United States v. Freeman

United States Court of Appeals for the First Circuit · 2025 · Criminal Law

Criminal Lawmoney transmitting businessmajor questions doctrinetax evasionmoney laundering conspiracysentencing18 U.S.C. § 196031 U.S.C. § 5330

Facts

Freeman bought bitcoin from exchanges and resold it to customers through bitcoin kiosks, localbitcoins.com, and Telegram, charging substantial commissions. FinCEN sent correspondence in 2018 stating that one of his businesses had to register as a money transmitting business, but Freeman never registered any of his businesses with FinCEN and did not file tax returns from 2016 through 2019. The government presented evidence that he profited from bitcoin trades on localbitcoins.com, accepted large cash transactions, and told bank-wire customers to describe purchases as "church donation." At trial, an undercover agent told Freeman he was buying bitcoin with drug proceeds, and Freeman later pointed him toward a kiosk while saying, "I can't tell you that you can use it."

Issue

Whether the effective version of 31 U.S.C. § 5330, which referred to the transmission of "funds," covered businesses transmitting bitcoin such that Freeman could be prosecuted under 18 U.S.C. § 1960 for operating an unlicensed money transmitting business. Whether the evidence was sufficient to support tax evasion, whether acquittal on the substantive money laundering count required a new trial because of spillover prejudice, and whether the 96-month sentence was substantively unreasonable.

Rule

The plain meaning of "funds" in Sections 1960 and 5330 includes bitcoin because bitcoin functions as money or a medium of exchange. The major questions doctrine applies only in extraordinary cases where an agency asserts power of vast economic and political significance or otherwise acts inconsistently with its regulatory history, breadth of authority, or expertise; absent those hallmarks, ordinary statutory interpretation controls. For tax evasion, the government must prove a tax deficiency, an affirmative act of evasion, and willfulness, and once the government shows unreported receipts and tax liability, the taxpayer bears the burden of coming forward with evidence of offsetting expenses.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In 2019, Noah Patel ran Lakeview Digital Exchange in Chicago. He regularly accepted cash from walk-in customers and sent the equivalent amount of bitcoin to digital wallets, charging a 9% fee, but he never registered with the Treasury's financial-crimes unit because he believed bitcoin was not covered by an older statute referring only to the transmission of "funds."

If Noah is prosecuted for operating an unlicensed money transmitting business, which is the strongest argument for the prosecution on this issue?

Explanation. The controlling rule is that the plain meaning of "funds" includes bitcoin because bitcoin functions as money or a medium of exchange. The court rejected the view that older statutory language covers only fiat currency or that Congress had to specifically foresee the technology. Thus, transmitting bitcoin for customers can qualify as money transmitting under the statute. (Derived from United States v. Freeman (n.d.).)