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Case 2:17-cr-00738-R Document 31 Filed 06/04/18 Page 1 of 17 Page ID #:126

1 NICOLA T. HANNA
United States Attorney
2 LAWRENCE S. MIDDLETON
Assistant United States Attorney
3 Chief, Criminal Division
PUNEET V. KAKKAR (Cal. Bar No. 259816)
4 Assistant United States Attorney
OCDETF Section
5 1400 United States Courthouse
312 North Spring Street
6 Los Angeles, California 90012
Telephone: (213) 894-5728
7 Facsimile: (213) 894-0142
E-mail: puneet.kakkar@usdoj.gov
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Attorneys for Plaintiff
9 UNITED STATES OF AMERICA

10 UNITED STATES DISTRICT COURT

11 FOR THE CENTRAL DISTRICT OF CALIFORNIA

12 UNITED STATES OF AMERICA, 2:17-CR-00738-R

13 Plaintiff, SENTENCING POSITION

14 v. Hearing Date: June 11, 2018


Hearing Time: 10:00 a.m.
15 THERESA TETLEY, Location: Courtroom of the
aka “Bitcoin Maven,” Hon. Manuel L. Real
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Defendant.
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19 Plaintiff United States of America, by and through its counsel


20 of record, the United States Attorney for the Central District of
21 California and Assistant United States Attorney Puneet V. Kakkar,
22 hereby files its sentencing position.
23 This sentencing position is based upon the attached memorandum
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25 ///
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Case 2:17-cr-00738-R Document 31 Filed 06/04/18 Page 2 of 17 Page ID #:127

1 of points and authorities, the files and records in this case, and

2 such further evidence and argument as the Court may permit.

3 Dated: June 4, 2018 Respectfully submitted,

4 NICOLA T. HANNA
United States Attorney
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LAWRENCE S. MIDDLETON
6 Assistant United States Attorney
Chief, Criminal Division
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8 /s/
PUNEET V. KAKKAR
9 Assistant United States Attorney

10 Attorneys for Plaintiff


UNITED STATES OF AMERICA
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Case 2:17-cr-00738-R Document 31 Filed 06/04/18 Page 3 of 17 Page ID #:128

1 TABLE OF CONTENTS
2 DESCRIPTION PAGE

4 TABLE OF AUTHORITIES...............................................ii

5 MEMORANDUM OF POINTS AND AUTHORITIES................................1

6 I. INTRODUCTION...................................................1

7 II. BACKGROUND ON UNLICENSED MONEY TRANSMITTING BUSINESS AND


BITCOIN........................................................2
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A. Unlicensed Money Transmitting Businesses..................2
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B. Background on Digital Currency and the Dark Web...........4
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C. Digital Currency and Money Transmitting...................6
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III. OFFENSE CONDUCT................................................7
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A. Unregistered Money Transmitting Business..................7
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B. Facilitation of Money Laundering..........................7
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1. Transactions with Undercover Agents..................7
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2. Exchanges for William James Farber...................9
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IV. DEFENDANT SHOULD BE SENTENCED TO 30 MONTHS’ INCARCERATION......9
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A. Nature and Circumstances of Offense.......................9
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B. Need to Promote Respect for the Law and to Afford
19 Adequate Deterrence......................................11

20 C. History and Characteristics of Defendant.................12

21 V. CONCLUSION....................................................13

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1 TABLE OF AUTHORITIES
2 DESCRIPTION PAGE

4 Cases
5 United States v. Faiella,
6 39 F. Supp. 3d 544 (S.D.N.Y. 2014) ....................... 6, 7, 8, 9
7 United States v. Murgio,
8 209 F. Supp. 3d 698 (S.D.N.Y. 2016) ............................... 2
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Statutes
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18 U.S.C. § 3553(a)................................................. 9
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18 U.S.C. § 1960........................................... 1, 2, 3, 6
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31 U.S.C. § 5318(g)(1).............................................. 3
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31 U.S.C. § 5330.................................................... 2
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31 U.S.C. §§ 5318(a)(2)............................................. 3
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16 Regulations
17 31 C.F.R. § 1010.100(ff)(5)......................................... 6
18 31 C.F.R. § 1010.100(t)............................................. 6
19 31 C.F.R. § 1010.311................................................ 3
20 31 C.F.R. § 1022.210(a)............................................. 3
21 31 C.F.R. § 1022.380(b)(2).......................................... 2
22 31 C.F.R. § 1022.320(a)(2).......................................... 3
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Case 2:17-cr-00738-R Document 31 Filed 06/04/18 Page 5 of 17 Page ID #:130

