An Update on the January 6 Investigations

It’s been an eventful couple of months in the investigations of January 6, 2021. There are signs that DOJ’s criminal investigation is starting to close in on higher-level organizers and leaders of the attempt to overturn the election, including those in Trump’s inner circle. The aggressive Congressional investigation continues, with House attorneys alleging in federal court that they believe former president Trump himself committed crimes on January 6. And a federal judge recently ruled that civil suits seeking damages from Trump and others stemming from the Capitol riot may proceed. Overall, things definitely seem to be accelerating, and it’s a good time for an update on the January 6 investigations.

Attorney General Merrick Garland

The Department of Justice Investigations

Garland Vows to Pursue Those Responsible “At Any Level”

On January 5, 2022, Attorney General Merrick Garland gave a speech commemorating the one year anniversary of the assault on the Capitol. He said investigating those events was DOJ’s highest priority, and vowed to pursue those responsible “at any level.” He shared some remarkable statistics about the scope of the investigation, the largest in DOJ’s history.

Garland also appeared to respond to critics complaining that DOJ was charging mostly misdemeanors and did not seem to be pursuing the higher-level organizers or more serious charges. He said that, by disposing of the less serious cases first, prosecutors were following “well-worn prosecutorial practices.” He noted that in large, complex investigations, prosecutors begin with the easier, more overt cases and then work their way up the ladder to higher-level players and more serious charges as they gather more information.

Garland vowed that “the actions we have taken so far will not be our last.” And he said that although he understood the possible frustration with the lack of public information and the time it takes to investigate such cases properly, that was how DOJ must proceed: “We will and we must speak through our work.”

Stewart Rhodes, Founder of the Oath Keepers

The Oath Keepers Indictment

One week after Garland’s speech, a new indictment demonstrated that the criminal investigation was indeed moving up the ladder to more serious charges and actors. On January 13, DOJ announced the indictment of eleven members of the right-wing militia group the Oath Keepers, including its founder, Stewart Rhodes. The lead charge in that indictment is Seditious Conspiracy, 18 U.S.C. 2384, which makes it a crime to conspire to use force to overthrow the U.S. government or interfere with the execution of federal law. This was the first time any Capitol riot defendants had been charged with sedition, which essentially accuses the defendants of taking up arms against the United States to prevent the peaceful transfer of presidential power.

The Oath Keepers indictment goes into great detail about the group’s activities leading up to January 6. Using encrypted messaging apps and online forums, they formulated their plans to travel to Washington and use force to stop Congress from certifying that Joe Biden won the election. The indictment also describes how members of the group helped lead the assault on the Capitol, using military gear and tactics. Others stockpiled weapons in the D.C. suburbs and served as a “Quick Reaction Force” ready to deploy those weapons to support the attack. They even planned how they might use boats to get weapons across the Potomac if the government closed the bridges. The Oath Keepers were not mere attendees at the White House rally who later got swept up with the mob. They were organizers and leaders of the assault on the Capitol.

Joshua James, Leader of the Alabama Oath Keepers

The First Guilty Plea to Sedition

The Oath Keepers indictment represented the first time DOJ filed charges of sedition against any of the rioters. On March 2, it secured the first guilty plea to that charge. Joshua James, one of the eleven Oath Keepers named in the Rhodes indictment, pleaded guilty to seditious conspiracy and obstruction of Congress. James also agreed to cooperate with prosecutors in the ongoing investigation.

James’s plea and cooperation could be a major breakthrough. He can provide information not only about the Oath Keepers conspiracy but potentially about the involvement of other, higher-level participants in the events of January 6. In particular, James and other Oath Keepers are known to have provided personal security on January 5th and 6th for Trump advisor and confidant Roger Stone.

Stone, of course, is a well-known figure from the Trump years. The Mueller investigation revealed that Stone acted as a conduit between the 2016 Trump campaign and Wikileaks and Julian Assange for information about the release of stolen Democratic emails in the weeks leading up to the 2016 election. Stone was convicted of lying to Congress about his role in those events and was sentenced to nearly four years in prison, but was later pardoned by president Trump.

