In an anonymous letter addressed to PriceWaterhouseCoopers (PWC) , an individual or group of individuals claims to have obtained presidential candidate Mitt Romney’s unreleased tax returns from a PWC office in Tennessee. The letter claims that these documents have been sent in encrypted form to various political offices and news agencies and presents an ultimatum, stating that the release of these documents is dependent upon the transfer of $1,000,000 (worth of Bitcoins) to one of two Bitcoin addresses, one for the encryption key (thereby releasing the returns), and one to withhold the returns.

For the uninitiated reader, Bitcoin is a decentralized peer-to-peer cryptocurrency which facilitates partially anonymous transfer of units of value (known as Bitcoins) between peers through unique Bitcoin addresses. Bitcoins may then be sold for cash through highly liquid exchanges. Aside from the obvious crimes involved with obtaining said documents, the use of Bitcoin for extortion in this context leads to serious legal implications, holding true even if the story proves to be an elaborate hoax.

Bitcoins, along with many “legitimate” uses, enables the easy laundering of funds. The illicit online drugs marketplace “The Silk Road” exclusively uses Bitcoins for transactions. In doing so it employs a proprietary “mixing system” which instills a sense of security in their users, whose sales generate a $6,000/day profit for the sites operators. A “mixing system” is a process by which bitcoins are sent between a number of addresses in an effort to provide some degree of anonymity. Numerous mixing services exists, and nothing within Bitcoin itself prevents users from creating elaborate transactions effectively mixing dirty coins with clean ones. One such service markets itself as a “the world’s most popular Bitcoin betting game” .

Money laundering is a federal crime in the United States, and is defined by Black’s Law Dictionary as “the act of transferring illegally obtained money through legitimate people or accounts so that its original source cannot be traced” (Black’s 9th ed .). State legislation also deals with the issue in the form of the Uniform Money Services Act, and internationally efforts are undertaken by Interpol to police such actions. At this time, it should be noted that enforcement officials have not and may not be required to define Bitcoin as money to pursue these individuals.

The use of Bitcoin complicates the process of tracking these individuals by law enforcement, but it has been demonstrated that the Bitcoin protocol does not provide for entirely anonymous transactions However, elaborate Bitcoin mixing techniques could make it prohibitively expensive for enforcement officials to track down desired indivduals.

It is also plausible that these actions are motivated by a desire to manipulate the Bitcoin market price, regardless of whether or not this is a hoax. Someone holding a large number of Bitcoins would have a strong incentive to create demand for the large number of Bitcoins needed to meet the $1m ultimatum. The Bitcoin/USD exchange rate has historically been very volatile, and an influx of $1m could drive up the price by as much as 25% (other Bitcoin statistics can be found here.)

Hoax or not, the legal implications of this letter are serious and demand attention. The Secret Service is investigating this matter; and for many, this will be the first time they have heard of Bitcoin. The legal questions are many, and we look forward to analyzing the facts surrounding this story as they unfold.

Matthew Elias, Director, Founder

James Woods, Director