United States v. Thomas Costanzo ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 18-10291
Plaintiff-Appellee,
D.C. No.
v. 2:17-cr-00585-GMS-1
THOMAS MARIO COSTANZO,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the District of Arizona
G. Murray Snow, Chief District Judge, Presiding
Argued and Submitted March 3, 2020
Phoenix, Arizona
Filed April 17, 2020
Before: Michael Daly Hawkins, John B. Owens,
and Mark J. Bennett, Circuit Judges.
Opinion by Judge Hawkins
2 UNITED STATES V. COSTANZO
SUMMARY *
Criminal Law
Affirming a conviction on five counts of money
laundering, the panel held that a reasonable trier of fact could
have found beyond a reasonable doubt that the money-
laundering transactions at issue, in which payment was made
via bitcoin, affected interstate commerce in some way or to
some degree, as required under 18 U.S.C. § 1956.
The panel dealt with other issues in a separate
memorandum disposition.
COUNSEL
Daniel L. Kaplan (argued), Assistant Federal Public
Defender; Jon M. Sands, Federal Public Defender; Office of
the Federal Public Defender, Phoenix, Arizona; for
Defendant-Appellant.
Gary M. Restaino (argued), Assistant United States
Attorney; Krissa M. Lanham, Deputy Appellate Chief;
Michael Bailey, United States Attorney; United States
Attorney’s Office, Phoenix, Arizona; Plaintiff-Appellee.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
UNITED STATES V. COSTANZO 3
OPINION
HAWKINS, Circuit Judge:
This appeal involves what would appear to be a
straightforward money laundering transaction with a twist:
payment was made via bitcoin, a form of digital currency
based on mathematical algorithms that is not controlled by
any country, bank, or individual. Appellant contends that
the transfer did not have the requisite effect on interstate
commerce, an element of each of the charged offenses. 1
Because we conclude that the transfer in question, which
involved the use of an Internet or cellular network connected
Personal Computer Device (PCD) to transfer bitcoin
(together with the digital code necessary to unlock the
bitcoin) to the digital wallet of another Internet or cellular
network connected PCD, had the necessary effect on
interstate commerce, we affirm. 2
I. Background.
Around 2014, Thomas Costanzo was residing in Arizona
and making a living selling bitcoin through peer-to-peer
transactions. Operating under the pseudonym Morpheus
1
Appellant was charged with five counts of violating 18 U.S.C.
§ 1956(a)(3)(B), each of which alleged he, “with the intent to conceal
and disguise the nature, location, source, ownership, and control, of
property believed to be the proceeds of specified unlawful activity,”
conducted and attempted to conduct “financial transaction[s] affecting
interstate or foreign commerce involving property represented by a law
enforcement officer to be proceeds of specified unlawful activity.”
2
In a separate memorandum disposition filed simultaneously with
this opinion, we deal with the other issues raised in this appeal, including
evidentiary objections, Guideline calculations and Supervised Release
conditions.
4 UNITED STATES V. COSTANZO
Titania, Costanzo maintained a profile on localbitcoins.com,
a website connecting prospective bitcoin buyers and sellers.
Costanzo was “very enthusiastic” about bitcoin and
promoted it as the “honey badger” of money—the “most
fearless currency” with “no regard for national borders
anywhere” and protected by encryption.
Costanzo’s online profile caught the attention of two
Internal Revenue Service Special Agents who were
investigating the purchase and sale of digital currency to
facilitate illegal activity. Costanzo’s localbitcoins.com
profile stood out to the agents because Costanzo had
significantly more feedback and a higher peer rating than
other users. His profile also advertised, among other things,
that Costanzo was willing to exchange between $15,000 to
$50,000 cash for bitcoin. After finding Costanzo’s profile,
the agents submitted a request for an undercover operation
and, once approved, made contact with Costanzo.
Over the next two years, multiple undercover agents
arranged and completed a series of cash-for-bitcoin
transactions with Costanzo. Special Agent Sergei Kushner
was the first to contact Costanzo by sending a text message
to the phone number listed on Costanzo’s localbitcoins.com
profile. Agent Kushner stated that he wanted to buy $3,000
worth of bitcoin from Costanzo “as soon as possible” but that
he was “stuck in NYC” and would “need a lot more over
[the] next few weeks.” In March 2015, Agent Kushner and
Costanzo met at a coffee shop to complete the contemplated
transaction. During the meeting, Agent Kushner intimated
that the bitcoin he purchased would facilitate illicit activity.
He explained that “discretion” was important, the
government could have issues with the product he imported,
the bitcoin he purchased would be going “south of the
border,” and his business involved picking up product in
UNITED STATES V. COSTANZO 5
Arizona and shipping it to New York in a concealed manner.