1 MEMORANDUM OF POINTS AND AUTHORITIES


2 I. INTRODUCTION
3 Over the course of more than three years, defendant Theresa

4 Tetley, also known as “Bitcoin Maven” (“defendant”), operated an

5 illegal, unlicensed money transmitting business, namely, an

6 unregistered Bitcoin-for-cash exchange service, which fueled a black-

7 market financial system in the Central District of California that

8 purposely and deliberately existed outside of the regulated bank

9 industry. Defendant’s decision to not register with the federal

10 government signaled to her clients that she was unconcerned with the

11 government’s regulations concerning money laundering, and thereby

12 would not conduct customer due diligence or report to the government

13 suspicious transactions or certain transactions over $10,000.

14 Customers, regardless of the source of their funds, could then

15 utilize her services, exchange Bitcoin for cash or vice versa,

16 without fear of being the subject of reports filed with the federal

17 government for certain transactions that otherwise would be reported.

18 Defendant charged a premium to these customers seeking to avoid the

19 regulated financial system, and collected higher fees for her

20 services than those charged by regulated exchangers. For this

21 conduct, defendant has pleaded guilty to 18 U.S.C. §§ 1960 and

22 1956(a)(3).

23 The government recommends the Court to sentence defendant to 30

24 months’ incarceration, to be followed by three years of supervised

25 release.

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1 II. BACKGROUND ON UNLICENSED MONEY TRANSMITTING BUSINESS AND BITCOIN


2 A. Unlicensed Money Transmitting Businesses
3 18 U.S.C. § 1960 criminalizes, in relevant part, money

4 transmitting businesses that fail to comply with federal registration

5 requirements, as required by 31 U.S.C. § 5330 and the regulations

6 prescribed thereunder. Section 1960 was enacted in 1992 as part of

7 the Annunzio-Wylie Anti-Money Laundering Act, which was one of a

8 series of provisions aimed at combating money laundering and

9 enhancing reporting requirements relating to cash transactions. A

10 more complete explanation of the purpose of the legislation is in the

11 report of the Senate Banking Committee on the bill in the prior

12 session of Congress. See S. Rep. No. 101-460, 101st Cong., 2d Sess.

13 (1990). That Senate Report noted that, as banks’ compliance with

14 money laundering legislation has improved, “[i]ncreasingly, money

15 launderers are using money transmitters, check cashers, money

16 exchanges and other nonbank financial companies” to “convert street

17 currency into monetary instruments and even to transmit abroad the

18 proceeds of drug sales.” Id. at 13-14. “From its inception,”

19 Section 1960 “sought to prevent innovative ways of transmitting money

20 illicitly.” United States v. Murgio, 209 F. Supp. 3d 698, 708

21 (S.D.N.Y. 2016).

22 A money transmitting business must usually register with the

23 federal government as a “money services business,” specifically, with

24 the Financial Crimes Enforcement Network (“FinCEN”), which is part of

25 the Department of Treasury. 31 C.F.R. § 1022.380(b)(2).

26 Registration as a “money services business” (“MSB”) then triggers

27 obligations for that financial institution. For example, under the

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1 Bank Secrecy Act, an MSB is required, among other things, generally

2 to:

3 • Develop, implement, and maintain an effective written anti-


4 money laundering program that is reasonably designed to

5 prevent the MSB from being used to facilitate money

6 laundering and the financing of terrorist activities (31

7 U.S.C. §§ 5318(a)(2), (h); 31 C.F.R. § 1022.210(a));

8 • Report transactions that the MSB knows, suspects, or has


9 reason to suspect are suspicious (which includes funds

10 derived from illegal activity or involves the use of the

11 transmitter to facilitate criminal activity), if the

12 transactions are conducted or attempted by, at, or through

13 the MSB, and the transactions involve or aggregate to at

14 least $2,000 in funds or other assets (31 U.S.C.

