenced To One Year In Prison.
Do not think that just because digital exchanges are not broker-regulated by the IRS and digital exchanges are not obligated to issue a 1099 form reporting transactions, that your crypto currency transactions will always be a secret. The Federal government is cracking down on non-compliant traders and recently secured a conviction against 50-year-old Theresa Tetley a/k/a the “Bitcoin Maven” who reportedly exchanged between $6 and $9.5 million for customers across the country selling bitcoins without registering with the financial authorities.
Charges Filed Following Investigation By Federal Authorities
The U.S. Attorney’s Office for the Central District Of California (which serves Los Angeles) announced on July 9, 2018 in a press release that Theresa Lynn Tetley, also known as Bitcoin Maven, who admitted to operating an unlicensed bitcoin-for-cash exchange business and laundering bitcoin that was represented to be proceeds of narcotics activity, was sentenced to 12 months and one day in federal prison, three years of supervised release, and a fine of $20,000. Ms. Tetley, a former stockbroker and real estate investor, was sentenced by U.S. District Judge Manuel L. Real for conducting an illegal business and engaging in unlawful monetary transactions involving bitcoins. She pleaded guilty to one count of operating an unlicensed money transmitting business and one count of money laundering. The Justice Department further revealed that Tetley was also ordered to forfeit 40 bitcoin, $292,264.00 in cash, and 25 assorted gold bars that were the proceeds of her illegal activity.
18 U.S.C. §1956 – Laundering Of Monetary Instruments
18 U.S.C. § 1956(a) defines three types of criminal conduct: domestic money laundering transactions (§ 1956(a)(1)); international money laundering transactions (§ 1956(a)(2)); and undercover “sting” money laundering transactions (§ 1956(a)(3)). Crypto currency traders and marijuana-related businesses need to be aware of domestic money laundering transactions (§ 1956(a)(1)).
To be criminally culpable under 18 U.S.C. § 1956(a)(1), a defendant must conduct or attempt to conduct a financial transaction, knowing that the property involved in the financial transaction represents the proceeds of some unlawful activity, and the property must in fact be derived from a specified unlawful activity.
Violations of § 1956 have a maximum potential 20-year prison sentence and a $500,000 fine or twice the amount involved in the transaction, whichever is greater. There is also a civil penalty provision in § 1956(b) which may be pursued as a civil cause of action. Under this provision, persons who engage in violations of any of the subsections of 1956(a) are liable to the United States for a civil penalty of not more than the greater of $10,000 or the value of the funds involved in the transaction.
Each conviction for money laundering carries a maximum penalty of 20 years in prison, a $250,000 fine, or both.
Conviction Culminated Investigation By Multiple Federal Agencies
The Drug Enforcement Administration and IRS Criminal Investigation Unit investigated this case which claimed that Ms. Tetley offered bitcoin exchange services without registering with the Financial Crimes Enforcement Network (FinCEN) as a money services business. She also did not establish “anti-money laundering mechanisms such as customer due diligence and reporting certain transactions required for these types of businesses. Ms. Tetley advertised on localbitcoins.com and exchanged, in total, between $6 and $9.5 million for customers across the country, charging rates higher than institutions that were registered with FinCEN.
The Federal agencies concluded that by operating this unregistered business, Ms. Tetley facilitated laundering for one individual who is suspected of receiving bitcoin from unlawful activity, such as sales of drugs on the dark web. Moreover, she also conducted an exchange of bitcoin-for-cash for an undercover agent who represented that his bitcoins were the proceeds of narcotics trafficking.
Of course now that Ms. Tetley is done with the Federal criminal proceedings, she will likely have to face the Civil Division of the Internal Revenue Service.
What Should You Do?
The IRS is always interested in teaming up with other Federal agencies in their investigations of non-compliance with the laws and with only several hundred people reporting their crypto gains each year, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns. Don’t delay because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you set up with a plan that may include being qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability.