Tuesday, April 29, 2014

Government's Case Against Silk Road is Surprisingly Weak

Ross Ulbricht- Alleged Silk Road Owner
Eric Blair
Activist Post

The alleged developer of the dark market Silk Road, Ross Ulbricht, is facing up to 30 years in prison for computer hacking, drug conspiracy and money laundering charges. Most publications have written him off as guilty, but recent arguments highlight just how weak the prosecution's case actually is.

When the Internal Revenue Service issued tax guidance stating Bitcoin is not money, Ulbricht's attorney immediately filed a motion to dismiss money laundering charges. The argument being if bitcoin is not considered a "monetary instrument", money laundering charges cannot apply.

However, yesterday the prosecutor responded to the motion to dismiss by directly contradicting the IRS guidance claiming that bitcoin fits "comfortably" in the government's "broad definition" of "funds".

"Bitcoin transactions comfortably fit within the broad language of the definition," wrote Assistant U.S. Attorney Serrin Turner. "as Bitcoins are 'funds', and Bitcoin transactions, which are conducted via the Internet, therefore involve 'the movement of funds by wire or other means.'"

Turner's best legal argument that bitcoin transactions fall "within the broad language of the definition" seems flimsy compared to IRS's official guidance. It is obvious to anyone who uses bitcoin that it acts as a currency, but if the U.S. government claims otherwise, then money laundering charges should be dropped or the IRS must reconsider bitcoin's classification.

This is not the prosecution's only sign of weakness in the case.

Computer hacking is another dubious charge in Ulbricht's case.  Pretty much any "unauthorized" computer innovation or activity may fall into this category as we've seen with the tragic case of Aaron Swartz and the recently exonerated Andrew "weev" Auernheimer. Both accessed public content via the Internet and prosecutors sought sentences equivalent to rape and murder. Swartz, facing $1 million in fines and 35 years in prison, committed suicide two days after the prosecution denied his lawyer's second offer of a plea bargain.

Silk Road was a first-of-its-kind website that allowed users to engage in anonymous commerce by cleverly combining dark web hosting, the Tor browser, and bitcoin. Additionally, its unique automated escrow feature allowed users to achieve trust without revealing their identities. Because of its exotic anonymity features, the feds impulsively assume computer hacking or fraud was somehow involved except for one tiny detail - there is no victim of the alleged hacking. It seems like a vague tack-on charge used to justify forcing decades in prison to a non-violent offender.

Even the drug conspiracy charge is weak despite the website's obvious use, as the prosecutor's best argument is that current law is "expansive and adaptable".  The law they hope is adaptable is the Communications Decency Act, §230(c), passed by Congress, which says a website owner is not legally responsible for illicit actions of its users.

But Turner disagrees: "It hardly matters that Ulbricht’s conduct took place on the Internet," he argues. "The federal criminal laws are expansive and adaptable, and readily reach his conduct online to the same extent as if it occurred on the street."

In other words, the prosecution says Ulbricht should be treated like the "kingpin" of a violent drug cartel even though it appears that he merely ran an e-commerce website -- a rather insignificant charge that Ulbricht has pleaded not-guilty to.

Ulbricht's defense says the Communications Decency Act shields him from cartel-like charges and to say it doesn't is a threat to freedom and privacy for the entire Internet:
For example, is Craigslist responsible for the murders or prostitution occurring through the site? Can Google be charged with terrorism because of jihadist recruitment on Google? Can eBay be held liable for stolen goods sold there? The law says no, it can’t. 
The intention of §230(c) is to support a free Internet by protecting providers from civil liability for what happens on their sites. This includes ISPs that take an active — or even aggressive — role in making content available. The point is not to protect illegal activity, but to safeguard Internet freedom, entrepreneurship and commerce, as well as the First Amendment, our precious freedom of speech. Ultimately, it is to keep the Internet the great, free-wheeling phenomenon that we all enjoy, where ISPs can host sites without fear.
So here's a brief recap of where the prosecution's case stands:
  1. First, the prosecution has to prove that Ulbricht is the "Dread Pirate Roberts" which, to date, no evidence suggests he is accept an admitted ownership of a large sum of seized bitcoins.
  2. To prove Ulbricht was involved with money laundering charge, they first have to prove bitcoin fits a "broad definition" of money in the face of official government decree that it's not. Then they have to prove laundering when it appears no bitcoins were ever moved into dollars.
  3. Next, to prove Ulbricht was a drug conspiracy "kingpin" they have to "adapt" or overturn the Communications Decency Act which will ruin the free Internet, and then they have to prove that "dealers" worked for him.
  4. Finally, computer hacking needs a victim and there is no victim, unless you count the FBI stealing users' data and assets after the fact.
Although the "planned violence" charge is not part of the ongoing case in New York, Ulbricht still faces these charges in Maryland, but the fact remains no violence ever occurred.

This case has far-reaching effects for Internet freedom and Bitcoin. And although it appears that the prosecution's case is weak, the defense is low on resources. You can support the Free Ross defense fund here.

This article may be re-posted in full with attribution.


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Anonymous said...

Why do we not demand an end to the drug war? This poor guy will rot in jail for a "crime" that has no victim. The FBI and this prosecutor are the only people creating victims in this case.

Anonymous said...

You claim that the murder-for-hire charges were quietly dropped, yet your link does not provide evidence of that claim.