15 § 5318(g)(1); 31 C.F.R. §§ 1022.320(a)(2)); and

16 • File a report of each deposit, withdrawal, exchange of


17 currency or other payment or transfer, by, through, or to

18 such MSB which involves a transaction in currency of more

19 than $10,000 (31 C.F.R. § 1010.311).

20 In practice, the obligations outlined above require an MSB to

21 verify customer identity, conduct due diligence on its customers,

22 file reports with the federal government, and create and maintain

23 records pursuant to the Bank Secrecy Act. When MSBs are not

24 registered with the federal government, they are not routinely

25 subject to examinations (i.e., audits) conducted by FinCEN to ensure

26 that these obligations are being followed, and have no incentive to

27 comply with the requirements of the Bank Secrecy Act. Unregistered

28 MSBs thus operate in, and fuel, a black market financial system, and

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1 pose the very threats that the Senate outlined in legislating 18

2 U.S.C. § 1960.

3 B. Background on Digital Currency and the Dark Web


4 Digital currency (also known as crypto-currency or virtual

5 currency) 1 is generally defined as an electronic-sourced unit of

6 value that can be used as a substitute for fiat currency (i.e.,

7 currency created and regulated by a government). Digital currency

8 exists entirely on the Internet and is not stored in any physical

9 form. Digital currency is not issued by any government, bank, or

10 company and is instead generated and controlled through computer

11 software operating on a decentralized peer-to-peer network. Digital

12 currency is not illegal in the United States and may be used for

13 legitimate financial transactions. However, because of the

14 “pseudonymous” nature of digital currency (described below), it is

15 used for conducting illegal transactions, such as the sale of

16 controlled substances.

17 “Bitcoin” (or “BTC”) is a type of online digital currency that

18 allows users to transfer funds more anonymously than would be

19 possible through traditional banking and credit systems. Bitcoins

20 are a decentralized form of digital currency having no association

21 with banks or governments. Users store their Bitcoins in digital

22 “wallets,” which are identified by unique electronic “addresses.” A

23 digital wallet essentially stores the access code that allows an

24 individual to conduct Bitcoin transactions on the public ledger. To

25 access Bitcoins on the public ledger, an individual must use a public

26 address (or “public key”) and a private address (or “private key”).

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28 1 For purposes of this filing, “digital currency,”


“crypto-currency,” and “virtual currency” address the same concept.
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1 The public address can be analogized to an account number while the

2 private key is like the password to access that account. Even though

3 the public addresses of those engaging in Bitcoin transactions are

4 recorded on the public ledger, the “Blockchain,” the true identities

5 of the individuals or entities behind the public addresses are not

6 recorded. If, however, a real individual or entity is linked to a

7 public address, it would be possible to determine what transactions

8 were conducted by that individual or entity. Bitcoin transactions

9 are, therefore, described as “pseudonymous,” meaning they are

10 partially anonymous.

11 Although they are legal and have known legitimate uses, Bitcoins

12 are also known to be used by criminals for money-laundering purposes,

13 and are believed to be the most oft-used means of payment for illegal

14 goods and services on “dark web” websites. “Dark web” websites is a

15 colloquial term for sophisticated, encrypted websites that allow

16 participants to buy and sell illegal items, such as drugs, firearms,

17 and other hazardous materials (sold by “vendors”) with greater

18 anonymity than the traditional Internet. These online black market

19 websites use a variety of technologies, and other encryption

20 technologies, to ensure that communications and transactions are

21 shielded from interception and monitoring, and usually only accept

22 digital currencies such as Bitcoin as a form of payment for

23 contraband. A famous dark web marketplace, Silk Road (which law

24 enforcement shut down in 2013), operated similar to legitimate

25 commercial websites such as Amazon and eBay, but offered illicit

26 goods and services.

27 Generally, individuals can purchase or sell Bitcoin in a peer-

28 to-peer context (i.e., another individual willing to exchange Bitcoin

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1 for cash) or from exchange companies. Those offering to exchange

2 Bitcoin for cash in a peer-to-peer setting often advertise their

3 services on the Internet, on websites such as localbitcoins.com or

4 Craigslist. Bitcoin exchangers either comply with the law, and

5 register with FinCEN (like traditional banks), or choose not to

6 register with the federal government, thereby seeking to avoid the

7 requirements imposed by the Bank Secrecy Act.