Stone was part of the group of close advisors to president Trump who gathered in Washington in the days leading up to January 6. A recent detailed report in the Washington Post described an upcoming documentary that will highlight Stone’s work with the Trump team to overturn the results of the election.

With the James guilty plea, prosecutors have now secured the cooperation of someone who was close to Stone during those pivotal days. That potentially allows investigators to move beyond the actual rioters and into a broader conspiracy involving those close to Trump who planned and organized from a distance. And as investigators move up that ladder, those senior Trump advisors are only one rung below Trump himself.

The Proud Boys Indictment

On March 8, DOJ announced the indictment of Enrique Tarrio, the former leader of another militia group, the Proud Boys. He and five other members of the Proud Boys are charged with conspiracy, obstruction of Congress, assaulting law enforcement officers, and destruction of federal property. The Proud Boys are another of the leading militia groups involved in organizing and carrying out the assault on the Capitol.

The Proud Boys featured prominently in an incident from the 2020 presidential debates. When the moderator asked president Trump whether he was willing to denounce right-wing extremist groups, he asked who he should denounce. Joe Biden suggested the Proud Boys. Trump responded, “Proud Boys, stand back and stand by.” Tarrio then Tweeted in response, “Standing by, sir.”

As with the Oath Keepers case, the Proud Boys indictment details how the members of the group planned and then participated in the assault on the Capitol. It describes how they breached the outside barriers and assaulted police officers. One of the defendants allegedly used a riot shield taken from a police officer to break a window in the Capitol that rioters then used to make their first entry into the building. After entering the building, one posted on social media, “We’ve taken the Capitol.”

Tarrio is not charged with entering the Capitol himself but with helping to coordinate the Proud Boys activities. On January 4, Tarrio had been arrested in D.C. on local charges stemming from his participation in an assault on Black Lives Matter protestors in December. As part of his conditions of release, he was ordered to stay out of D.C. Before leaving, however, the indictment alleges that on January 5 he met in a parking garage with Stewart Rhodes of the Oath Keepers and others – more evidence of a potentially broader conspiracy. He then traveled to Baltimore, where he stayed in communication with the Proud Boys who actually participated in the assault.

The Proud Boys indictment does not include the Seditious Conspiracy charge used in the Oath Keepers indictment. It’s not clear to me why that’s the case. One difference is that the Proud Boys indictment lacks any reference to gathering and bringing firearms to DC, which is a big part of the Oath Keepers case. Firearms would not be necessary for a sedition charge, but perhaps that is a discretionary distinction DOJ is drawing about when to use that charge.

Guy Reffitt

The First Conviction at Trial

Also on March 8, the first Capitol rioter to go to trial was convicted on all counts. Guy Reffitt, a member of a Texas militia group called the Three Percenters, was charged with five felonies, including obstruction of Congress and carrying a firearm during a civil disorder. He traveled to D.C. with an assault rifle and handgun. He carried the handgun with him during the assault on the Capitol, along with zip ties, a helmet, and body armor. Prosecutors alleged that he led one wave of the assault on the Capitol and served as the “tip of the spear,” helping break through police barricades before being repelled by pepper spray.

Reffitt was also convicted of obstruction of justice for threatening potential witnesses: his own children. After returning to Texas, he became paranoid about being arrested. He told his 18-year-old son and his younger sister, “If you turn me in, you’re a traitor. And traitors get shot.” His son, who does not share his father’s political views, did in fact turn him in and testified at his trial. (And you thought your Thanksgiving dinners were awkward.)

This first conviction was an important milestone for the government. Prosecutors put on an overwhelming case. It only took about a week to pick a jury and try the case, and the jury only deliberated for about three hours. This sends a strong signal to other January 6 defendants about the government’s ability to try these cases quickly and effectively. The Reffitt conviction will likely convince other defendants to plead guilty and cooperate rather than challenge the prosecution at trial.

Judge Nichols Ruling on Obstruction

Along with all these positive developments, there was one recent setback for prosecutors. On March 7, U.S. District Judge Carl Nichols ruled that prosecutors could not charge a Capitol rioter with obstruction of a Congressional proceeding under 18 U.S.C. 1512(c)(2). The ruling came in the case of Garrett Miller of Texas. Nichols ruled that this portion of the statute applies only to obstructive conduct that is similar to document shredding or other destruction of physical evidence. Because Miller was not charged with that kind of conduct, Nichols dismissed the obstruction charge. Miller remains charged with multiple other crimes.

