Per a report from the U.S. Department of Justice, two individuals were sentenced to jail for running a money laundry and marijuana business using Bitcoin. The individuals were identified as Kenneth Warren Rhule (28) and Kenneth John Rhule (48), a father and his son, originally arrested in Washington.
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Following an investigation by the Department of Homeland Security and the Drug Enforcement Agency (DEA), the individuals were captured and sentenced to 5 years in prison. The Rhules were charged with conspiracy to manufacture and distribute marijuana and for running an illegal Bitcoin exchange.
U.S. Attorney Nick Brown said the following on the case:
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.
The court claims the Rhules ran an illegal business of relevant size and were in the possession of firearms to protect it. This contributed to the final ruling and sentence. Brown added:
When law enforcement moved in there were more than a dozen firearms – some loaded and ready to be used to protect their drug trade (…). The state has set up a regulatory framework to serve many important purposes, including ensuring the safety of those who produce and consumer marijuana products.
The U.S. law enforcement agencies conducted an investigation on the Rhules in April 2018. At the time, they were able to infiltrate and gained more data on the laundry and marijuana business with an undercover agent.
This person met with Rhule junior at several locations, but “primary Starbucks coffee shops”. The undercover agent posed as the owner of a client in need to launder funds obtained by running a human trafficking business.
The DOJ report claims Rhule agreed to exchange cash from this operation for Bitcoin without asking the undercover agent for the mandatory Know Your Customer (KYC) information. In addition, Rhule provided the agent with advice on BTC and other cryptocurrencies with the intention of hiding money from the authorities.
The authorities claim Rhule exchanged as much as $142,000 for the undercover agent. This adds to the $13 million in sales generated for their illegal marijuana business which was sold for cash or cryptocurrency to “customers nationwide”.
The father and son manufactured various marijuana products, including oils and others, with no license from the state of Washington. The products were sold under the brand HerbinArtisans. U.S. Attorney Brown concluded the following on the case:
The state is also, of course, entitled to tax the marijuana industry. Yet the defendants ignored all this. Perhaps, as is so often true in fraud cases, they were motivated by simple greed. But in running their business in this way, they put a lot of people at risk, and disadvantaged others in the industry who chose to play by the rules.
The case, arrest, and subsequent sentence go to show why cryptocurrencies, digital assets with an open and public database, are incompatible with illegal activities. These networks could facilitate the authorities’ capacity to collect evidence.
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