8 In the government’s experience with criminal investigations,

9 those who obtain and use digital currency via and through illicit

10 means seek to exchange this currency for fiat currency via

11 unregistered financial exchangers to remain outside government

12 scrutiny. That is to say, illicit actors prefer exchanging their

13 Bitcoin for fiat currency (or vice versa) through institutions that

14 do not require a form of identification or report certain

15 transactions to the federal government. This method of exchanging

16 allows illicit actors to remain as anonymous as possible.

17 C. Digital Currency and Money Transmitting


18 Exchangers of convertible virtual currency -- those who offer

19 the purchase and sale of U.S. dollars as well as digital currency

20 such as Bitcoin -- are “money transmitters” as defined at 31 C.F.R.

21 § 1010.100(ff)(5), “financial institutions” as defined at 31 C.F.R.

22 § 1010.100(t), and generally “money transmitting business[es]” for

23 purposes of 18 U.S.C. § 1960. See FIN-2013-G001, “Application of

24 FinCEN’s Regulations to Persons Administering, Exchanging or Using

25 Virtual Currencies,” March 18, 2013; United States v. Faiella, 39 F.

26 Supp. 3d 544, 546 (S.D.N.Y. 2014). These exchangers are thus subject

27 to the Bank Secrecy Act, including the requirement to implement an

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1 anti-money laundering program, and its various reporting requirements

2 described above.

3 III. OFFENSE CONDUCT


4 A. Unregistered Money Transmitting Business
5 Between 2014 and 2017, defendant operated an unlicensed money

6 transmitting business –- the exchange of Bitcoin for cash and vice

7 versa. (Presentence Investigation Report [“PSR”] ¶ 12.) This was,

8 by all means, a professional business and not a hobby: She

9 advertised under a trade name, “Bitcoin Maven,” on localbitcoins.com.

10 (PSR ¶ 13.) Defendant also maintained ledgers of her activity for

11 customers across the country. (Id.) She possessed a money counter

12 to ensure that she was always accurate. (Id. ¶ 31.) In the course

13 of this illicit business, defendant exchanged a significant amount of

14 money, between $6 and $9.5 million. (Id. ¶¶ 12, 15.)

15 B. Facilitation of Money Laundering


16 1. Transactions with Undercover Agents

17 Defendant operated her unregistered exchange business to afford

18 privacy and secrecy for her clients. Defendant’s interactions with

19 undercover law enforcement provides a snapshot into the means by

20 which she conducted her business.

21 In or around April 2016, an undercover with the Drug Enforcement

22 Administration (“UCA-1”) met with defendant. Defendant stated that

23 she had been “kicked out” of four major financial institutions, and

24 therefore had enlisted her sister to conduct cash transactions for

25 her. (Id. ¶ 18.) UCA-1 informed defendant that she wanted to

26 maintain anonymity with her Bitcoin transactions with defendant; and

27 defendant, honoring this request, stated that she did not want to

28 know the source of UCA-1’s Bitcoin. (Id.)

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1 In July 2016, UCA-1 then introduced defendant to UCA-1’s

2 “boyfriend,” who was, in fact, another undercover agent (“UCA-2”).

3 UCA-2 began to insinuate the unlawful nature of his funds (which were

4 in Bitcoin), informing defendant that he was engaged in a business

5 selling products that were not “socially acceptable on the open

6 market.” (Id. ¶ 21.) In response to this, defendant stated “I don’t

7 want to know,” but continued to discuss doing business with UCA-2.

8 (Id.) Defendant informed UCA-2 that she did not disclose to the IRS

9 the identity of her customers, to reassure UCA-2 the secrecy by which

10 defendant conducted her business. (Id. ¶ 22.) Defendant also

11 advised UCA-2 that she does not generally track whether a transaction

12 exceeds $10,000. (Id.) UCA-2 and defendant conducted a Bitcoin-for-

13 cash transaction that day (approximately $45,000), at a restaurant;

14 defendant provided UCA-2 with cash (in exchange for his Bitcoin) in

15 seven white envelopes. (Id. ¶ 26.)