I think Judge Nichols is wrong. I wrote here last fall about why I believe the obstruction of Congress charge does apply to the conduct of the Capitol rioters. Ten other district court judges, faced with similar motions, have ruled that the statute does apply – you can find a list here. Nichols is really out there on his own.

Nevertheless, the decision does cast a shadow over the more than 200 cases where the obstruction charge has been filed. The Proud Boys and Oath Keepers indictments discussed above include that charge. Reffitt was just convicted of it, and James pleaded guilty to it. Some defendants may now be reluctant to plead to the charge if there are doubts about its legal validity.

I see this as a speed bump for DOJ, not a major roadblock. This legal issue was always destined to be decided by the D.C. Circuit, and potentially even by the Supreme Court. DOJ will probably pursue an immediate appeal of Nichols’ order, hoping to get a relatively quick decision from the Circuit court. But in the meantime, given the overwhelming approval of the charge by every other judge to look at the issue, I expect DOJ will continue to pursue it in appropriate cases.

Members of the House Select Committee

The Congressional Investigation

The investigation of January 6 by the House Select Committee is churning along. They have hired a number of former federal prosecutors and appear to be conducting a thorough and painstaking investigation. The Committee has spoken to nearly 600 witnesses and has gathered a huge amount of evidence. They have announced plans to hold public hearings in the near future. They are continuing their efforts to gather information from very high-level people close to Trump, including his family members and senior staff.

In contrast to the DOJ criminal investigation, the House Committee is free to make its findings public. It already has released some information, such as the text messages to Trump during the riot from his family, Fox News hosts, and members of Congress, all pleading with Trump to call it off, and the draft of a proposed executive order (never signed) directing the department of defense to seize voting machines in key states. The Committee reports and hearings ultimately will provide the most detailed public findings to date about January 6 and what caused it.

Allegations Regarding John Eastman

The Committee made headlines recently based on allegations it made in litigation with former Trump attorney John Eastman. Eastman was the architect of the universally-discredited theory that on January 6 vice president Mike Pence could simply reject the electoral votes of certain states that Joe Biden won and declare Trump the winner. He was one of the Trump advisors who occupied the “war room” at the Willard Hotel in early January. The House Committee subpoenaed Eastman’s emails and he has withheld thousands of them, claiming they are protected by attorney-client privilege because he was acting as Trump’s lawyer.

In a federal court filing last week in California (where Eastman lives), attorneys for the Committee argued the emails are not protected. One of their arguments rests on the rule that communications with an attorney are not privileged if made in furtherance of a crime or fraud. They allege that Trump was communicating with Eastman in order to help Trump commit at least two federal felonies: conspiracy to defraud the United States and obstruction of a Congressional proceeding.

The judge held a hearing on the attorney-client privilege issues on March 8, and on March 9 ruled that he will review the documents to determine whether any privilege applies. The judge may order that the emails be turned over for other reasons, including that there was not a true attorney-client relationship between Trump and Eastman. But even if the judge does not rule that the crime-fraud exception applies, the implications for the criminal case are clear. Government attorneys have, for the first time, told a federal judge they believe Trump himself may have committed crimes in connection with January 6.

LIkely Criminal Referral of Trump

It now seems almost certain that the House Committee will make a criminal referral of Trump to the Department of Justice. In terms of possible crimes by Trump, attention seems to be coalescing around the two charges contained in the Eastman pleadings: conspiracy to defraud the U.S. and obstruction of Congress. In a recent “prosecution memo” published on Just Security, law professor and former U.S. Attorney Barbara McQuade argued for the application of those same charges to Trump’s efforts to overturn the election.

Conspiracy to defraud the United States prohibits interfering with lawful functions of the federal government by deceit, trickery, or other dishonest methods. It was the charge used by special counsel Robert Mueller to indict the Russians accused of interfering with the 2016 presidential election through phony social media campaigns and other methods. Obstruction of Congress is the charge discussed above, that was recently called into question by Judge Nichols.

