Jonathan Lopez

Partner

Washington, D.C.


Read full biography at www.orrick.com
Jonathan is an accomplished trial attorney who represents individuals and businesses in government enforcement actions, congressional inquiries, internal investigations and with compliance advice.

Jonathan has specialized expertise in white collar matters with extensive experience in Bank Secrecy Act, FCPA, and financial fraud investigations. Jonathan is regularly called upon to lead representations in high profile and high stakes settings and has the rare distinction of successfully first chairing both an Enron case and an FCPA case at trial.  

Jonathan comes to Orrick after having spent over 11 years at the Department of Justice serving in a number of capacities including as an inaugural Deputy Chief of DOJ's Money Laundering & Bank Integrity Unit, a Senior Trial Attorney in DOJ's Criminal Fraud Section, an attorney adviser in the Office of Legislative Affairs and as an Assistant United States Attorney in Miami, Florida.   

Jonathan has a deep understanding of how the Department of Justice operates internally and externally, in particular with other federal agencies such as the SEC, Treasury/FinCEN and the State Department, as well as with state and international law enforcement.  

As a result of Jonathan’s wide range of government and private practice experience, Jonathan brings a unique and well-rounded perspective with which to assist clients. He is regularly asked to speak at national conferences on anti-corruption, anti-money laundering, personal liability, and responding to DOJ investigations. 

Jonathan graduated from Georgetown University Law Center and received his undergraduate degree from UCLA. Jonathan is currently an adjunct professor at Georgetown University Law Center where he teaches a class on Federal Criminal Trial Strategy.

Posts by: Jonathan Lopez

FinCEN Shows a Little Bite to Go with Its Bark

Last week, the Financial Crimes Enforcement Network (FinCEN) backed up its strong public statements about enforcing the anti-money laundering (AML) laws with respect to cryptocurrency by bringing an enforcement action against an individual for violating the Bank Secrecy Act (BSA).

FinCEN, a bureau within the U.S. Department of Treasury tasked with safeguarding the financial system from illicit use and combating money laundering, has not been shy about expressing interest in blockchain and cryptocurrency issues. In a recent speech, Director Kenneth A. Blanco explained that “FinCEN has been at the forefront of ensuring that companies doing business in virtual currency meet their AML/CFT obligations regardless of the manner in which they do business.” He added that FinCEN “will continue to work with the SEC and CFTC to ensure compliance in this space and will not hesitate to take action when we see disregard for obligations under the BSA.” But FinCEN enforcement actions involving cryptocurrency activities have been infrequent. Since its landmark action against Ripple Labs in 2015, FinCEN’s only enforcement proceeding in this area was brought in 2017 against virtual currency exchanger BTC-e and its owner.

That changed last week when FinCEN assessed a civil penalty against Eric Powers, a “peer-to-peer exchanger” of virtual currency, for violations of the BSA. In agreeing to pay a $35,350 penalty, Powers admitted that he willfully violated the BSA by failing to (i) register as a money services business (MSB), (ii) implement written policies and procedures for ensuring BSA compliance, and (iii) report suspicious transactions and currency transactions.

The Powers action does not provide much insight into one of the more difficult questions a company whose business involves virtual currency faces: whether it qualifies as an MSB that is subject to the BSA. FinCEN guidance from 2013 indicates that the BSA generally will apply to “exchangers” and “administrators” of convertible virtual currencies. Unlike many virtual currency companies, Powers seems to have clearly fit within FinCEN’s definition of an exchanger – through online postings he advertised his intention to purchase and sell bitcoin for others, and he completed purchases and sales by delivering or receiving currency in person, through the mail, or via wire transfer. But in establishing that the BSA applied to Powers, FinCEN leans heavily on the 2013 guidance. That guidance in many ways is imprecise or unclear and it continues to create uncertainty as blockchain technology and virtual currency business models continue to evolve. But the Powers assessment confirms that other entities operating in the cryptocurrency space nevertheless should continue to evaluate their BSA obligations through the lens of that guidance to the extent possible.

Unlike those assessed against Ripple and BTC-e, the financial penalty assessed against Powers was relatively small. This might be because Powers was a natural person (potentially with a lesser “ability to pay” than larger incorporated entities), conducted a fairly small-scale operation, and paid larger sums as part of an earlier civil forfeiture action brought by the Maryland U.S. Attorney. While those considerations warranted a lesser penalty in Powers’s case, FinCEN very well could apply the same law, guidance, and reasoning underlying the assessment to more extensive cryptocurrency operations. Director Blanco’s recent comments regarding FinCEN’s priorities and this latest enforcement action suggest that FinCEN likely will do just that. In other words, we wouldn’t be surprised if FinCEN brings more enforcement actions – levying more severe penalties – to enforce the BSA in the cryptocurrency industry. Persons and entities operating in this industry thus should focus on assessing their potential BSA obligations early and take affirmative steps to comply if required.

Appellate Court – Selling Bitcoin in Florida Requires a Money Services Business License

Following a recent opinion by a Florida appellate court, virtual currency dealers who do business in, from, or into Florida – even individuals in the business of selling their own virtual currency for cash – may be required to obtain a “money services business” license from Florida’s Office of Financial Regulation and maintain costly anti-money laundering programs in accordance with Florida and federal law or face criminal penalties.