16 Defendant and UCA-2 met again in January 2017 to conduct another

17 exchange of cash for Bitcoin that UCA-2 possessed. This time, the

18 UCA-2 was more explicit with his representation that the source of

19 his Bitcoin was unlawful, informing defendant that an intruder broke

20 into one his apartments, stealing only the supply of “coke, meth, and

21 weed” but not the money because it was in “Bitcoin.” (Id. ¶ 29.)

22 Defendant believed that the transaction involved the proceeds of

23 unlawful activity, and in a wink-and-nod, stated “you’re joking,” and

24 continued to proceed with the transaction, commenting that “Bitcoin

25 is the way to go.” (Id. at ¶ 29.) Defendant provided approximately

26 $70,000 in seven white envelopes to UCA-2. (Id. at ¶ 30.) Defendant

27 continued to assure UCA-2 that she was trustworthy and reputable, and

28 UCA-2 emphasized that he was in the business of selling narcotics.

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1 (Id. at ¶¶ 31, 32.) Notwithstanding this, defendant still decided to

2 do business with UCA-2. (Id. at ¶ 33.)

3 Defendant and UCA-2 arranged to meet in March 2017 for a

4 $300,000 exchange transaction. (Id. at ¶ 33.) Defendant brought to

5 the transaction two Trader Joe’s paper grocery bags. (Id. at ¶ 33;

6 Plea Agreement Factual Basis.) Defendant was arrested at this

7 transaction. (Id.)

8 2. Exchanges for William James Farber

9 The privacy and anonymity that defendant offered to the public

10 attracted at least one other actor who is alleged to launder money.

11 In the course of her business, prior to defendant’s arrest, defendant

12 exchanged over $6 million in Bitcoin for cash for one of her

13 customers, whom she knew as “David.” (PSR ¶ 15.) Defendant

14 communicated with “David” via Wickr, an encrypted communications

15 application. (Id.) It turns out that “David” was William James

16 Farber, who was charged by the government in United States v. Farber,

17 et al., 17-CR-188-LJO (E.D. Cal.), for being a large darknet vendor

18 of narcotics on the marketplace AlphaBay, which was subsequently shut

19 down by law enforcement. (Id.)

20 IV. DEFENDANT SHOULD BE SENTENCED TO 30 MONTHS’ INCARCERATION


21 Based on the relevant factors that this Court can consider for

22 sentencing, including 18 U.S.C. § 3553(a), the government recommends

23 a custodial term of 30 months’ imprisonment.

24 A. Nature and Circumstances of Offense


25 Defendant profited from her illicit business. Defendant

26 operated a multi-million dollar unlicensed money transmitting

27 business in the Central District of California, flouting regulations

28 requiring financial institutions (such as her) to prevent money

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1 laundering in this country. Indeed, defendant marketed, and

2 capitalized on, providing anonymity and secrecy for her clients,

3 exchanging Bitcoin for individuals such as Farber and the DEA

4 undercover agents who are alleged to have obtained (or claimed to

5 have obtained) those funds from illegal activities. Defendant

6 offered a financial platform beyond the scope of federally regulated

7 financial institutions to convert digital currency into fiat currency

8 and launder transactions. And defendant did so with an intent to

9 profit; she charged above-market rates 2, which presumably was

10 profitable for her. During the time of the offense conduct,

11 defendant’s adjusted gross income earnings approximated, and

12 exceeded, $300,000 per year.

13 While the law does not require that defendant know that her

14 conduct was illegal, that was the case here, which constitutes an

15 aggravating factor for sentencing. Defendant flatly admitted to the

16 DEA undercover agent that she had been “shut out” of financial

17 institutions, but continued to proceed with the illicit business

18 anyway; this should have alerted her to the inherently suspect nature

19 of her business. Instead of ceasing these operations or complying

20 with the law, she enrolled her sister to assist her with banking

21 transactions.