A Congressional referral to DOJ does not mean DOJ must prosecute; Garland will still have to make that decision. And despite the Committee’s bipartisan makeup, any referral will be dismissed by many as merely political. But any formal announcement that a Congressional committee believes the former president committed crimes would still be a significant development.

The Civil Lawsuits        

A final important recent development related to January 6 involves civil suits filed by Members of Congress and Capitol Police officers against Trump and others. The plaintiffs sued Trump, the Proud Boys, the Oath Keepers, Rudy Giuliani, Donald Trump Jr., and others, seeking damages for their physical and emotional injuries stemming from the assault. The defendants moved to dismiss the lawsuits on a number of grounds. On February 18, U.S. District Judge Amit Mehta ruled the lawsuits can go forward against Trump and the militia groups, although he dismissed the cases against Giuliani and Donald Jr.

These are civil suits for damages, so they will not result in any criminal charges. But Mehta’s opinion is worth a read for the detail it provides about Trump’s encouragement and incitement of the Proud Boys, Oath Keepers, and others who engaged in the riot. Notably, he concluded that the plaintiffs, at this stage, have alleged evidence sufficient to demonstrate a civil conspiracy between Trump and the rioters to obstruct the Congressional proceeding. Mehta cited all the steps that Trump took to encourage the rioters to attend on January 6 and try to stop Congress from acting. He noted that Trump’s repeated use of the word “we” during his speech to the mob on January 6 suggested they were engaged in an enterprise together.

Mehta also observed, when discussing the Oath Keepers, that evidence of their connection to Roger Stone may end up being significant in terms of proving a larger conspiracy. As discussed above, this could be true for the criminal investigation as well.

The civil lawsuits will now proceed to the discovery phase. That could unearth yet more information about January 6 and could include efforts to take depositions from Trump himself. Proving a civil conspiracy by a preponderance of the evidence is a far cry from proving a criminal one beyond a reasonable doubt. But the facts all overlap, and the different lawsuits and investigations have the potential to help unearth more of those facts.

Garland Reaffirms DOJ’s Commitment

Attorney General Garland gave an interview just yesterday on NPR, where he reaffirmed his commitment to follow the facts and law wherever they lead and said he would not shy away from cases that may be politically controversial. He vowed the investigation will continue “until we hold everyone accountable who committed criminal acts with respect to January 6.” I take him at his word, and I think the signs we are seeing are consistent with his vow.

Things are definitely heating up. Between the DOJ criminal investigations, the House Committee investigation, and the civil lawsuits, it looks like 2022 will be an eventful year when it comes to holding accountable those responsible for the attempt to overthrow the election.

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The Bonnie and Clyde of Crypto Laundering

Last week the Department of Justice arrested a husband and wife, Ilya “Dutch” Lichtenstein and Heather Morgan, and charged them in a massive cryptocurrency money laundering case. The government alleges the defendants were involved in laundering Bitcoin that was stolen in a 2016 hack of Bitfinex, a virtual currency exchange. At the time, the stolen Bitcoin was worth about $71 million; today it would be worth about $4.5 billion. DOJ also announced that law enforcement had seized about $3.6 billion of the stolen cryptocurrency, the largest financial seizure in the Department’s history.

Last October Deputy Attorney General Lisa Monaco announced the formation of the National Cryptocurrency Enforcement Team to strengthen DOJ’s ability to pursue and disrupt criminal activity in the crypto markets, including money laundering. This case is significant evidence of DOJ’s growing ability to trace illegal activities that use blockchain technology. Those who thought crypto markets and blockchain provide a safe haven for criminal activity may need to think again.

These defendants are not charged with the Bitfinex hack, only with the subsequent laundering of a portion of the stolen Bitcoin. Whether they were involved in the actual hack, and whether there are others involved in the attempted laundering, are just a couple of the questions left unanswered by the court filings thus far. It will be interesting to watch this one unfold.