I believe that you are wrong, and this perception needs to be corrected. The murder-for-hire charges were not quietly dropped.

1) Murder-for-hire charges were never a part of the New York indictment. The story of murder for hire was included in the narrative, but never in the charges. All you need to do is read the original New York indictment (http://www.wired.com/images_blogs/threatlevel/2014/02/US-v.-Ross-Ulbricht-Indictment.pdf ) and you'll see the areas that say "COUNT ONE" through "COUNT FOUR". NONE of those are murder-for hire. Therefore the charges were never in there in the first place, so how could they be quietly dropped?

2) The murder-for-hire charges are a separate case in the District of Maryland. See http://www.businessinsider.com/ross-ulbricht-charged-in-2nd-silk-road-murder-for-hire-plot-2013-10 . Unless you can show me that this case was dropped, I don't believe you.

The Maryland case is the second shoe that has yet to fall. The feds can use that as leverage in the first case. Or they can use it as back-up charges to try to nail Ross, in case the first prosecution fails.

But you have said nothing to convince me that the charges were quietly dropped. I think you are just plain wrong on that statement.

Anonymous said...

Here's a better link for the ORIGINAL charges: https://www.cs.columbia.edu/~smb/UlbrichtCriminalComplaint.pdf (See COUNT ONE through COUNT THREE, none of which are murder-for-hire)

Anonymous said...

Good piece, with two caveats.

1. Aaron Swartz. There is compelling evidence that he was 'suicided', and did not actually kill himself. Your one sentence line, to those unfamiliar, would lend one to believe that is the case, when there is clearly room for interpretation of that event. Your use of wikipedia for Aaron is not encouraging. There are far better sources than that.

2. The statement "Then they have to prove laundering when it appears no bitcoins were ever moved into dollars." I am not challenging you on this. I asking if you can provide (via comments, or links) some basis for that statement. The simple fact is...I simply do not understand how it can exist outside the dollar paradigm when all else does. How is it based in value to begin with? When I read (paraphrased and inaccurate...example only) "Bit-coins are worth $2300 and will go up to $ ....." that indicates to me that the valuation is based in dollars. Help a simple person see, please. Thanks.

Anonymous said...

In the sealed complaint submitted by NY, murder-for-hire is alleged under Overt Acts, 5b, under Count 1. Thus saying murder-for-hire allegations were not "dropped" is splitting hairs. For the commenter to say "The story of murder for hire was included in the narrative, but never in the charges," I believe is incorrect. It was an official complaint from the So. District of NY. Isn't that a charge?

In addition they used these allegations at his bail hearing as argument against granting bail. That day they added four more allegations to the one in the complaint. His attorney commented that this was submitted it at 7:30 PM the night before the bail hearing, precluding Ulbricht and his attorney from preparing an answer or discussing it. Then they didn't indict him for the alleged five plots 3 months later.

Anonymous said...

"...there is no victim of the alleged hacking. It seems like a vague tack-on charge used to justify forcing decades in prison to a non-violent offender..."

If there is no victim there is no offender, violent or non-violent.

Anonymous said...

If law is expansive and adaptable then it's really just discretionary. That doesn't fit any modern notion of what law is.

Anonymous said...

Is there a connection between this case and the Mt. Gox collapse? There has been a persistent rumour that these losses were not only caused by possible wrong-doing by owners of Gox, but as the result of a bitcoin seizure and gag order. Google a report by Tuck Fheman "Gov Most Certainly Seized Gox’s Coins," for further details.

Anonymous said...

There are enough laws on the books in the U.S. to send every person to jail. So yes, it is solely at the discretion of The State who gets locked up and who remains free. The Rule of Law is void when the laws are contradictory and every action can be considered illegal by some interpretation of the law.

Anonymous said...

Everybody seems to be missing the undercuts in facts and logic here. The USD is FIAT CURRENCY (not real money) which is backed up by nothing at all, except some of Uncle Sam's bullets and bombs if you don't accept it, it has NO intrinsic value to it because it's created out of thin air as electronic bookkeeping entries in a data bank somewhere, and the paper that gets some ink squirted onto it is made out of OLD, COTTON RAGS, so where pray tell does the USD get any purchasing power to it at all? WHERE is the human labor which MUST be the basis for any medium of exchange for it to be a system of honest weights and measures?
There are court decisions (Credit River for one) which clearly state that FRNs have no intrinsic value to them and so therefore have no determinable value in them.
The entire legal system is a scam, a fraud, an artifice and therefore is totally illegitimate for any purpose at all. The Executive Administrators of the U.S. bankruptcy who are posing as bona fide judges are as biased as they can be, and so cannot make impartial decisions about anything. NO ONE has any kind of actual obligation to be ripped off by the legal system, if there is such a case, please cite it.


Anonymous said...

Refer to the counts "COUNT ONE" through "COUNT THREE", and see that murder-for-hire was not one of the counts he was charged with, in NY. Here's a link for the ORIGINAL charges: https://www.cs.columbia.edu/~smb/UlbrichtCriminalComplaint.pdf

He was charged with murder-for-hire in Maryland.

Anonymous said...

same thing with Kim dot Com.

put everybody you don't like in jail.
make too much money? u go to jail.

when you think Bush has killed 500k people and he is still free!

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