22 Further, defendant’s conduct with the undercover agents

23 demonstrate her way of business: Defendant continued to proceed

24 conducting transactions, even when alerted that the transactions were

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2 For example, the fees that defendant charged were greater than
27 those charged by Coinbase, a registered digital currency exchange
institution. See, e.g.,
28 https://support.coinbase.com/customer/portal/articles/2109597-buy-
sell-bank-transfer-fees.
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1 suspicious, thereby consciously disregarding the anti-money

2 laundering regulations that the federal government has imposed for

3 financial institutions such as herself.

4 Defendant also facilitated the laundering of suspected narcotics

5 proceeds, namely, those of an alleged large darknet vendor, Farber.

6 Though the government has no direct proof that defendant was

7 specifically aware of Farber’s alleged activity, the circumstances

8 certainly reflect that defendant knew, or should have known, of some

9 malfeasance connected to Farber. Defendant communicated Farber via

10 encrypted communications. For a significant period of time, she

11 conducted numerous, high-level cash transactions with him (ultimately

12 amounting to $6 million), knowing him only to be “David” or “Pirate

13 Shit.” These circumstances show that defendant knew something was

14 awry, as “David” coveted that she operated entirely outside of the

15 regulated financial market, that she offered privacy and anonymity,

16 and that she could sustain a high level of business for him.

17 Providing cash in envelopes (and in the significant amounts she

18 did), in coffee shops and restaurants, is no way to conduct

19 legitimate business, certainly when that volume exceeds the millions,

20 and someone such as defendant –- a former stockbroker and real estate

21 investor –- was certainly aware of that. Her decision to continue to

22 proceed in this manner highlights the seriousness of the offense that

23 warrants a custodial sentence of 30 months.

24 B. Need to Promote Respect for the Law and to Afford Adequate


25 Deterrence
26 A significant sentence of 30 months is also warranted to deter

27 individuals from operating unlicensed money transmitting businesses.

28 In light of the growth of the dark web and the use of digital

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1 currency, unlicensed exchangers provide an avenue of laundering for

2 those who use digital currency for illicit purposes. Illicit actors

3 who obtain Bitcoin from unlawful means (e.g., the sale of contraband)

4 seek an outlet to exchange those funds for fiat cash (to reap the

5 profits of their crime or to further layer transactions to avoid

6 detection); unlicensed exchangers provide the perfect conduit.

7 Unlicensed exchangers such as defendant generally do not conduct

8 customer due diligence, file transaction reports for cash

9 transactions in excess of $10,000, or file suspicious reports with

10 the government. All that matters for an unlicensed exchanger is the

11 profit--the price that a customer is willing to pay for this

12 anonymity; for an illicit actor, that price is simply a cost of doing

13 criminal business.

14 In targeting unlicensed exchangers, the government is able to

15 prevent, or at least curb, the opportunities for actors utilizing

16 digital currency illicitly to convert those proceeds into fiat

17 currency. A custodial sentence of 30 months in this case will signal

18 that failure to register as a money transmitting business is a

19 serious offense, and not a simple administrative oversight of failing

20 to file a form with the federal government. That is particularly the

21 case here, where defendant facilitated laundering for a suspected

22 large darknet narcotics vendor and agreed to launder funds

23 represented to be narcotics proceeds with an undercover agent.

24 C. History and Characteristics of Defendant


25 The defendant’s history and characteristics are mitigating

26 factors for the Court to consider. Specifically, defendant has no

27 criminal history and no encounter with the criminal justice system.

28 Further, defendant appears to have a caretaking, leading role in her

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1 family, looking after siblings who have been affected with serious

2 health issues. The government believes that these mitigating

3 concerns are properly reflected in the recommended sentence. In sum,

4 these mitigating concerns do not outweigh the significant nature of

5 her crime (which allowed the crimes of others to continue) and the

6 need for general deterrence, and thus, a custodial sentence of 30

7 months is warranted.

8 V. CONCLUSION
9 For the foregoing reasons, the government respectfully requests

10 that this Court sentence defendant to 30 months’ incarceration, to be

11 followed by three years of supervised release. The government also

12 requests an order of forfeiture reflecting (1) 40 Bitcoin that she

13 possessed as of March 30, 2017, and transferred to law enforcement on

14 January 8, 2018; and (2) $292,264.00 and 25 assorted gold bars seized

15 by law enforcement officials on March 30, 2017.

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