Lichtenstein and Morgan
Lichtenstein and Morgan

Facts of the Case

Lichtenstein, 34, is a citizen of both Russia and the United States. He works as an entrepreneur and technology investor; one of his early companies was supported by the prestigious start-up funder Y-combinator. His wife Morgan, 31, is a U.S. citizen. She apparently wears many hats, promoting herself as an economist, entrepreneur, writer, rapper, artist, and social-media influencer. In a nice bit of irony, she once wrote an article for Forbes magazine about how to protect your business from cyber-criminals. At the time of their arrest the couple were living in Manhattan.

Bitfinex is a large virtual currency exchange, or VCE – a business that allows customers to buy, sell, and trade cryptocurrencies. In 2016, a hacker breached Bitfinex’s system and ultimately stole nearly 120,000 Bitcoin. The stolen Bitcoin were transferred to a digital wallet – basically a secure online account —  that, at least at the time of his arrest, was under Lichtenstein’s control. Starting in 2017, about 25,000 of the stolen Bitcoin were then transferred out of that wallet in a series of complicated transactions, with some of it ultimately ending up in accounts controlled by the defendants.

The criminal complaint alleges the defendants used a variety of methods to move the cryptocurrency around and ultimately have it end up under their control while trying to conceal its origins. These techniques included using computer programs to engage in thousands of transactions between multiple accounts; depositing and then withdrawing the funds at a variety of different VCEs and “dark web” markets; using accounts opened in the name of businesses and fictitious people; converting the Bitcoin to other cryptocurrencies that provide additional anonymity; and splitting large transactions into many smaller ones. Ultimately, according to the complaint, law enforcement traced the stolen funds through thousands of transactions to over a dozen different VCE accounts controlled by the defendants.

The complaint also recounts how on several occasions VCEs the defendants were using questioned them about the source of their funds, pursuant to various “know your customer” (KYC) and anti-money laundering (AML) obligations. The defendants allegedly lied, claiming the funds were the result of their legitimate investment and business activities or, in Morgan’s case, that the Bitcoin was a gift from her husband. On a few occasions, when the defendants could not provide satisfactory answers or when the true owners of accounts involved in the scheme could not be verified, the VCEs froze those accounts. This allowed law enforcement to later seize the funds, and likely directed their attention to these defendants.

In January of 2022, law enforcement officers used a search warrant to obtain access to Lichtenstein’s cloud storage account. They recovered an encrypted document that contained a list of 2,000 virtual currency addresses (basically online account numbers), along with the private keys to unlock those accounts. Virtually all of those accounts ended up being linked to the 2016 Bitfinex hack. In particular, the list included the information required to access the original wallet where the stolen Bitcoin was moved when the hack first took place. This allowed the government to seize that wallet and recover the $3.6 billion in Bitcoin that still remained there. The list also included accounts that different VCEs had frozen and that law enforcement has linked to the 2016 hack, with a notation “frozen” next to them.

The Charges

The complaint charges the defendants with one count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), and one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371.  The money laundering charge carries a maximum penalty of twenty years in prison, and the 371 conspiracy charge carries a maximum penalty of five years.

These are just the charges in the complaint to support the arrest warrant. Once the case is indicted, it’s likely prosecutors will add additional charges.

The government chose to arrest the defendants based on a complaint, rather than waiting until the case was indicted and issuing arrest warrants at that time. That was likely due to a desire to have the defendants detained as soon as possible to ensure they did not flee the country. Under the Speedy Trial Act, the government will now have thirty days from the date of arrest to obtain an indictment.

Money Laundering Basics

I’ve written about the basics of money laundering before, including posts here and here. The crime takes different forms. But the activity alleged in this case is heartland money laundering: taking “dirty” money and trying to clean it up so you can spend it without arousing suspicion. The blockchain technology is relatively new, but the basic laundering techniques are familiar.

(And as my students will attest, I can’t talk about the basics of money laundering without linking to the classic explanation by noted expert Saul Goodman.)

This kind of laundering charge requires the government to prove four elements:

1) The defendant conducted a financial transaction;

2) The defendant knew that the property involved was proceeds of criminal activity, or “dirty money”;

3) The property being laundered was in fact proceeds of a “Specified Unlawful Activity” (which includes a long list of federal crimes); and

4) The defendant knew the transaction was designed, in whole or in part, to conceal the nature, location, source, ownership, or control of the illegal proceeds.

