June 14, 2022:

A father and son who ran a multimillion-dollar illegal marijuana business in sentenced to five-year prison terms today, on drug and money laundering charges. Gov. charged they laundered money from drug sales using bitcoin and the dark web. This case provides an interesting roadmap for how federal prosecutors may use KYC and money exchanger reporting laws in connection with digital asset money laundering investigations. DOJ Link

According to the DOJ press release: “Not only did this pair produce and distribute marijuana products on the dark web, in violation of the state’s regulatory scheme, they also illegally laundered immense amounts of bitcoin that their enterprise earned” "At various locations–primarily Starbucks coffee shops–in Western Washington, [defendant] met repeatedly with an undercover agent posing as a criminal who needed to launder funds." "[Defendant] offered the undercover agent advice on virtual currency and how to hide the source of the funds [and] ... asked the agent no questions as required under the “know your customer” rule." Appears the government alleged defendant acted as unlicensed money exchanger.

"Even as he was engaged in the operation of the unlicensed financial exchange business, [Defendant] and his father ... were operating a marijuana products business that had no license with the State of Washington and paid no taxes to the state." "Electronic messages reviewed in the case indicate the [Defendnats] sold various marijuana products for cash or cryptocurrency to customers nationwide." "The investigation revealed that the Rhules made over $13 million is sales from their business with a net profit of $2.5 million."