‘I don’t really care what they use the bitcoin for’
Updated 4:27 pm, Thursday, October 5, 2017
Los Angeles resident Louis Ong is facing federal money laundering charges following allegations that he converted drug money to bitcoin.
Los Angeles resident Louis Ong is facing federal money laundering charges following allegations that he converted drug money to bitcoin.
Photo: Christopher Morris | Corbis | Getty Images
Bitcoin coins are pictured in a file photo. The cryptocurrency generally remains electronic.
Bitcoin coins are pictured in a file photo. The cryptocurrency generally remains electronic.
Photo: ROSLAN RAHMAN | AFP | Getty Images
Stacks of bitcoins sit near green lights on a data cable terminal inside a communications room at an office in this arranged photograph in London on Tuesday, Sept. 5, 2017.
Stacks of bitcoins sit near green lights on a data cable terminal inside a communications room at an office in this arranged photograph in London on Tuesday, Sept. 5, 2017.
Photo: Chris Ratcliffe, Bloomberg
A Seattle sting operation targeting a self-described bitcoin “investor” has netted a host of money-laundering charges against the Los Angeles man.
Federal prosecutors claim Louis Ong took an oversized cut from the hundreds of thousands of dollars he converted to bitcoin, a digital currency increasingly used in markets both legitimate and illicit.
According to investigators’ statements, Ong was caught on tape discussing his need for “plausible deniability” with a Homeland Security Investigations agent posing as a drug trafficker.
Ong was targeted in an extensive sting operation that included several face-to-face meetings with undercover Homeland Security agents. He has since retained Brian Klein, a California defense attorney experienced in bitcoin-related criminal and regulatory matters.
“Louis has pleaded not guilty, and he plans to vigorously defend himself against the charges,” Klein said Thursday.
That Ong was in the bitcoin-to-cash business was not a secret.
Ong spoke candidly about his work with Homeland Security agents months before his July arrest, a U.S. Postal Inspection Service inspector said in a statement to the court. Ong ultimately registered with the Treasury Department at another investigator’s suggestion.
Legal in the United States, bitcoin and other digital currencies are stand-ins for government-endorsed money. Bitcoin is managed through a peer-to-peer network and is widely used in legitimate transactions. Microsoft accepts bitcoin payment for Xbox games.
Bitcoin and other digital currencies are also popular on black markets, including in the drug trade. “Dark web” online markets that enable users to buy drugs by mail run on bitcoin; more traditional drug dealers use the cryptocurrency to transfer their proceeds across international borders.
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Of course, drug traffickers have had little trouble using brick-and-mortar banks.
HSBC paid a $1.9 billion fine in 2012 for accepting billions in deposits from narcos and terrorists. The Justice Department opted not to prosecute the British bank because doing so might have destabilized the financial system. HSBC brass were too big to jail.
Not so for Ong.
Federal prosecutors in Seattle claim Ong offered to launder money for undercover agents posing as drug traffickers on six occasions. He is alleged to have done so even after he registered with Treasury’s Financial Crimes Enforcement Network and state regulators.
The investigation that would see Ong arrested began in December, when a Homeland Security Investigations agent in Seattle responded to an advertiser offering to buy and sell bitcoin anonymously.
The agent met with the advertiser – Ong – at a Tukwila McDonald’s and traded $12,000 for bitcoin, the postal inspector said in court papers. Ong took a 7.3 percent cut of the deposit, the postal inspector said, and the remaining bitcoin was deposited in the undercover agent’s virtual wallet.
“Based upon my training and experience, I know that this is a substantially higher service fee than that charged by legitimate, (Treasury Department)-licensed bitcoin exchangers,” the postal inspector said in court papers. The inspector noted service fees at several popular online bitcoin exchanges ranged from .1 percent to 1.5 percent.
In the months that followed, undercover investigators recorded several meetings with Ong. According to charging papers, Ong was caught on tape discussing the need for “plausible deniability.”
“One thing I tell people is I don’t really care what they use the bitcoin for,” Ong told an undercover investigator, according to charging papers. “The only thing is … for me it’s better that I actually don’t know.”
Ong was eventually introduced to the agent’s “boss” – another undercover agent – and insisted he not be told what business they were in, the postal inspector continued.
“Your friends seem to be a bit open about what you do, when there is really no need to be and it can come off as entrapment,” Ong told the undercover agent, according to charging papers.
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While the investigation was ongoing, Ong was questioned by another Homeland Security Investigations agent who happened to spot him sitting in his car feeding money through a currency counter. Ong is alleged to have told investigators that he had received a $45,000 deposit from someone in Arizona.
Investigators say Ong discussed using bitcoin to pass currency into Mexico. Asked whether he would accept “product” – drugs – rather than cash, Ong declined.
Arrested July 21, Ong was indicted the following month on five counts of money laundering and one count of operating an unlicensed money-transmission business. He is alleged to have laundered or attempted to launder at least $290,000.
Writing the court, Klein, Ong’s defense attorney, said he has so far received 1,700 pages of investigatory records related to the investigation.
Ong was released from federal detention. He is scheduled to go on trial in April.
SeattlePI senior editor Levi Pulkkinen can be reached at 206-448-8348 or levipulkkinen@seattlepi.com. Follow Levi on Twitter at twitter.com/levipulk.