In this case, the various transfers of Bitcoin and other cryptocurrencies through different accounts would constitute financial transactions. It appears that, by tracing the transactions back through the blockchain, the government can prove that the Bitcoin involved in at least some of those transactions was in fact taken in the Bitfinex hack. That would make it proceeds of an SUA, in this case wire fraud or the computer fraud and abuse act. That takes care of elements one and three. This case is likely to hinge, as so many do, on the evidence of the defendant’s knowledge – elements two and four.

The nature of the transactions would be substantial circumstantial evidence of an intent to conceal the nature, origin, and ownership of the proceeds. Just as when traditional money launderers run their funds through multiple bank accounts in different countries owned by shell corporations, the unnecessarily complicated transactions demonstrate a desire to make it difficult to determine where the funds originated. There’s generally no legitimate reason for such convoluted transactions, and so the very fact that the defendant engages in them is circumstantial evidence of intent to conceal.

The one element where the complaint is a bit light is the evidence that these defendants knew the Bitcoin in question was criminal proceeds. The complaint doesn’t allege they were involved in the initial hack, which would of course give them the requisite knowledge. It says the stolen Bitcoin ended up in a wallet ultimately controlled by Lichtenstein, but doesn’t specify exactly how that happened. When it comes to Morgan in particular, the evidence of her knowledge is actually quite thin. She may be able to defend by basically blaming everything on her husband.

The government is going to have to prove the defendants knew they were dealing with stolen Bitcoin. Once again, the convoluted nature of the transactions themselves can be circumstantial evidence of that knowledge. And clearly they knew the Bitcoin did not just magically appear in their accounts. Their lies to various currency exchanges about the origin of the crypto would be further circumstantial evidence of their knowledge that the money was dirty. And if necessary the government can rely on willful blindness to argue that the defendants deliberately closed their eyes to the fact that the Bitcoin in question was criminal proceeds.

The Conspiracy to Defraud the United States

The second crime charged in the complaint is conspiracy to defraud the United States in violation of 18 U.S.C. § 371. There’s no allegation of a monetary loss to the United States, which would be required for a traditional fraud. But this charge is based on the legal doctrine that one can conspire to defraud the United States by conspiring to impair, obstruct, or defeat the government’s lawful functions. This is the theory that was used, for example, to charge the Russians who conspired to interfere with the 2016 presidential election through social media and other methods – they were charged with conspiring to defeat the lawful functions of DOJ, the State Department, and the Federal Election Commission.

The theory here is that by lying to various virtual currency exchanges, opening accounts in fake names, and through their other laundering activities, the defendants impeded the lawful functions of the Treasury Department to monitor and maintain the integrity of the nation’s financial system and combat criminal activity. Bringing this charge strikes me as a little odd, because it is basically redundant of the money laundering charge – all money laundering, by definition, is designed to defeat those lawful government functions. I’m not clear why the government thought it needed to add this charge.

I’ll be watching to see if prosecutors expand on this theory once the case is indicted, or if the charge ends up getting dropped.

Protect your Passwords!

One surprising aspect of this case is how the government finally cracked it open. When announcing the charges, the government rightly trumpeted its impressive ability to trace thousands of complex transactions on the blockchain. But their big break in the case came from an old-fashioned source: a screw-up by the defendant. A search warrant of Lichtenstein’s cloud storage account discovered his spreadsheet listing all the crypto account addresses and private keys. That was what ultimately allowed the government to link the defendants to most of these accounts, including the one that still held $3.6 billion of the stolen Bitcoin.

This document was a classic “smoking gun” and finding it was a lucky break for the government. Even I, with my limited Boomer-era knowledge of crypto and blockchain technology, know that you never leave your wallet and key information in a cloud document that someone else might be able to hack. This is sort of the digital equivalent of the masked bank robber who hands the teller a stick-up note written on the back of one of his own business cards.

Okay, true, the file was encrypted, so it’s not quite that bad. But still, for someone as tech-savvy as Lichtenstein, this can only be considered a serious security breach and a real bone-headed move – one that will end up being very costly for him and his wife.