On January 30, Florida’s Third District Court of Appeal reinstated criminal charges against Florida resident Michell Espinoza for money laundering and “unlawfully engaging in the business of a money transmitter and/or payment instrument seller without being registered with the State of Florida.” State v. Espinoza, No. 3D16-1860, slip op. (Fla. Dist. Ct. App. Jan. 30, 2019). The trial court had previously dismissed the charges against Espinoza, agreeing with his argument that selling Bitcoin does not qualify as “money transmitting” under Florida law because Bitcoin is not “money,” among other reasons. State v. Espinoza, No. F14-2923 (Fl. Cir. Ct. July 22, 2016). The appellate court disagreed and determined that even a person in the business of selling his own Bitcoin for cash is a “money transmitter” and “payment instrument seller” under Florida law and is therefore required to be licensed as a “money services business.”

The charges against Espinoza stem from a sting operation in 2013, in which undercover detectives contacted Espinoza through a Bitcoin exchange site, LocalBitcoins.com. Espinoza posted on that site that he would sell Bitcoins for cash through in-person transactions. Espinoza was not licensed or registered as a “money services business” with Florida or federal regulators. An undercover detective met Espinoza several times and paid him a total of $1500 cash for Bitcoin, earning Espinoza a profit. During those transactions, the undercover detective allegedly made clear his desire to remain anonymous and said he was involved in illicit activity. For example, the undercover detective allegedly told Espinoza that he needed the Bitcoin to buy stolen credit card numbers from Russians.

The Florida appellate court’s determination that Bitcoins are “monetary value” and “payment instruments” under Florida law fits within a line of cases finding that Bitcoin qualifies as “money” for the purposes of money laundering and anti-money laundering laws. For example, in 2014 Judge Rakoff, a United States District Judge for the Southern District of New York, found that Bitcoin clearly qualifies as “money” or “funds” for the purposes of the federal money transmitter statute because “Bitcoin can be easily purchased in exchange for ordinary currency, acts as a denominator of value and is used to conduct financial transactions.” United States v. Faiella, 39 F. Supp. 3d 544, 545 (S.D.N.Y. 2014) (citing SEC v. Shavers, 2013 WL 4028182, at *2 (E.D. Tex. Aug. 6, 2013)). Some states have also codified virtual currency into their anti-money laundering regulations. For example, after the trial court determined that Bitcoin was not a “monetary instrument” that could be laundered under Florida’s money laundering statute, the Florida legislature amended the statutory definition of “monetary instruments” to explicitly include the term “virtual currency.” Fla. Stat. § 896.101(2)(f) (2017). Other states, however, have taken a different approach. Pennsylvania’s Department of Banking and Securities (“DoBS”), for example, recently published guidance that virtual currency, including Bitcoin, is not considered money under Pennsylvania law. “Money Transmitter Act Guidance for Virtual Currency Businesses,” Pennsylvania Department of Banking and Securities (Jan. 23, 2019).

The Florida appellate court found that Espinoza was operating as a “money transmitter” and therefore was a “money services business,” simply by engaging in the business of selling his own Bitcoin for cash and not otherwise acting as a middleman between parties. The trial court had applied the more common and narrow understanding that a “money transmitter” operates “like a middleman in a financial transaction, much like how Western Union accepts money from person A, and at the direction of person A, transmits it to person or entity B,” as explained by the appellate court.

To reach its conclusion, the Florida appellate court looked to the text of Florida’s money services business statute – which the court believes is critically different from federal regulations. Under both federal and Florida state law, a “money services business” is defined to include a “money transmitter.” Compare 31 C.F.R. § 1010.100(ff) with Fla. Stat. § 560.103(22). According to the Florida appellate court, the federal definition of “money transmitter” includes a third-party requirement. Under federal regulations, a “money transmitter” means a person engaged in the “acceptance of currency, funds or other value that substitutes currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.” 31 C.F.R. § 1010.100(ff)(5(i)(A) (emphasis added). In comparison, the Florida statute defines a “money transmitter” as an entity “which receives currency, monetary value, or payment instruments for the purpose of transmitting the same by any means.” Fla. Stat. § 560.103(23). The Florida appellate court found that, in contrast to the federal regulations, the Florida statute’s “plain language clearly contains no third party transmission requirement in order for an individual’s conduct to fall under the ‘money transmitter’ definition” and, as such “decline[d] to add any third party or ‘middleman’ requirement.”

The appellate court’s interpretation of the text of Florida’s statute is disputable. From a statutory interpretation perspective, the middleman requirement is arguably inherent in the plain meaning of the word “transmit,” which is defined by Merriam-Webster as “to send or convey from one person or place to another.” (Notably, Pennsylvania’s DoBS recently issued guidance interpreting the word “transmitting” in a comparable state statute to include a third-party requirement. See “Money Transmitter Act Guidance for Virtual Currency Businesses,” Pennsylvania DoBS (Jan. 23, 2019) (interpreting statute that “[n]o person shall engage in the business of transmitting money by means of a transmittal instrument for a fee or other consideration with or on behalf of an individual without first having obtained a license from the [DoBS]” to impose a third-party requirement).) It would, therefore, be reasonable to interpret Florida’s statute as consistent with federal regulations. Moreover, the Florida appellate court’s interpretation of the statute could have broad and troubling consequences. Although dicta in the Florida appellate court’s decision make it seem like the court is making a distinction between “merely selling [one’s] own personal bitcoins” and “marketing a business,” the court’s statutory interpretation leaves open the possibility that the mere act of selling one’s own property – without registering as a “money services business” – could be a crime.

While we watch to see whether Espinoza will appeal this decision to the Florida Supreme Court, virtual currency dealers should be aware that selling virtual currency in, from or into Florida may require a money services business license and the maintenance of an anti-money laundering program.