On January 30, 2019, a Florida appellate court reversed the trial court's dismissal of State v. Espinoza, instead holding that a Bitcoin business was both a money transmitter and a payment instrument seller, subject to Florida's statutes governing money services businesses. The decision contrasts with recent guidance in Texas and Pennsylvania regarding cryptocurrencies, where virtual currencies in those states were not deemed money under applicable state statutes and businesses that conduct transactions exchanging virtual and sovereign currencies do not generally require a currency exchange license.
The case arises from Michell Espinoza's operation of an unlicensed business through which Espinoza traded bitcoins in exchange for cash. During meetings with an undercover detective, Espinoza agreed to trade bitcoins for cash that was impliedly obtained through illicit activity. Following the four transactions between Espinoza and the undercover agent, the State charged Espinoza, among other things, for unlawfully engaging "in the business of [a] money transmitter while not being registered as a money transmitter or authorized vendor." When the trial court dismissed the counts against Espinoza, finding that neither Bitcoin nor Espinoza's operation required registration as a money services business, the State of Florida appealed.
The appellate court based its decision that Espinoza's operation required registration as a money services business on the plain and unambiguous language of the Florida statute governing money services businesses. The Florida Money Services Businesses Law defines a "money services business" as "any person...who acts as a payment instrument seller, foreign currency exchanger, check casher, or money transmitter." In its analysis, the court first determined that Bitcoin fits the statute's definition of "payment instrument," which is defined as "a check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of money, or monetary value whether or not negotiable." Specifically, the court determined that though Bitcoin is not currency, it meets the statute's definition of monetary value, "a medium of exchange, whether or not redeemable in currency."
Given that Bitcoin is a payment instrument, the court found that Espinoza operated as a payment instrument seller when he sent the bitcoins to the undercover agent in exchange for cash. Moreover, because the Florida statute's definition for money transmitter does not contain a third party transmission requirement, the court determined that Espinoza was a money transmitter because he received cash for the purpose of transmitting bitcoins by means of the internet or other services that facilitated the transfer.
The court also noted that the Florida Office of Financial Regulation, which is charged with regulation under the statute, has previously determined that a business offering a service to the users of the digital currency exchange Coinbase to send fiat currency to other users for the purchase of bitcoins was regulated by the statute. Recognizing the similarities between this business and Espinoza's operation, the court found that the undercover agent, like the Coinbase users, paid Espinoza cash in exchange for bitcoins, making Espinoza subject to regulation.
Espinoza demonstrates the continued development of state laws regulating the operation of virtual currency businesses. In light of Espinoza, and until such time as Florida's Supreme Court or Legislature compel a different result, a business that conducts money transmissions involving Bitcoin and other cryptocurrencies in Florida should ensure that it complies with Florida's statutes governing money services businesses.
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