The Crypto Launderer’s Dilemma

Deputy Attorney General Monaco, when announcing the arrests, highlighted another important aspect of this case. The VCEs the defendants used in their alleged laundering activities are financial institutions subject to federal regulations, including AML and KYC rules. The defendants could move cryptocurrency around freely on the dark web and between different unhosted wallets, but ultimately if they wanted to cash out and convert it to dollars or other more readily-usable currencies, they had to deal with one of these regulated VCEs. And it was those VCEs, seeing to comply with AML and KYC rules, that led to some of the accounts being frozen and ultimately led law enforcement to the defendants’ door. As Monaco noted, if the government and reputable financial institutions work together, they can defeat a lot of attempted laundering activity.

Despite the new technology, therefore, these defendants still faced the classic money launderer’s dilemma: you can just sit on your money, but what fun is that? If you want to actually spend and enjoy it, at some point your activity will be detected. Indeed, this is the entire point of the crime of money laundering: trying to figure out a way to do that without attracting attention. Even with the new cryptocurrency technologies, for now, at least, this problem remains for the potential launderer — at least unless and until a lot more online merchants start accepting cryptocurrency as payment.

One of the flowcharts from the criminal complaint showing the path of the proceeds

Things to Watch

There are several interesting things I’ll be keeping an eye on as this case progresses.

Were they involved in the hack? 

The complaint doesn’t allege these defendants were involved in the initial hack that stole the Bitcoin from Bitfinex. It will be interesting to see when more blanks get filled in about the connection between these defendants and the hack itself, and how Lichtenstein ended up getting access to the wallet with the stolen Bitcoin.

One relevant detail is that the hack took place in 2016, which is now outside the five-year statute of limitations. Whoever was involved in that hack – whether it was these defendants or someone else – it may no longer be possible to charge them with that offense.

Why so slow? 

I’m curious why so much of the Bitcoin remained in the original wallet to which it was first transferred, allowing the government to seize back $3.6 billion of it. If the defendants were really aggressively laundering all of the funds, it seems like they could have spread much more of it around into different accounts over the past six years.

The headlines you’ve seen may claim the couple is charged with laundering $4.6 billion in Bitcoin, but the amount they are actually accused of laundering is only a fraction of that. That they may have laundered less than 20% of the stolen Bitcoin is kind of curious. It makes me wonder whether something else was going on – were they working for someone else? Were they authorized to transfer only small portions at a time, perhaps in payment for other services?  There has to be more to this part of the story.

Where Did the Money Go?

Typically in a case like this, you might expect to see the government alleging all of the flashy, expensive things the defendants purchased with their laundered funds – the boats, the art, the fancy cars and homes. There is very little of that in this complaint. There are some references to Lichtenstein using some of the Bitcoin to buy gold and NFTs (non-fungible tokens, a very trendy kind of digital art), but there are few specifics.

The most detailed allegations of where the money went are almost comical: the complaint describe how the defendants used some of the accounts funded with stolen Bitcoin to purchase gift cards for Walmart, Uber, and Play Station worth a few hundred dollars. This is hardly “Wolf of Wall Street” stuff.

According to court papers, there are still hundreds of millions in the stolen Bitcoin that are unaccounted for. Will we learn where it is? Do these defendants have access? The government claims they do – part of the reason prosecutors wanted them detained prior to trial is their fear that, with access to those millions, the defendants might flee the country.

Connecting More Dots

The complaint does a painstaking job of demonstrating that at least some of the crypto stolen in the initial hack ended up in accounts controlled by these defendants. It provides a lot less detail on how that actually happened and who made some of the various transfers. I’ll be watching for the indictment and future court developments to shore up the government’s allegations on this point, including whether any others were involved.

Warren Beatty and Faye Dunaway in 1967’s “Bonnie And Clyde”

Conclusion

This will be an interesting case to watch. I’m struck by the fact that, despite the new technologies involved, the challenges for the aspiring money launderer – and for the government in proving allegations of money laundering — remain largely the same. New wine in old bottles, or something like that.

In the meantime, there’s a Netflix series about the couple already in the works — because of course there is.

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