Costanzo accepted $2,000 in cash from Agent Kushner and
transferred bitcoin to Agent Kushner’s cell phone.
Agent Kushner and Costanzo met again two months later
to complete another cash-for-bitcoin exchange. During this
meeting, Agent Kushner explicitly told Costanzo that he was
trafficking black tar heroin. Costanzo laughed and replied,
“I know nothing.” Costanzo then went forward with the
arranged transaction. He accepted $3,000 in cash and
transferred bitcoin to Agent Kushner’s cell phone. Agent
Kushner received the bitcoin through the digital wallet
application Mycelium wallet, which also allows users to
communicate via encrypted text messaging. Costanzo had
recommended that Agent Kushner download the application
to facilitate their transactions.
Several months later, Agent Kushner contacted Costanzo
to arrange another bitcoin purchase; this time, however, he
asked Costanzo to meet with his business partner. That
partner, Special Agent Thomas Klepper, then struck up a
texting exchange with Costanzo, who instructed Agent
Klepper to message him through an application that encrypts
messages. When Agent Klepper and Costanzo met in
October 2015, Agent Klepper again discussed the illicit
nature of their business, and Costanzo stated that he “knew,
but [didn’t] want to know.” Agent Klepper then gave
Costanzo $13,000 in cash, and Costanzo transferred bitcoin
to Agent Klepper’s cell phone. The next month, in
November 2015, Agent Kushner met with Costanzo and
exchanged $11,700 in cash for bitcoin. In each instance, the
undercover agents made clear to Costanzo that the purpose
of the transaction was to conceal illegal activities.
By early 2016, the Drug Enforcement Agency Task
Force of the Scottsdale Police Department had joined the
6 UNITED STATES V. COSTANZO
investigation. Detective Chad Martin led the charge. He
independently investigated Costanzo and arranged several
undercover meetings. Detective Martin and Costanzo first
met in September 2016 to exchange $2,000 in cash for
bitcoin. Detective Martin met with Costanzo again in
November 2016 to exchange $12,000 in cash for bitcoin and
in February 2017 to exchange $30,000 in cash for bitcoin.
In April 2017, Detective Martin arranged a meeting with
Costanzo to exchange his largest sum yet—$107,000.
Again, Costanzo accepted the cash and transferred the
bitcoin to a digital wallet through an application on
Detective Martin’s cell phone. Detective Martin expressly
told Costanzo that the cash came from drug operations, but
Costanzo replied that he did not need to know. After the
transaction was complete, Detective Martin gave a signal,
and Costanzo was arrested.
II. Procedural History.
Costanzo was indicted, in relevant part, on five counts of
money laundering predicated on (1) the May 2015 $3,000
transaction with Agent Kushner; (2) the October 2015
$13,000 transaction with Agent Klepper; (3) the November
2015 $11,700 transaction with Agent Kushner; (4) the
February 2017 $30,000 transaction with Detective Martin;
and (5) the April 2017 $107,000 transaction with Detective
Martin. Costanzo entered a plea of not guilty and proceeded
to a five-day jury trial. At trial, the government solicited
testimony and presented documents and audio recordings
establishing Costanzo’s transactions with Agent Kushner,
Agent Klepper, and Detective Martin.
The jury also heard extensive evidence about bitcoin and
the transfer and verification of digital currency: “Bitcoin is
an alternative currency that can be transferred electronically
anywhere in the world with no bank and no government
UNITED STATES V. COSTANZO 7
forms. . . . The Bitcoin network uses state-of-the-art
cryptography . . . [and is] accessible from any Wi-Fi
connection or mobile device.” Bitcoin may be exchanged
either through a commercial exchange, such as Coinbase, or
a direct peer-to-peer network.
To make a peer-to-peer transfer, parties may use digital
wallets on smartphones. QR code is used to scan the public
address needed to transfer bitcoin from the digital wallet on
one phone to the digital wallet on another phone, and the
recipient can then access the bitcoin using a private key.
When a user transfers bitcoin to another user’s digital wallet,
the recipient must “wait a certain amount of time while the
Blockchain . . . confirm[s] all the coins in that . . . block.”
The blockchain—available on Blockchain.info—is the
public ledger containing all transactions that have occurred
on the bitcoin network. A peer-to-peer transfer generally
incurs a “common fee” or “miner transaction fee” associated
with this verification process. And the verification may
occur anywhere in the world. In fact, Detective Martin
retained, and the jury saw, a screenshot depicting the
verification for the uncharged September 2016 transaction
being performed by a node in Germany.
At the conclusion of the prosecution’s case, Costanzo
made a general motion for acquittal. The district court
denied the motion in connection with the five money
laundering charges under 18 U.S.C. § 1956(a)(3)(B), and
Costanzo rested.
Ultimately, the jury found Costanzo guilty on all five
counts of money laundering, and the district court imposed
a 41-month sentence followed by 36 months of supervised
release. Costanzo now appeals, arguing that the government
failed to prove that the transactions affected interstate
commerce in any way.
8 UNITED STATES V. COSTANZO
III. Standard of Review.
“We review de novo if there is sufficient evidence of the
interstate commerce element of an offense.” United States
v. Mahon, 804 F.3d 946, 950 (9th Cir. 2015). We view the
evidence “in the light most favorable to the prosecution and
determine whether any rational trier of fact could have found
the essential elements of the crime beyond a reasonable
doubt.” Id. (internal quotation marks and citation omitted).3
IV. Discussion.
To sustain the money laundering charges brought against
Costanzo, the government was required to prove that
Costanzo “conduct[ed] or attempt[ed] to conduct a financial
transaction” with the intent “to conceal or disguise the
nature, location, source, ownership, or control of property
believed to be the proceeds of specified unlawful activity.”
18 U.S.C. §§ 1956(a)(1), (a)(3)(B). A “financial
transaction” is, among other things, “a transaction which in
any way or degree affects interstate or foreign commerce []
involving the movement of funds by wire or other means or
[] involving one or more monetary instruments.” Id.
§ 1956(c)(4).
The “nexus with interstate commerce is both a
jurisdictional requirement and an essential element of the
offense.” United States v. Bazuaye, 240 F.3d 861, 863 (9th
Cir. 2001) (quoting United States v. Ladum, 141 F.3d 1328,
1339 n.2 (9th Cir. 1998)). But the connection need not be
extensive; the prosecution need only show that the
3
The government urges that the proper standard of review is
manifest injustice. We need not resolve this argument because we
conclude that the result is the same under either standard.
UNITED STATES V. COSTANZO 9
transaction affected interstate or foreign commerce “in any
way or degree.” 18 U.S.C. § 1956(c)(4). For example, the
intrastate handoff of cash that ultimately leads to a wire
transfer of credit from a foreign country to the United States
affects interstate or foreign commerce “in any way or
degree.” United States v. Anderson, 391 F.3d 970, 975–76
(9th Cir. 2004); see also United States v. Jenkins, 633 F.3d
788, 804 (9th Cir. 2011) (concluding that “transfer of funds
by wire and writing checks to fund investments and to
purchase vehicles” affected interstate commerce); cf. United
States v. Hanigan, 681 F.2d 1127, 1131 (9th Cir. 1982)
(explaining that the term “commerce” is not limited to
“legal” commerce for purposes of Hobbs Act robbery).
We have long recognized that the Internet and the
“nation’s vast network of telephone lines” are
instrumentalities of and “intimately related to interstate
commerce.” United States v. Sutcliffe, 505 F.3d 944, 952–
53 (9th Cir. 2007). Indeed, “‘[t]he Internet engenders a
medium of communication that enables information to be
quickly, conveniently, and inexpensively disseminated to
hundreds of millions of people worldwide’ . . . and is ‘a
valuable tool in today’s commerce.’” Id. at 952–53 (quoting
United States v. Pirello, 255 F.3d 728, 729–30 (9th Cir.
2001)). To that end, we have held that a defendant’s creation
of a website in one state, maintenance of that site in another
state, and evidence that the website was uploaded to servers
in several other states sufficiently proved that the threats the
defendant posted to that site were distributed in interstate
commerce. Id. at 953.
Here, the government presented evidence regarding
Costanzo’s business; his use of global platforms; and the
transfer of bitcoin through a digital wallet, which by its
nature invokes a wide and international network. Costanzo
10 UNITED STATES V. COSTANZO
advertised his business through localbitcoins.com—a
website based outside of the United States. He encouraged
the undercover agents to download applications from the
Apple Store or other similar platforms to facilitate their
communications and transactions. He then utilized those
applications to engage in encrypted communications with
the agents to arrange the transfers. Then, in each transaction,
Costanzo and the agent used those applications on their
smartphones to transfer bitcoin from one digital wallet to
another. Each transaction was complete only after it was
verified on the blockchain. Viewing all of this evidence in
the light most favorable to the government, we are satisfied
that the evidence is sufficient for some trier of fact to find
the “minimal” interstate commerce nexus required under
§ 1956. See Bazuaye, 240 F.3d at 865.
V. Conclusion.
Viewing the record evidence here in the light most
favorable to the prosecution, a reasonable trier of fact could
have found beyond a reasonable doubt that the transactions
affected interstate commerce in some way or to some degree.
We, therefore, must affirm.
AFFIRMED.